Best Assigns ‘A-‘ Rating to Quanta U.S. Operations

January 29, 2004

A.M. Best Co. announced that it has assigned initial financial strength ratings of “A-” (Excellent) to Quanta Specialty Lines Insurance Company of Indianapolis, Ind. and Quanta Indemnity Company of Denver, Colo., with a stable outlook.

Best’s announcement noted that both Quanta Specialty and Quanta Indemnity are indirect, wholly-owned subsidiaries of Quanta Capital Holdings Ltd., “a Bermuda-based holding company, recently formed to provide specialty lines insurance, reinsurance and risk consulting services on a global basis. Both companies were purchased as shell companies in late 2003 and given their current names.”

The two U.S. licensed insurers are joining Quanta Reinsurance U.S. Ltd. (Bermuda) “to focus on underwriting U.S. sourced primary insurance business,” Best continued. “The three companies have formed an intercompany reinsurance pool–effective January 1, 2004–and are rated based on the group’s consolidated financial strength and operating performance. A.M. Best has titled the pooled group “Quanta U.S. Companies”, which is assigned a financial strength rating of ‘A-‘ (Excellent).”

Best said “The ratings reflect the group’s strong initial capitalization–taking into consideration Quanta’s $550 million private equity offering completed in September 2003–its targeted earnings and capital accumulation projections set forth by management and the benefits of having a strong balance sheet, which is unencumbered by debt and prior year reserve liabilities.

“In addition, the ratings recognize the group’s experienced management team, its near-term earnings prospects, the benefits to be derived from its diversified specialty product offerings and the recent price firming throughout the property/casualty insurance markets.”

Best’s report also indicated it had considered “management’s intention to prudently manage and allocate capital in accordance with levels previously discussed with A.M. Best. Furthermore, the ratings acknowledge the group’s strategic importance to Quanta Reinsurance Ltd (Bermuda) the indirect parent within the Quanta Insurance Group, to whom each group/pool member cedes 65 percent of its net written premiums after third party reinsurance. Central to the group’s operating strategies will be its specialty insurance and policies, which will require technical underwriting and risk assessment resources and, in many cases, engineering expertise.”

The announcement noted, however, that “These positive rating factors are offset by the significant challenges and uncertainties associated with newly formed, start-up companies, including the successful execution of its business plans, Quanta’s acceptance among insurance agents and brokers and management’s ability to grow its business profitability. Additionally, unlike some other start-up insurers, the group does not have an established and well-capitalized sponsor(s) capable of providing financial and/or operational support. As with any other newly-formed organization, A.M. Best will closely monitor the group to ensure that targeted results are attained. Moreover, A.M. Best will continue to evaluate the group’s capitalization to ensure capital and surplus are in compliance with A.M. Best’s standards relative to its rating.”

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