Best Affirms Alliance International ‘B++’ Rating; Assigns ‘bbb’ ICR

July 7, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) and assigned an issuer credit rating of “bbb” to Cyprus-based Alliance International Reinsurance Public Company Limited. The outlook for both ratings is stable.

Best said, “the ratings reflect Alliance Re’s strong capitalisation and good business profile. An offsetting factor is the high expense ratio undermining the technical performance.” It noted that the company is “likely to maintain a strong risk-adjusted capitalisation with capital and surplus expected to grow steadily over the next two years, largely as a result of improving retained earnings.

“Further diversification into the Middle East region, where significant reinsurance opportunities are projected to arise in the coming few years, is expected to have a positive impact in stabilising Alliance Re’s premium income in 2006 following the 12 percent decline seen in 2004 (mainly driven by exchange rate movements) and maintaining its good business profile.”

Best indicated that the “company’s focus on the Middle Eastern reinsurance market is likely to increase the proportion of facultative business in its portfolio. In 2004, gross written premiums under the treaty programme accounted for approximately 86 percent, of which 48 percent were on a non-proportional basis.”

Best also said it “believes that Alliance Re’s expense ratio will remain relatively high at approximately 40 percent and is likely to impede improvement of the technical performance over the next two years, with the company’s profits becoming increasingly reliant on the investment income. The company’s good claims experience is reflected by an estimated claims ratio of approximately 60 percent over the next two years compared to 57 percent in 2004.”

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