A.M. Best Expects National Lloyds, American Summit Ratings to Remain Stable After Acquisition

Commenting on the proposed acquisition of Waco, Texas-based National Lloyds Insurance Company and American Summit Insurance Company by Affordable Residential Communities Inc. of Englewood, Colo., A.M. Best Co. said it expects National Lloyds, current financial strength rating (FSR) of “A” (Excellent), and American Summit, current FSR of “B++” (Very Good), will continue to maintain favorable risk-adjusted capitalization and operating performance in line with their respective ratings.

Affordable Residential Communities announced recently it had reached a definitive agreement to acquire all of the stock of NLASCO Inc., a privately held property and casualty insurance holding company and the parent company of National Lloyds and American Summit. Under the proposed transaction, NLASCO’s shareholders, which consist of C. Clifton Robinson and affiliates, will receive $105.75 million in cash and 1,218,880 shares of ARC common stock for a total consideration of $117.5 million.

In addition, ARC announced that it signed an agreement with Flexpoint Fund, L.P., a fund managed by Flexpoint Partners, LLC of Chicago, Ill., pursuant to which it will invest $20 million to purchase common stock of the company at the recent market price, subject to certain anti-dilution provisions.

The transaction is expected to close by the end of the first quarter of 2007, subject to regulatory approval and other required consents.

NLASCO specializes in providing fire and homeowners insurance to low value dwellings and manufactured homes through two insurance subsidiaries, National Lloyds and American Summit. National Lloyds primarily underwrites fire and homeowners insurance to low value dwellings through approximately 4,800 independent agents and is licensed in 18 states. It has a significant presence in Texas with approximately 3,300 independent agent relationships built over the past 40 years.

American Summit primarily focuses on providing insurance products to the manufactured home market and is licensed in 27 states. The insurance companies share common underwriting, claims, administrative and financial management.

A.M. Best said it based its expectations on both companies operating as independent wholly-owned subsidiaries of ARC with the existing NLASCO management and infrastructure remaining in place. Although growth is likely given the strategic opportunities associated with this transaction, A.M. Best anticipates growth will be measured and will not materially increase the overall risk profile of the statutory entities. While ARC maintains a relatively high financial leverage position, the majority of its debt is viewed by A.M. Best as operational given the predominately real-estate based activities of ARC.

In addition it is anticipated that debt servicing requirements will continue to be funded via ARC’s core real-estate operations with minimal impact on the statutory insurance entities. Accordingly, National Lloyds’ and American Summit’s FSRs are unaffected by this proposed transaction.

For the year ended December 31, 2005, NLASCO had direct premiums written of $146.5 million, pretax income of $26.6 million and net income of $17.4 million and at December 31, 2005 had a book value of $71.0 million. For the six months ending June 30, 2006, NLASCO had direct premiums written of $76.0 million, pretax income of $14.6 million and net income of $10.1 million and at June 30, 2006 had a book value of $78.3 million.

Affordable Residential Communities Inc., excluding discontinued operations, currently owns and operates approximately 57,350 homesites located in 276 communities in 24 states. The company said it is focused on the acquisition, renovation, repositioning and operation of primarily all-age manufactured home communities.

Source: ARC, A.M. Best