A.M. Best Upgrades and Assigns Ratings to Eastern Alliance Insurance Group; Assigns Rating to Eastern Insurance Holdings, Inc.

OLDWICK, N.J. -- A.M. Best Co. has upgraded the financial strength rating (FSR) to A- (Excellent) from B++ (Very Good) and assigned issuer credit ratings (ICR) of "a-" to Eastern Alliance Insurance Group (EAIG). The ratings reflect the combined results of Eastern Alliance Insurance Company (EAIC) and Allied Eastern Indemnity Company (AEIC), which operate under an intercompany pooling agreement. Concurrently, A.M. Best has assigned an ICR of "bbb-" to Eastern Insurance Holdings, Inc. (EHI) (NASDAQ:EIHI), a newly formed holding company. The outlook for all ratings is stable.

The ratings recognize EAIG's excellent capitalization, improved underwriting profitability and diversified organizational structure providing multiple revenue streams. Partially offsetting these positive factors is adverse loss reserve development that occurred in earlier accident years, as well as the group's geographic and product concentration, which potentially exposes it to increased risk of regulatory or legislative changes. Despite these concerns, the rating outlook is supported by the focused underwriting and increased conservatism in the reserve base, which in turn have improved overall capitalization.

Eastern Holding Company Ltd. (EHC) and Educators Mutual Life Insurance Company (Educators Mutual) have entered into a definitive agreement with the adoption by Educators Mutual of a related plan of mutual to stock conversion. Under the agreement and the plan, Educators Mutual converted from mutual to stock form and became a wholly-owned subsidiary of the newly formed holding company, EHI. Upon closing, EHI exchanged cash and common stock for the outstanding shares of stock of EHC. Completion of the conversion was conditioned upon the simultaneous acquisition of EHC and its subsidiaries by EIHI. EHC had $1.75 million outstanding on a line of credit, which is intended to be paid in full utilizing the proceeds of the offering. Additionally, EHC maintains trust preferred securities, which are redeemable at par on May 15, 2008. The company plans to retire the trust preferred securities on that date.

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