A.M. Best Affirms and Assigns Ratings to Kanawha Insurance Company; Assigns Issuer Credit Rating To KMG America Corporation.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and assigned an issuer credit rating (ICR) of "a-" to Kanawha Insurance Company (Kanawha) (Lancaster, SC). Additionally, A.M. Best has assigned an ICR of "bbb-" to KMG America Corporation (KMG) (NYSE: KMA) (Minnetonka, MN). All ratings have a stable outlook.

These rating actions reflect KMG's ownership of Kanawha through an acquisition in December 2004. Prior to the acquisition, KMG went through an initial public offering, and the proceeds were used to help fund the acquisition of Kanawha. In addition, KMG demonstrated its commitment to Kanawha with a substantial capital contribution.

The rating affirmations of Kanawha reflect the new ownership and management team, the financial support of KMG and its adequate level of overall risk-adjusted capitalization. Management is utilizing Kanawha's administrative platform as the foundation to build a national group benefits and worksite operation. Furthermore, it is expanding its sales force and broadening its product portfolio. The company has discontinued selling new long-term care policies; however, it will maintain the existing block of this business.

Kanawha's unfavorable operating earnings over the past few years increases the likelihood that its earnings performance will be inhibited near term until Kanawha attains a critical mass in the group and voluntary segments. A.M. Best expects it will take the company some time before these segments gain enough scale to generate appropriate levels of profitability. While Kanawha has added many new sales representatives and is entering new territories, it will likely take time for it to achieve its sales goals.

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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.