Best Affirms FSR for Electro Re SA

April 20, 2005

A.M. Best Co. has affirmed the financial strength rating of B++ (Very Good) and has upgraded the issuer credit rating to “bbb+” from “bbb” of Electro Re SA (Luxembourg). The outlook is stable.

The rating action reflects Electro Re’s excellent capitalization and improving underwriting profitability. An offsetting factor is Electro Re’s aggressive investment strategy, which adds volatility in the company’s net income.

In A.M. Best’s opinion, Electro Re’s prospective risk-adjusted capitalization remains excellent, reflecting the build up of equalization reserves through retained earnings, the maintenance of the existing comprehensive three-year retrocession programme and stabilization in net written premiums at its current level.

A.M. Best anticipates a slight improvement in Electro Re’s underwriting profitability as a consequence of the increase in Alcatel’s (its parent company) divestiture of loss-prone businesses and the rise in deductibles in the original policies (hence, improving Electro Re’s claims frequency) and continuing cost cutting exercise.

A.M. Best believes that Electro Re’s investment strategy increases the volatility of its net income as its portfolio comprises an important part of equities (25%) and bonds with a relatively long duration.

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