A.M. Best Removes Ratings of PMA Capital Corporation and Its Subsidiaries From Under Review With Negative Implications

A.M. Best Co. has removed from under review with negative implications the issuer credit rating (ICR) and debt ratings of PMA Capital Corporation (PMA Capital) (Blue Bell, PA) [NASDAQ: PMACA] following completion of the sale of PMA Capital Insurance Company (PMACIC) (Philadelphia, PA), the former run-off operation of PMA Capital. A.M. Best also has upgraded the ICR to "bbb-” from "bb” and debt ratings of PMA Capital.

Concurrently, A.M. Best has removed from under review with negative implications and affirmed the FSR of A- (Excellent) and ICRs of "a-” of PMA Insurance Group (PMA) (Blue Bell, PA) and its pooled members.

Additionally, A.M. Best has removed from under review with negative implications and affirmed the financial strength rating (FSR) of C++ (Marginal) and ICR of "b” of PMACIC following its sale to Armour Reinsurance Group Limited, an indirect wholly owned subsidiary of Brevan Howard P&C Master Fund Limited. Subsequently, the ratings have been withdrawn, and an NR-5 (Not Formally Followed) has been assigned to the FSR and an "nr” to the ICR.

With the exception of PMACIC, all ratings have been assigned a stable outlook. (See below for a detailed listing of the companies and ratings.)

These rating actions follow the close of the sale of PMACIC, which eliminates the uncertainty surrounding ongoing funding requirements for both PMA Capital and PMA, as well as the improved overall capitalization and liquidity across the organization. Under the terms of the sale, PMA Capital was required to contribute cash of approximately $3.1 million at the close of the transaction, while providing a note payable in two installments of $5 million each in 2010 and 2011. Furthermore, PMA Capital provided two contingent capital support agreements to PMACIC that may require PMA Capital to make payments to PMACIC in the event claim payments within the excess workers' compensation and certain excess liability (occurrence) lines of business exceed pre-established limits. Subsequent to the close of the transaction, PMACIC was renamed Excalibur Reinsurance Corporation.

The FSR of A- (Excellent) and ICRs of "a-” have been affirmed for PMA Insurance Group and its following members:

• Manufacturers Alliance Insurance Company
• Pennsylvania Manufacturers’ Association Insurance Company
• Pennsylvania Manufacturers Indemnity Company

The ICR has been upgraded to "bbb-” from "bb” for PMA Capital Corporation.

The following debt ratings have been upgraded:

PMA Capital Corporation—

-- to "bbb-” from "bb” on $54.9 million 8.5% senior unsecured note, due 2018

-- to "bbb-” from "bb” on $45,000 4.25% senior unsecured convertible debentures, due 2022

-- to "bb+” from "bb-” on $64.44 million variable rate junior subordinated debt, due 2033

-- to "bbb” from "bb+” on $10.0 million variable rate surplus note, due 2035

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

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

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.