A.M. Best Affirms Ratings of Balboa Insurance Group, Newport E&S, Balboa Life and Balboa Life Insurance Company of New York.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a" of the Balboa Insurance Group (Balboa) (Irvine, CA) and Newport E&S Insurance Company (Newport E&S) (Plano, TX). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the ICRs of "a-" of Balboa Life Insurance Company (Irvine, CA) (Balboa Life) and Balboa Life Insurance Company of New York (Balboa Life-NY) (New York, NY). The outlook for all ratings is stable. (See below for a detailed listing of the ratings.)

The ratings of Balboa reflect its solid capitalization, its recent return to underwriting profitability post Hurricane Katrina and the benefits it derives from being part of Countrywide Financial Corporation (CFC) (NYSE:CFC).

A.M. Best also recognizes Balboa's role within CFC (as evidenced by CFC's implicit and explicit support), as well as the strategic importance of the insurance operations as a distribution point and originator of financial products complementing CFC's home lending activities. CFC's support was further demonstrated in 2005 by its willingness to replenish the capital negated by Hurricane Katrina. While Balboa benefits from new business opportunities provided through CFC, it continues to increase the amount of new business it generates through independent financial institutions and strategic partnerships, which have allowed Balboa to begin to alter its long range underwriting strategy and diversify into voluntary placed personal lines business. Additionally, this new growth is being done through long standing agency bases with seasoned books of business, somewhat lowering the risk profile of the new business.

In response to the 2004 and 2005 hurricane seasons and to better manage its catastrophe exposure in 2006, Balboa began non-renewing its voluntary homeowners' business in Florida, and in 2005 entered into a reinsurance agreement to cede its lender-placed flood business and began the process of non-renewing that business. Management's ability to continue to monitor and control its aggregate exposures to wind losses and secure adequate reinsurance is critical. The ultimate cost of reinsurance, the quality of the reinsurers and Balboa's dependence on reinsurance will also play key roles.

Offsetting these positive attributes are Balboa's significant aggregate exposure to catastrophe losses and its elevated underwriting leverage, primarily due to premium growth. Furthermore, while Balboa's shift in its long-range underwriting strategy towards voluntary personal lines products allows for growth at a somewhat lower risk level, voluntary personal lines business, either home or auto insurance, is inherently more volatile and contingent upon weather related events than Balboa's traditional lender-placed business.

The ratings of Newport E&S reflect its strong capitalization and improved operating results. These ratings also recognize the continuity of Balboa's infrastructure and experienced management team, which are the backbone of the Newport E&S operation. Exposure to catastrophic loss accumulation, while a large factor for a property writer in Texas, is partially mitigated by the catastrophe reinsurance support provided by the Balboa Insurance Company (Irvine, CA), which under the terms of the agreement, gives "seasonal" aggregate loss protection to any number of catastrophes. As a single state writer, which supports Balboa's Texas operations by writing excess and surplus lines, Newport E&S is subject to a significant geographic business concentration, thus, making it even more susceptible to catastrophes, local market disruptions and regulatory challenges.

The ratings of Balboa Life and Balboa Life-NY reflect their overall profitable statutory operating performance and favorable consolidated stand-alone risk-adjusted capital levels despite the large dividends recently paid to their parent primarily to support the property/casualty operations.

Impacted by a combination of reduced credit insurance premiums, the planned cancellation of non-profitable lines of businesses and mixed results from several strategic marketing initiatives, Balboa Life and Balboa Life-NY's business profile -- as measured by net premium levels -- has lagged considerably, placing them at a competitive disadvantage among their peers, in A.M. Best's opinion. To improve their business profile and sales growth, management has recently implemented a strategic business plan focused on marketing their current life insurance portfolio primarily to CFC's vast mortgage customer base at point-of-mortgage sale and through direct mail.

The FSR of A (Excellent) and the ICRs of "a" have been affirmed for the Balboa Insurance Group and its following property/casualty members:

* Balboa Insurance Company

* Meritplan Insurance Company

* Newport Insurance Company

The FSR of A (Excellent) and ICR of "a" have been affirmed for Newport E&S Insurance Company.

The FSR of A- (Excellent) and ICRs of "a-" have been affirmed for Balboa Life Insurance Company and Balboa Life Insurance Company of New York.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.