DCR Assigns `A-` CPA Ratings to Merchants Mutual Insurance Company and Merchants Insurance Company of New Hampshire.

CHICAGO, July 28 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has assigned a rating of `A-` (Single-A-Minus) to Merchants Mutual Insurance Company (Merchants Mutual) and a rating of `A-` (Single-A-Minus) to Merchants Insurance Company of New Hampshire (Merchants New Hampshire). The rating is based on each company`s expertise in their chosen insurance markets, adequate capital position, conservative investment portfolio, experienced management team, and improving operating performance. The ratings also considers the companies` modest size and scope of operations relative to peers. The rating outlook is stable.

Merchants Mutual is a mutual property/casualty insurer based in Buffalo, N.Y. From 1962-1985, the company owned 100 percent of Merchants New Hampshire, a stock property/casualty insurer domiciled in New Hampshire. In 1985, a portion of Merchants Group, Inc., the holding company parent of Merchants New Hampshire, was sold to the public. Subsequent stock sales have reduced Merchants Mutual`s ownership of Merchants Group to approximately 9 percent.

Merchants Mutual and Merchants New Hampshire have a unique strategic relationship. The companies have a common senior management team as Merchants Mutual management operates Merchants New Hampshire through a management agreement that runs through 2003. Each company focuses on selling personal lines and small commercial lines (companies with less than 25 employees) insurance through the same network of independent agents in 13 states. Merchants New Hampshire is positioned in the market as a preferred carrier, while Merchants Mutual focuses on standard risks. The companies also purchase catastrophe reinsurance on a combined basis.

Merchants Mutual reported assets of $151 million and policyholders` surplus of $45 million at March 31, 1999. Net written premium was $49 million in 1998. Underwriting performance has been favorable in recent years. The combined ratio was 97.6 percent in 1998 and 104.4 percent in 1997. Net income was $10 million in 1998 and $5 million in 1997.

Merchants New Hampshire is a somewhat larger company than Merchants Mutual, with assets of $231 million and policyholders` surplus of $51 million at March 31, 1999. Net written premium was $93 million in 1998. Following several unfavorable years in the mid-1990`s due mainly to adverse loss development on certain classes of commercial business, Merchants New Hampshire has reported improving results in 1997 and 1998. The company`s statutory combined ratio was 107.7 percent in 1997 and 105.1 percent in 1998. Net income was $3 million in 1997 and $7 million in 1998.

While both companies are adequately capitalized, operating leverage and risk-based capital levels are somewhat more conservative at Merchants Mutual relative to Merchants New Hampshire. Merchants Mutual`s ratio of net written premium to surplus was 1.1 times at yearend 1998, and the risk-adjusted capital ratio was 304 percent. Merchants New Hampshire had net premiums to surplus of 1.8 times at yearend 1998 and a risk-based capital ratio of 209 percent.

Investment policy is similar for Merchants Mutual and Merchants New Hampshire, emphasizing high quality and liquidity. Fixed-income securities represent more than 90 percent of each company`s invested assets. Exposure to non-investment grade securities and equities is modest.

For additional information on Merchants Mutual or Merchants New Hampshire visit DCR`s web site at http://www.dcrco.com (Quick Search: Merchants). DCR`s research is also available on Bloomberg at DCR<GO> and First Call`s BondCall Direct/Research Direct at http://www.firstcall.com, as well as through other third-party providers.