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A.M. Best Downgrades Ratings of Surety Company of the Pacific

OLDWICK, N.J.-(Business Wire)-October 1, 2008 - A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating (ICR) to “bbb-” from “bbb+” of Surety Company of the Pacific (SCP) (Encino, CA). The outlook has been revised to negative from stable.

The rating downgrades reflect SCP’s significant decrease in surplus during the first half of 2008, historically poor operating performance driven by inadequate pricing levels and heavy expense loads and the lack of financial flexibility as the company is a privately held insurer with very limited access to outside capital.

The nearly 40% decline in surplus through June 2008 was driven by a sizable increase in premium volume, which was in turn driven partially by a recent rate increase and a corresponding increase in the number of in force license bonds. As the majority of SCP’s policies are written on a two-year basis, the resulting unearned premium drag, along with increases in the number of new claims, resulted in a rapid reduction in surplus. As a result, SCP’s risk-adjusted capital position has deteriorated and is not expected to materially improve through internally generated earnings in the medium term. Furthermore, while management is currently reviewing available options to mitigate the current strain on capital, the rating outlook reflects A.M. Best’s concern that SCP may not be able to improve results and capital quickly enough to restore its previously strong capital base.

For Best’s Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

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