A.M. Best Downgrades Ratings of First Sealord Surety, Inc.

A.M. Best Co. has downgraded the financial strength rating to C (Weak) from A- (Excellent) and issuer credit rating to “ccc” from “a-” of First Sealord Surety, Inc. (FSSI) (Villanova, PA). Both ratings remain under review with negative implications.

The rating actions reflect the increased uncertainty that FSSI’s stock purchase agreement with Torus National Insurance Company (Torus) (Wilmington, DE), originally scheduled for January 2011, will close, as well as A.M. Best’s expectation of significant deterioration in FSSI’s financial condition during the fourth quarter of 2011.

The ratings were placed under review with negative implications on December 2, 2011, reflective of a significant decline in the company’s capitalization as of September 30, 2011, which was driven by reserve strengthening on prior accident years and the potential for additional deterioration in FSSI’s financial condition. As a result, the company implemented a quota share reinsurance agreement intended to provide immediate capital relief. FSSI also entered into a stock purchase agreement with Torus, which would have ultimately improved its financial condition.

The ratings will remain under review pending discussions with management to accurately assess the financial condition of FSSI. If the transaction with Torus does not close or other capital replenishment initiatives do not materialize, further negative rating pressure is probable.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; and “A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at http://www.ambest.com/ratings/methodology.