NAHC National Atlantic Hldgs Corp (MM)

A.M. Best Co. is maintaining the under review status with negative implications of the financial strength rating (FSR) of B++ (Good) and issuer credit rating (ICR) of �bbb� of Proformance Insurance Company (Proformance). Concurrently, A.M. Best is maintaining the under review status with negative implications of the ICR of �bb� of the holding company, National Atlantic Holdings Corporation (National Atlantic) (both domiciled in Freehold, NJ) [NASDAQ: NAHC]. The decision to maintain the under review status is based on Proformance�s holding company, National Atlantic, entering into a definitive agreement on March 13, 2008 to be acquired by a subsidiary of Palisades Safety and Insurance Association (Berkeley Heights, NJ), a New Jersey licensed insurance exchange. The closing of the transaction is expected to occur in third quarter 2008, and is subject to the approval of National Atlantic�s shareholders, certain regulatory approvals and the satisfaction or waiver of other closing conditions. On November 20, 2007, Proformance and National Atlantic�s ratings were placed under review with negative implications due to the ineffectiveness of certain claims oversight processes with respect to Proformance�s bodily injury claims function and the subsequent deterioration in A.M. Best�s view of its risk-adjusted capitalization. During third quarter 2007, management determined that Proformance�s procedures related to bodily injury claims handling and reserving were not applied consistently throughout the organization, which resulted in a $14.3 million increase in loss reserves for third quarter 2007. Consequently, risk-adjusted capitalization declined to a level below the minimum required for Proformance�s ratings. Although A.M. Best previously had contemplated adverse loss reserve development in its assessment of risk-adjusted capitalization, the timing and amount of the reserve strengthening was unexpected. While Proformance has retained an independent claims consulting firm to address these issues, A.M. Best remains somewhat concerned regarding overall management oversight. Accordingly, Proformance and National Atlantic�s ratings will remain under review with negative implications until this transaction is completed, at which time A.M. Best will re-evaluate the ratings. However, failure to complete this transaction will likely result in a downgrade of the ratings. 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.