Explaining the new insurer financial strength rating assigned for the Harleysville intercompany pool, Mr. Rouck said that typically there is "a three-tick gap" between senior debt ratings and an insurer financial strength rating, which, in case of Harleysville, means an "A" insurer financial strength rating for the newly downgraded "triple-B" debt ratings.

"That's pretty standard with regard to the way Fitch rates companies," he said.

Mr. Rouck noted that the ratings reflect the fact that financial strength ratings "represent much more senior obligations than senior debt ratings. That's the rationale for the difference between these two ratings."

Fitch first assigned senior debt ratings for Harleysville in early 2002. Back then, Mr. Rouck said, "we kind of viewed Harleysville as a regional insurer, a good regional franchise."

The profile of the company, though, is such that in order for the company to be in the "?A-plus' insurer financial strength rating/ ?triple-B-plus' senior debt ratings" type of rating category, "it really has to have what Fitch would consider to be strong underwriting results," he said.

Last year, when Fitch assigned debt ratings, "we kind of thought those underwriting results were there," but Fitch has seen them deteriorate and slip in 2003.

As a result, Mr. Rouck said, Fitch has put the company's profile together with underwriting results that have slipped somewhat during the past year. "It just looks to us that the company's more suited at the "single-A insurer financial strength rating/ straight triple-B senior debt ratings level," he said.

Fitch observed that through the 2003 first nine months, Harleysville reported a 119.4 percent combined ratio, much worse than 101.9 percent reported for the company's full-year 2002 results and 105.2 percent for a five-year average combined ratio through last year.

This year, the company was hurt by $75 million in adverse prior-accident-year reserve additions, mostly in the company's commercial insurance book.

But Harleysville also has much to be proud of. For example, the company still boasts moderate financial leverage, strong risk-based capitalization, and solid relationships with independent agents that distribute its products.

"With regard to moderate financial leverage," Mr. Rouck said, "they don't have a lot of debt at the holding company level, and their interest requirements are really quite low. And it's relatively long-term debt, so from that perspective, they have a favorable capital structure."

Harleysville continues to maintain strong relationships with independent agents. Mr. Rouck added, "They use independent distributions and they are in the small commercial market. It's one of their core markets, and their relationships with their distribution continue to be strong."