Best Affirms B.E.S.T. Re ‘B++’ Ratings

August 24, 2005

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

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

The rating agency said that on a risk adjusted basis it “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 $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,” the report continued. “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 recognises 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.”

Best also indicated that it expects the company “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 $6 to 6.5 million (2004 = $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 $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.”

In conclusion Best noted that although BEST Re is domiciled in Tunisia, it “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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