A.M. Best Affirms Rating for Imagine Insurance, Assigns Issuer Credit Rating

November 22, 2004

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Imagine Insurance Company Limited (Imagine) (Barbados). Concurrently A.M. Best has assigned an issuer credit rating of “a-” to Imagine. All ratings have a stable outlook.

These ratings reflect Imagine’s global strategy of writing specialty insurance and reinsurance, solid returns since inception and strong support provided by its ultimate parent, Brascan Corp.

Established in late 2000, Imagine’s focus continues to be providing global finite risk and traditional reinsurance solutions to clients that include insurers, reinsurers and corporate customers. Imagine’s products provide structured solutions on an individual customer basis. Its primary business is writing low-volatility, contractually capped multi-year reinsurance contracts with predictable cash flows that pay out over several years. Limits are imposed on each individual contract, which provides structural protections on payout timing and aggregate exposure.

Imagine’s operations are currently supported by its risk-adjusted capitalization level based on a conservatively managed investment portfolio. Operations are further supported by disciplined underwriting controls along with sophisticated pricing and portfolio management systems.

Partially offsetting these strengths is Imagine’s relatively concentrated business profile and short operating history. Although Imagine maintains a balanced specialty risk underwriting portfolio, A.M. Best has concerns with the potential operational risk associated with a limited number of finite reinsurance deals that Imagine entered into over the past few years. Despite the rigorous underwriting controls Imagine has in place, A.M. Best believes that these controls have yet to be fully tested.

It should be stressed that the vast majority of Imagine’s transactions do not fall under the strict definition of finite risk products and are merely traditional reinsurance arrangements, which include contractual caps or other loss mitigating features.

Furthermore, A.M. Best remains cautious of the overall finite business segment due to the poor historical track record of previously established finite reinsurers that have either curtailed or ceased doing business. This fact is now more relevant given the heightened level of scrutiny currently focused on finite reinsurance transactions and the unfavorable view being taken by state and federal regulators as regards to insufficient risk transfer, financial smoothing and the possible negative implications on both sellers and buyers of finite products.

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