AFC Allied Capital Corporation

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of the publicly-traded holding company, Allmerica Financial Corporation's (Allmerica) (NYSE:AFC) (Worcester, MA) property/casualty subsidiaries. Additionally, A.M. Best has affirmed the financial strength rating of B+ (Very Good) of Allmerica's life insurance companies. Concurrently, A.M. Best has upgraded the debt ratings to "bbb-" from "bb+" for Allmerica's senior debt and to "bb" from "bb-" for its capital securities. The debt rating of "AMB-3" on the commercial paper has been withdrawn, reflective of its inactive status. A.M. Best has also assigned issuer credit ratings (ICRs) of "a-" to Allmerica's property/casualty subsidiaries, "bbb-" to the life insurance companies and a "bbb-" to Allmerica. All ratings have a stable outlook. The financial strength rating of Allmerica's property/casualty subsidiaries reflects sound capitalization, stemming from improved operating earnings and the elimination of dividends paid to the parent, Allmerica, to support the life companies. Additionally, the rating recognizes the group's well balanced business composition and geographic diversification, while benefiting from having two well-established regional organizations with long-standing agency relationships and a strong regional market presence. Partially offsetting these factors is the group's elevated, albeit improved underwriting leverage, primarily attributable to dividends paid to Allmerica between 1999 and 2002, which significantly reduced surplus. However, A.M. Best anticipates Allmerica will produce favorable operating earnings and believes its underwriting leverage and capitalization will further improve. The rating of Allmerica's life operations reflects their improved capitalization, despite recent dividends, adequate operating performance and measures to lower the overall risk profile. The life insurance companies have performed to A.M. Best's expectations as they continue to manage the remaining large block of inforce business, which is in run off and is primarily comprised of variable annuities. The upgrading of Allmerica's debt ratings reflects its improved financial leverage and financial flexibility at the holding company since 2003. Allmerica maintains moderate financial leverage with sufficient assets and the recent dividends from the life companies to fund fixed obligations in the near term. A.M. Best expects the cash flows generated from the run off of the life business will be the primary source to fund holding company obligations in the intermediate-term. For a complete list of Allmerica Financial Corporation's financial strength, issuer credit and debt ratings, please visit http://www.ambest.com/press/050401allmerica.pdf. For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.