Fitch Affirms PMA's Ratings; Outlook Stable.

CHICAGO -- Fitch Ratings has affirmed the issuer default rating (IDR) and senior debt rating of PMA Capital Corp. (PMA) at 'BB-' and 'B+' respectively. Fitch also has affirmed the insurer financial strength (IFS) ratings of the three active primary insurance subsidiaries collectively referred to as PMA Insurance Group, (PMAIG): Pennsylvania Manufacturers Association Insurance Company (PMAIC); Pennsylvania Manufacturers Indemnity Company (PMIC); and Manufacturers Alliance Insurance Company (MAIC) at 'BBB-.' Lastly, Fitch has affirmed the 'B-' IFS rating of PMA Capital Insurance Company's (PMA Re) run-off reinsurance subsidiary. All Rating Outlooks are Stable.

PMA's rating affirmation follows the Pennsylvania Department of Insurance's (PA DOI) approval of a $73.5 million extraordinary dividend from PMA Re to PMA. Under the terms of its convertible notes indenture, $35 million will have to be used to buy back existing debt. PMA has agreed with the Insurance Department to use the remaining proceeds to retire additional debt or to provide holding company liquidity. Although this news is very encouraging Fitch notes the current notching is reflective of its new notching guidelines that were issued on Feb. 28, 2006.

Per its 2003 agreement with the PA DOI, PMA Re was not allowed to pay dividends in 2004 and 2005 but is eligible to pay an ordinary dividend or return capital in 2006 only if risk-based capital (RBC) is greater than 225% authorized control level RBC. Fitch anticipates PMA Re's current RBC is approximately 351% of the authorized control level at the end of March 31, 2006.

In addition to adding liquidity at the holding company, the extraordinary dividend will help reduce the almost $189 million of debt outstanding and improve financial flexibility. Fitch anticipates that management will retire the majority of the convertible debt prior to its first put date in 2009 through careful use of dividends from both PMA Re and PMAIG.

PMA Re's insurance liabilities have decreased by over 55% or $860 million since November 2003, when PMA Re was placed into voluntary run-off. Commutations for 2005 totaled just under $90 million for 2005. With the removal of excess capital Fitch anticipates continued commutation activity but expects it will be some time before the book is completely unwound.

Fitch notes it will take time for management to prudently restore the competitive position of PMAIG. However, some signs of restoration are starting to emerge. Renewals for 2005 were up to 76% from 62% and new business written increased to $108.5 million from $46.4 million year-over-year.

As of March 31, 2006, PMAIG had net premiums written of $113.4 million, compared with $105.5 million for the same period in the prior year and a GAAP combined ratio of 102.1%, compared with a 103.4% prior year.

PMA Capital Insurance Company

-- Insurer financial strength affirmed at 'B-'/Stable.

Manufacturers Alliance Insurance Co.

-- Insurer financial strength affirmed at 'BBB-'/Stable.

Pennsylvania Manufacturers Association Insurance Co.

-- Insurer financial strength affirmed at 'BBB-'/Stable.

Pennsylvania Manufacturers Indemnity Co.

-- Insurer financial strength affirmed at 'BBB-'/Stable.

PMA Capital Corp.

-- Issuer default rating affirmed at 'BB-'/Stable;

-- Senior debt rating affirmed at 'B+'/Stable;

-- $57.5 million senior notes, 8.5% due June 15, 2018.

-- $79 million convertible debt, 6.5% due Sept. 30, 2022.

-- $0.7 million convertible debt, 4.25%, due Sept. 30, 2022.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.