Best Affirms Imagine Ratings; Assigns Negative Outlook

June 23, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A-” (Excellent) and the issuer credit rating (ICR) of “a-” of Barbados-based Imagine Insurance Company Limited. Best has removed the ratings from “under review “and assigned a negative outlook.

The actions follow Best’s review of the company following its acquisition of Danish Re and an analysis of “the current uncertainty regarding the finite reinsurance market.”

Best noted: “The acquisition of Danish Re provides Imagine with a traditional reinsurance platform primarily writing worldwide business in property, accident and health and financial institutions in the Lloyd’s of London syndicate market. Although the acquisition carries an increased level of execution risk as Imagine merges new systems and staff with existing infrastructure, the overall addition of Danish Re is complementary to Imagine’s global strategy of writing specialty insurance and reinsurance, which includes both finite risk and traditional reinsurance with contractual caps or other loss mitigating features. Following the Danish Re acquisition, Imagine’s risk-based capital remains supportive of its current rating.”

Best explained that it had assigned the negative outlook “based on the current uncertainty of the finite risk market. The heightened level of scrutiny by state and federal regulators focused on finite reinsurance and contractually capped multi-year reinsurance transactions has resulted in subpoenas being issued to both sellers and buyers of finite products. Imagine’s business profile includes a substantial level of products that fit into these categories and as a result, present a heightened level of operational risk to the company. The future viability of finite products will remain uncertain until current government scrutiny is complete and any new requirements regarding finite products are established.”

In an additional analysis of the company, Best noted that Imagine was formed in late 2000. Its focus “continues to provide global finite risk and traditional reinsurance offerings 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 actuarially assessed cash flows that pay out over several years. Limits are imposed on each individual contract, which provides structural protections such as aggregate exposure protection.”

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