Best Assigns ‘B+’ FSR Rating to Turkey’s Milli Reasurans

January 4, 2006

A.M. Best Co. announced that it has assigned a financial strength rating (FSR) of “B+” (Very Good) and an issuer credit rating (ICR) of “bbb-” to Turkish reinsurer Milli Reasurans Turk Anonim Sirketi (Milli Re), with a stable outlook.

“The ratings reflect Milli Re’s good overall risk-adjusted capitalization, leading business position in the Turkish market and its robust operating performance,” said Best. “An offsetting factor is the company’s continuing dependence upon investment income to offset underwriting losses.”

Best said it “expects Milli Re’s prospective risk-adjusted capitalization to remain good, despite the high level of credit risk associated with the concentration of the company’s investment portfolio in Turkey. The company’s requirement to build up a contingency fund for a major earthquake in Turkey, and which A.M. Best regards as equity, improves its risk-adjusted capitalization.”

The rating agency also indicated that “Milli Re is expected to continue writing predominantly proportional treaty business and, in 2005 and 2006, its main business lines are likely to include accident, fire and health.” Best said it “expects the company to maintain its leading business position as the largest reinsurer by premium income in Turkey, a niche in which it has well-established business relationships with a 30 percent market share of gross reinsurance premium in 2004.”

Best indicated that it “expects the company’s gross written premium to increase to approximately TRY 665 million ($496 million) at year-end December 2005 and to approximately TRY 725 million ($ 540 million) in 2006 (compared to TRY 576 million ($ 430 million) in 2004). This will be achieved primarily by developing existing markets.
A.M. Best expects that Milli Re’s profit after tax will increase to approximately TRY 18 million ($ 13 million) at year-end 2005 compared to TRY 11.6 million ($ 8.7 million) in 2004. This will be driven mainly by favorable claims settlement of Destek Reasurans Turk Anonim Sirketi’s run-off business, acquired in January 2005.”

As a result, Best said it “expects the 2005 loss ratio to improve to approximately 72 percent compared to 74.4 percent in 2004. In A.M. Best’s opinion Milli Re’s 2005 operating expense ratio is likely to remain high, in line with the 27.4 percent in 2004, due to the high commissions paid.”

Best also said it “believes that in 2005 and 2006, Milli Re will continue to be reliant on investment income to offset underwriting losses. The 2005 investment return is expected to be reduced to approximately 13 percent, compared to 17.9 percent in the previous year, due to a high but declining interest rate environment in Turkey.”

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