A.M. Best Affirms Rating of American Safety Insurance Holdings and Its Insurance and Reinsurance Affiliates; Revises Outlook to Stable.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) of the insurance and reinsurance operating affiliates of American Safety Insurance Holdings, Ltd. (Bermuda) [NYSE:ASI] The rating applies to American Safety Casualty Insurance Company, American Safety Indemnity Company, American Safety Reinsurance Limited, and American Safety Risk Retention Group, Inc., which is reinsured by and shares common management with the related companies. Concurrently, A.M. Best has assigned issuer credit ratings (ICR) of "a" to these operating affiliates and an ICR of "bbb" to American Safety Insurance Holdings, Ltd. with a stable outlook. The rating outlook for the FSR has been revised to stable from negative.

The ratings reflect the consolidated group's favorable capitalization, profitable overall operating results and effective management of its insurance and investment programs. The ratings further recognize the group's underwriting expertise in its niche markets, the custom designed risk management programs it offers to clients and its commitment to maintaining underwriting discipline. The group and its clients also benefit from dedicated loss control services to improve results.

Partially offsetting these positive factors are variable underwriting results, caused in part from now discontinued or de-emphasized lines of business, and significant reinsurance leverage following several years of considerable growth in business volumes.

ASI's overall balance sheet strength is excellent, as it has been able to secure substantial capital to support its rapid premium growth over the last five years. Through secondary public offerings of stock in 2003 and 2006, as well as trust-preferred securities placements, the group has built a solid capital base to back its premium, reserve and credit risks. Its balance sheet strength is also stabilized by conservatively invested assets and strengthened reserves.

The group's financial leverage remains reasonable for its rating level; however, its sizeable reinsurance recoverables make it vulnerable to credit risks associated with reinsurance recoveries. Nevertheless, the recoverables are not particularly concentrated or risky as they are spread across a large number of reinsurers, many of which are well rated, and ASI has been able to manage these recoveries and obtain collateral from several reinsurers. Further, the group's underwriting results from its core insurance business have improved since 2004 and it is now solely focused on its insurance operations.

The group previously benefited from significant income generated by the now completed Harbour Village real estate project, but it no longer has this income stream to bolster its earnings. ASI's earnings are now clearly derived from its underwriting and investing activities, and it has produced solid underwriting results and earnings recently despite some reserve strengthening.

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

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.