A.M. Best Downgrades Issuer Credit Ratings of the Auto Club Group.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the issuer credit ratings (ICR) to "a" from "a+" and affirmed the financial strength rating (FSR) of A (Excellent) of the three pooled property/casualty insurance companies with The Auto Club Group (ACG): Auto Club Insurance Association (90%), MemberSelect Insurance Company (5%) and Auto Club Group Insurance Company (5%). All the above companies are domiciled in Dearborn MI.

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a" of Auto Club Property-Casualty Insurance Company (ACPCIC) (Bettendorf, IA). The outlook for all ratings is stable.

The ICR downgrades reflect ACG's recent unfavorable underwriting performance, during which over the last three years competition has increased in ACG's territories, most specifically its largest territory, Michigan. Coinciding with the generally softened market conditions, ACG incurred inflated underwriting expenses as the group researched and implemented a new policy administration system, first in their new territories and then in Michigan, which will be completed by the end of 2008. These circumstances along with ACG's prudent decision not to compete on rates until the new systems were in place caused a general decline in premium volume and an increase in combined ratios.

Offsetting these negatives are ACG's consistently favorable operating performance, excellent capitalization and well-established position as a personal lines market leader in Michigan, as well as the benefits derived from offering insurance products to American Automobile Association (AAA) members. All of these strengths, give ACG the ability to undergo the aforementioned system changes while moderately increasing surplus and expanding its market profile.

Somewhat dampening these strengths is ACG's concentration of business in Michigan, which subjects it to unfavorable changes in the regulatory, legal and highly competitive market environment. ACG will be challenged to leverage its new policy administration system to improve its underwriting results in the near to mid term.

ACPCIC's ratings recognize its excellent risk-adjusted capitalization strong liquidity, historically sound operating performance as well as its affiliation with AAA, which provides brand name recognition and access to AAA's broad membership base through an integrated direct marketing platform.

These positive rating factors are partially offset by the company's high underwriting expense position and fluctuating underwriting performance. The current outlook is based on ACPCIC's sound financial position.

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.