Fitch Places Louisiana Citizens' Debt on Rating Watch Negative

as posted at www.marketwatch.com
Mar 8, 2007

CHICAGO, Mar 08, 2007 (BUSINESS WIRE) -- Fitch Ratings has placed the 'BBB' Issuer Default Rating (IDR) of Louisiana Citizens Property Insurance Corporation (LA Citizens) and the 'BBB' underlying ratings on LA Citizens' $978.2 million assessment revenue bonds on Rating Watch Negative.

The Negative Rating Watch reflects increased uncertainty following the recent announcement that, due to computer problems, the company is having difficulty retrieving its last two years (2005/2006) of financial data and has yet to complete its 2005 financial statement audit. At this point in time, it is uncertain to what extent and at what cost the financial information can be reconstructed. Fitch views this as a very unusual event that highlights potentially serious operations risk management issues and corporate governance weaknesses within the company.

Fitch expects to resolve the Rating Watch within the next three to six months. This will follow an assessment of the extent of the problem and management's ability to appropriately remedy any issues without an adverse impact on the ability of the company to service debt. Fitch would view favorably for LA Citizens any support provided by the State of Louisiana, if needed, to the company and/or its debtholders. The State recently demonstrated its willingness to support LA Citizens through legislation that makes use of State surplus funds to provide refunds to policyholders on assessments paid.

Resolution of the Rating Watch will also depend upon Fitch's evaluation of a new management team that is expected to be put in place that includes a new CEO and the adding of a CFO and an internal auditor.

The ratings of LA Citizens' reflect its state-authorized power to assess its assessable insurers as a pass-through vehicle to property insurance policyholders in Louisiana, along with the high credit quality of that assessable insurer base and the general obligation rating of the State of Louisiana (rated 'A' by Fitch). In addition, it is important to note that legislation is in place such that LA Citizens, as a municipality and not an insurance company, is not allowed to declare bankruptcy until two years after all outstanding bonds are retired. Weighted against these positives are the nature of exposure to windstorm catastrophes and the sizable amount of debt-to-service relative to the available amount of emergency assessments, which are the debtholders' primary repayment source.

LA Citizens is a non-profit, tax-exempt entity that provides coverage for those unable to obtain property insurance in Louisiana's voluntary market. The company was created by the Louisiana State Legislature in 2003, effective Jan. 1, 2004, to improve the conditions of the residual insurance market and decrease its competitiveness with the voluntary market. LA Citizens became the administrator for two existing plans - the FAIR Plan and the Coastal Plan.

Fitch has placed the following ratings on Rating Watch Negative:

Louisiana Citizens Property Insurance Corporation

• Issuer Default Rating (IDR) 'BBB';
• $678.205 million assessment revenue bonds, series 2006B, due 2023 at 'BBB';
• $300 million assessment revenue bonds, series 2006C (auction rate), due 2027 'BBB'.

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.

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