Best Affirms Ratings for The Egyptian Reinsurance Co.

April 27, 2005

A.M. Best Co. has affirmed the financial strength rating of B++ (Very Good) and the issuer credit rating of “bbb” of The Egyptian Reinsurance Company (Egypt Re) (Egypt). The outlook for both ratings is stable.

The ratings reflect Egypt Re’s strong risk-adjusted capitalization, supported by solid net retained earnings and lower prospective premium growth. Egypt Re has an excellent track record of producing operating profits and will likely continue, although it will remain dependent on investment income to offset underwriting losses. The company’s investment return is likely to remain high at approximately 10% in 2005, albeit somewhat reduced as a result of the declining trend in Egyptian interest rates.

A.M. Best believes that Egypt Re’s weak underwriting performance is likely to stabilize, with a high combined ratio of approximately 140% forecast for 2005 and 2006. Performance is anticipated to be driven by the very competitive market and high acquisition costs in Egypt (approximately 33% of net premium written anticipated for Egypt Re in 2005).

These factors are likely to be partially counterbalanced by a reduction in insurance premium tax on legal cession business and the company’s reducing exposure as a result of the decision to cease underwriting unprofitable energy and international aviation lines. A.M. Best expects growth in Egypt Re’s diversified portfolio of non-compulsory business to outweigh the continuing reduction in premium from legal cessions, resulting in a modest increase in gross premiums of approximately 3.5% in 2005.

An offsetting factor is the lack of analysis conducted by Egypt Re into its catastrophe exposure, particularly its earthquake exposure in Egypt.

In A.M. Best’s opinion, the company’s reinsurance protection for catastrophes is limited.

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