A.M. Best Affirms Ratings of Eastern Alliance Insurance Group and Assigns Positive Outlook to P/C Operations.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-"of Eastern Alliance Insurance Group (EAIG) and its members. Concurrently, A.M. Best has affirmed the ICR of "bbb-" of the holding company, Eastern Insurance Holdings, Inc. (EHI) [NASDAQ: EIHI]. The outlook for the above ratings has been revised to positive from stable.

A.M. Best also has assigned an FSR of A- (Excellent) and ICR of "a-" to Eastern Advantage Assurance Company (EAAC), making it a member of EAIG. The outlook assigned to these ratings is positive. All companies are domiciled in Lancaster, PA.

EAIG consists of Eastern Alliance Insurance Company (EAIC), Allied Eastern Indemnity Company (AEIC) and EAAC, and all operate under an intercompany pooling agreement with EAAC recently becoming a member of EAIG.

The ratings recognize EAIG's strong operating results, excellent capitalization and diversified organizational structure, providing multiple revenue streams. EAIG provides specialty workers' compensation products and services to employers in rural and suburban Pennsylvania, Delaware, Maryland and select Southeastern states. The cultivation of a loyal agency base operating in preferred territories has resulted in profitable growth as indicated by the group's five-year average combined ratio, which remains well below the workers' compensation composite average. While the majority of business is written within Pennsylvania, cautious expansion plans into other states somewhat reduce the group's exposure to regulatory changes within any given state. Financial leverage at the intermediate holding company, Eastern Holding Company Ltd. (EHC), is minimal and acceptable for the current rating level. Given the historical profitability and financial flexibility of Eastern Re Ltd SPC in terms of dividend capacity, debt servicing is not expected to be funded via dividends from EAIC, AEIC or EAAC.

Partially offsetting these positive factors is the group's concentration, both geographically and by product line, which potentially exposes it to increased risk of regulatory or legislative changes. Despite this concern, the rating outlook reflects the strong operating results, focused underwriting initiatives and aggressive claims closures, which in combination with conservative reserving practices, have resulted in significant improvement in overall capitalization in recent years.

Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of "a-" of Eastern Life and Health Insurance Company (Eastern Life and Health) (Lancaster, PA). The outlook for both ratings is stable.

The affirmation of the ratings for Eastern Life and Health reflects the parent's agreement to guarantee the liabilities of the company, as well as to maintain a favorable level of risk-based capital. Eastern Life and Health maintains a very strong level of risk-based capital and has enhanced its underwriting methodology and risk selection process, which has contributed to improving loss ratios across its core business lines over the past year. Moreover, the company continues to make progress towards its goal to cross sell products within the other distribution channels of EHI. However, A.M. Best believes that Eastern Life and Health will be challenged over the next few years to further establish its brand name and maintain adequate operating results as more competition begins to target its core markets.

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

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.