Best Affirms FSR for B.E.S.T. Reinsurance

August 23, 2005

A.M. Best Co. has affirmed the financial strength rating of B++ (Very Good) and the issuer credit rating of “bbb” of B.E.S.T. Reinsurance (BEST Re) (Tunisia). The outlook on both ratings remains stable.

The ratings reflect BEST Re’s consistently profitable underwriting performance and a diversified spread of business. The ratings also factor the company’s good overall risk-adjusted capitalization, which is partially offset by relatively low reserve levels and weak liquidity due to significant deposits being held with ceding companies. However, A.M. Best recognizes that these are used to fund payment of cedants’ claims.

On a risk-adjusted basis, A.M. Best believes that BEST Re’s capital position will remain supportive of the current rating, factoring the company’s strategy for strong premium growth over the medium term, provided the USD 45 million of additional capital expected from an existing shareholder is forthcoming by year-end 2005.

A high proportion of assets, however, continues to be held as deposits with cedants, somewhat impairing the quality of capitalisation. BEST Re has initiated a process of the transfer of these funds to local Islamic Banks, although this process is likely to be gradual. A.M. Best recognizes that the majority of the business is short-tail proportional treaties, and BEST Re tends to settle claims promptly but is concerned that the ratio of reserves to premium remains low.

Prospectively, A.M. Best expects BEST Re to continue to adhere to its conservative underwriting philosophy, despite its plans for strong growth over the medium term, and envisages an improvement in its operating performance in 2005, with retained profits increasing to approximately USD 6.0-6.5 million (2004–USD 4.5 million).

Operating performance remained excellent in 2004 due to BEST Re’s focused and disciplined business strategy and despite a net charge of USD 1.7 million relating to the tsunami in December. BEST Re’s ability to enhance earnings through investment income remains limited due to investments mainly being held in non-interest bearing securities and cedants’ deposits.

BEST Re, though domiciled in Tunisia, operates as an offshore company, and its premium income is well diversified, both geographically and by class. BEST Re’s market profile in each of its chosen markets remains limited by its relatively small size, limiting access to certain lines of business.

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