PMIC Penn Millers Holding Corp. (MM)

A.M. Best Co. has placed under review with positive implications the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Penn Millers Insurance Group (Penn Millers), which includes the Penn Millers Insurance Company. Concurrently, A.M. Best has placed under review with positive implications the FSR of B++ (Good) and ICR of “bbb+” of Penn Millers’ wholly owned, but separately rated affiliate, American Millers Insurance Company (American Millers). In addition, A.M. Best has placed under review with positive implications the ICR of “bbb-” of the publicly traded holding company parent, Penn Millers Holdings Corporation (Penn Millers Holdings) (NASDAQ: PMIC). All companies are domiciled in Wilkes Barre, PA.

These rating actions follow the recent announcement that Penn Millers Holdings has entered into a definitive agreement to be acquired by a subsidiary of ACE Limited (ACE) (Zurich, Switzerland) [NYSE:ACE]. ACE has agreed to purchase Penn Millers Holdings for $20.50 per share in cash. The transaction will provide ACE with an established specialty niche business that complements its current agricultural market offerings through the Rain and Hail crop insurance and ACE Westchester excess and surplus business lines. In turn, the transaction will expand Penn Millers’ distribution network for its agricultural related insurance products. While some execution risks exist in integrating Penn Millers into ACE, Penn Millers will be a member of a large, diversified, strongly capitalized and highly rated organization, and the company is expected to realize economies of scale that will lower its elevated expense ratio.

The under review with positive implications’ status is based on the increased financial wherewithal and resources that will be available to Penn Millers as a result of the transaction and its affiliation with ACE, which had total capital of $29.2 billion through the end of second quarter 2011.

The ratings will remain under review pending the completion of the transaction, regulatory approvals and A.M. Best’s discussions with Penn Millers and ACE management. This transaction is expected to close by the end of the first quarter of 2012.

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 “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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