Arrow Reinsurance Company, Limited -- Moody's downgrades Goldman Sachs' insurance subsidiaries' IFS ratings to A3; negative outlook

New York, June 26, 2012 -- Moody's Investors Service has downgraded the insurance financial strength (IFS) ratings of Goldman Sachs Insurance Group's (GS Insurance Group) insurance operating subsidiaries to A3 from A2. See below for a full list of the affected entities. This rating action follows the rating downgrade of its parent, The Goldman Sachs Group, Inc. (Goldman Sachs; GS, senior debt at A3, negative outlook) on 21 June 2012 and concludes the review for downgrade on GS Insurance Group initiated on 22 February 2012. The outlook on all of the GS Insurance Group's ratings is negative.

RATINGS RATIONALE

According to Moody's Assistant Vice President, Shachar Gonen, "The downgrade of the GS Insurance Group entities was driven by the downgrade of their parent company, Goldman Sachs, whose ownership and support provides ratings uplift to the insurance companies' stand-alone credit profile." The Baa1 stand-alone credit profile of the GS Insurance Group entities -- ignoring the explicit and implicit support provided by Goldman Sachs -- remains unchanged and is based on the company's transaction-focused business model, strong capitalization and risk management, and good asset quality. These factors are offset by increased competition from larger or more aggressive companies in the block acquisition business and the complexity of modeling and properly hedging risks.

The rating agency stated that the insurance operating companies' A3 IFS rating receives one notch of uplift due to Goldman Sachs' demonstrated operational and financial support to its insurance subsidiaries, as well as the benefit of keepwell agreements. Moody's expects Goldman Sachs to maintain its level of commitment to the insurance operations, even as it deals with increasing regulatory requirements (Dodd-Frank, Basel III, etc.) and challenging market conditions. However, the GS Insurance Group management team has made progress over the past few years building out its own internal management capabilities, leading to less reliance on Goldman Sachs.

The negative outlook on GS Insurance Group's ratings is aligned with the negative outlook on the parent holding company given the ratings uplift, which reflects Moody's view that government support for US bank holding company creditors is becoming less certain and less predictable, given the evolving attitude of US authorities.

Moody's commented that the following could result in a downgrade of the ratings of the GS Insurance Group entities: (1) a downgrade of the parent, Goldman Sachs, (2) a reduction in the level of parental support including the disposition of the subsidiaries, (3) a material change in the insurance group's business plan, or (4) a drawdown on any of the keepwell agreements. Given the negative outlook, it is highly unlikely that the GS Insurance Group entities' ratings would be upgraded over the near-term. The following could lead to the outlook being moved to stable from negative: (1) the outlook on parent Goldman Sachs' ratings are moved to stable from negative, or (2) an increase in the level of hard capital in the operating companies to a level consistent with an NAIC risk based capital (RBC) ratio of 350% on a sustained basis, and (3) return on capital consistently above 12%.

The following ratings were downgraded with a negative outlook:

Arrow Reinsurance Company Ltd. -- insurance financial strength rating to A3 from A2;

Charleston Capital Reinsurance, LLC -- insurance financial strength rating to A3 from A2;

Columbia Capital Life Reinsurance Company -- insurance financial strength rating to A3 from A2;

Commonwealth Annuity and Life Insurance Company (CALIC) -- insurance financial strength rating to A3 from A2;

First Allmerica Financial Life Insurance Co. -- insurance financial strength rating to A3 from A2.

The principal methodology used in these ratings was Moody's Global Rating Methodology for Life Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

For the first quarter of 2012, Commonwealth Annuity and Life Insurance Company, the largest company in the GS Insurance Group, reported statutory net income of $31 million. As of the end of the first quarter of 2012, Commonwealth Annuity and Life Insurance Company reported capital and surplus of $396 million, and statutory assets of $7.5 billion.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.

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Shachar GonenAsst Vice President - Analyst Financial Institutions Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Robert Riegel MD - Insurance Financial Institutions Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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