Fitch Affirms Exporters’ ‘A’ IFS Rating

June 23, 2004

Fitch Ratings announced that it has affirmed the “A” insurer financial strength rating on Exporters Insurance Company Ltd., a Bermuda-based group captive insurer that focuses on trade credit insurance. The outlook remains negative.

“The affirmation reflects improved operating results as Exporters posted an operating profit in 2003 and in the first quarter of 2004,” said Fitch. “This follows operating losses in 2002 and 2001 that were driven by poor underwriting performance due to several large event losses in the 2001 accident year, related to the financial crisis in Argentina and telecom exposure, which impacted 2002 and 2001 results.”

Fitch indicated that the strong rating “continues to reflect the company’s competitive niche position in offering a valued insurance product, very knowledgeable and experienced management team, conservative investment portfolio, with essentially zero exposure to equities, and increased investment by new and existing members.”

The rating agency also noted that “economic and political environments in many parts of the world have demonstrated improvement in recent periods (with the noted exception of the Middle East, where Exporters has limited exposure), thus resulting in a more stable competitive environment. This follows a difficult period from 2001 and early into 2003 when several significant political and economic events contributed to a slowdown in international trade and an increase in trade credit defaults, forcing several competitors to exit or scale back operations in the credit, political risk, and surety markets.”

This has resulted, said Fitch, in an “insurance market that overall has lower capacity, higher prices, reduced policy limits, and tighter policy terms and conditions. Exporters remains the only stand-alone, separately capitalized player in the market, as all remaining competitors are affiliated with large multi-line insurers.

“The Negative Rating Outlook reflects concerns as to the amount, terms and conditions, and credit quality of reinsurance protection available to Exporters to support its competitive position and enhance its financial strength at an overall reasonable net cost to Exporters.”

It also explained that “under the 2003/2004 reinsurance program (which runs from Sept. 1, 2003 to Sept 30, 2004), Exporters retains $10 million of a $15 million quota share treaty, with an excess cover that provides $5 million protection excess of $5 million for Exporters’ $10 million gross share. The credit quality of the program has slipped in recent years to a weighted average insurer financial strength of ‘A’ (the same as Exporters own current rating) as several reinsurers have suffered rating downgrades and a few of the higher quality reinsurers have either reduced their participation level or withdrawn from the program. Given the amount of reinsurance leverage utilized by Exporters, further deterioration in the quality and/or quantity of the reinsurance program could negatively impact Exporters’ insurer financial strength rating.

“The Rating Outlook also reflects uncertainty in regard to the capital structure of the company, which is currently being reviewed by management and the board. Key goals of a recapitalization are to improve Exporters’ access to capital and increase the liquidity of the members’ investment. Management anticipates that principal changes to the capital structure could be in place as early as this year.”

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