A.M. Best Affirms Cologne Re ‘A++’ (Superior) Rating

June 13, 2003

A.M. Best Co. announced that it has affirmed the financial strength rating of ‘A++’ (Superior) of Koelnische Rueckversicherungs-AG (Cologne Re) and its core subsidiaries, with a stable outlook. The affirmation was part of an overall reaffirmation of the ‘A++’ ratings of Berkshire Hathaway’s General Re Group, which Best announced separately

“The rating action reflects Cologne Re’s status as a core subsidiary of its ultimate parent company, General Reinsurance Corporation (General Re), its superior capitalisation and excellent business profile,” said Best. “An offsetting factor is Cologne Re’s recent deteriorated underwriting performance.”

Best noted that “Cologne Re is responsible for writing the majority of the property/casualty business outside North America and the life and health business worldwide. Cologne Re is fully integrated into General Re Group and benefits from explicit reinsurance support through a subsidiary of Berkshire Hathaway, the ultimate parent company of General Re. In addition, General Re has recently announced its intention to acquire the remaining shares of Cologne Re from AXA Versicherung in Germany after which, General Re will own 88.5% of Cologne Re.”

It also indicated that “Cologne Re’s risk-adjusted capitalisation is superior based on A.M. Best’s capital model. Although overall capital levels have declined in the last two years due to adverse development in its underwriting reserves, Cologne Re will maintain its superior risk- adjusted capitalisation due to the explicit reinsurance support provided by its parent.”

The company has an “excellent business profile,” said Best, ranking among the top five in the European non-life reinsurance market, and as the third-largest player worldwide in the life reinsurance market. The rating agency noted, however, that “gross premiums declined by approximately 10% to EUR 4.1 billion (USD 4.8 billion) in 2002 following the company’s ongoing review of its reinsurance portfolio.” Best said it “expects a further decrease in premiums in 2003 as Cologne Re continues its restrictive underwriting strategy.

It also noted that “Cologne Re has recorded overall after-tax losses in two consecutive years. Results for 2002 will be negatively impacted by losses from natural catastrophes such as floods in Central Europe, adverse reserve development from prior accident years and some equity write-downs due to unfavorable development of the capital markets in 2002.”

Best expects at least some of the adverse effects to be offset by the improving profitability figures in the P/C business generally. It sees a combined ratio of approximately 103% in 2003. It also said, “Consolidated technical results in life and health are improving despite the negative effect of lower investment income and the strengthening of reserves for the North American business placed in run-off,” and it expects the company to return to profitability in 2003.

In conclusion Best indicated that it “expects Cologne Re to significantly contribute to General Re’s consolidated earnings in 2003.” It warned that a “failure to do so could put pressure on Cologne Re’s core status.”

The financial strength rating of ‘A++’ (Superior) also applies to the following Cologne Re subsidiaries:
— Faraday Reinsurance Co. Limited
— Cologne Reinsurance Co. (Dublin) Limited
— GeneralCologne Re Rueckversicherungs-AG
— General & Cologne Re Africa Limited
— GeneralCologne Life Re UK Limited
— GeneralCologne Life Re Australia Limited

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