Fitch Affirms Rating for Imagine Insurance

February 28, 2005

Fitch Ratings has affirmed the ‘A’ insurer financial strength ratings of Imagine Insurance Company Ltd. (Imagine) and Imagine International Reinsurance Ltd. The Rating Outlook has been changed to Stable from Positive.

The rating action follows Imagine’s acquisition of Danish Re (Bermuda) Ltd. (Danish Re). The Danish Re acquisition provides Imagine with a platform to write three specialty areas of insurance: accident and health; property; and financial institutions.

The acquisition also gives Imagine control over the assets and liabilities of a substantial run-off book of business, which is expected to produce future investment income. The transaction is structured to provide Imagine with significant protection against adverse loss reserve development and uncollectible reinsurance.

The Danish Re acquisition is a new direction for Imagine as Danish Re’s business represents much more traditional insurance products than the highly structured, contractually capped policies currently sold by Imagine.

While Fitch believes it is prudent for Imagine to diversify its book of business to include traditional products, there are execution risks associated with the integration of any acquisition into the existing business, particularly an acquisition that represents a move into new products. Additionally, property risks are exposed to low frequency and high severity losses that can be a source of greater earnings volatility.

Fitch changed the Rating Outlook for Imagine to Positive in September 2004, indicating that the rating was likely to move up in a one- to two-year time period. Fitch believes it will likely take at least one year to assess Imagine’s success in the integration of Danish Re and its underwriting results in traditional insurance products. An upward change in the rating is unlikely during this one year time frame. Therefore, Fitch changed its Rating Outlook back to Stable from Positive.

Imagine is a Barbados-based general insurance company that was formed in and began conducting business in late 2000. Imagine is the principal subsidiary of Imagine Group Holdings Limited (together, the Imagine Group), a Bermuda-based insurance holding company formed in conjunction with Imagine. The Imagine Group’s primary investor is the Canadian-based Brascan Corp.

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