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Fitch Places Allmerica on Rating Watch Positive; Affirms Property/Casualty Subs 'A-'.

NEW YORK -- Fitch has placed the following Allmerica Financial Corporation (AFC) ratings on Rating Watch Positive:

-- Long-term issuer 'BB+';

-- Senior unsecured notes due 2025 'BB+'

Fitch has also placed the 'BB-' rating on AFC Capital Trust I's (AFC Capital) trust preferred capital securities due 2027 on Rating Watch Positive.

Additionally, Fitch has affirmed the 'A-' insurer financial strength (IFS) ratings on AFC's property/casualty subsidiaries. The Rating Outlook on these subsidiaries is Stable. Fitch has concurrently affirmed and withdrawn the 'BB' IFS ratings on AFC's life insurance and annuity subsidiaries (as listed below).

Fitch's rating actions follows AFC's announcement that it has entered into a definitive agreement to sell its variable annuity and variable life business to Goldman Sachs.

Fitch views this transaction as a modest positive for AFC, since it will enable the company to focus its efforts on its property/casualty operations, and removes any lingering doubts about possible cash and capital needs the variable annuity and variable life businesses could impose on the rest of the organization.

Fitch's rating actions also reflect the belief that following the divestiture, AFC's projected interest coverage, capitalization, and organizational structure support more typical notching between the company's property/casualty subsidiaries' IFS ratings and AFC's long-term and debt ratings.

Fitch anticipates upgrading AFC's long-term rating and AFC's senior notes to 'BBB-' and the ratings on AFC Capital's trust preferred securities to 'BB' upon the transactions close, which AFC has said it expects to occur on or after Nov. 30, 2005.

Fitch had revised the Rating Outlook on AFC's and AFC Capital's ratings to Positive on May 6, 2005, reflecting heightened comfort with AFC's ability to generate cash-basis and operating earnings-basis interest coverage from its property/casualty subsidiaries. At that time Fitch's view of AFC's capitalization conservatively assigned little value to the life/annuity subsidiaries beyond their statutory surplus levels.

Fitch has withdrawn the ratings on AFC's life subsidiaries, which are currently in run-off and not writing new business.

The following ratings are placed on Rating Watch Positive:

Allmerica Financial Corp.

--Long-term issuer 'BB+';

--Senior debt 'BB+'.

AFC Capital Trust I

--Capital securities 'BB-;

Fitch also affirms the following IFS ratings with a Stable Outlook:

The Hanover Insurance Company

--IFS at 'A-'.

Citizens Insurance Company of America

--IFS at 'A-'.

First Allmerica Financial Life Insurance Co.

--IFS at 'BB' and rating withdrawn.

Allmerica Financial Life & Annuity Co.

--IFS at 'BB' and rating withdrawn.

Fitch's rating definitions are available on the agency's public web site, Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days. The issuer did not participate in the rating process other than through the medium of its public disclosure.
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Publication:Business Wire
Geographic Code:1USA
Date:Aug 23, 2005
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