Best Assigns VASCO Re Debt Rating

June 22, 2006

A.M. Best Co. has assigned a debt rating of “bb” to the $50 million senior secured floating rate notes, due June 5, 2009, issued by VASCO Re 2006 Ltd. (the issuer), a newly created Cayman Islands exempted company licensed as a Class B insurer.

“The primary business purpose for the creation of the issuer is for the issuance of the notes and servicing and performance of the various agreements entered into, including the reinsurance agreement, bank deposit agreement and other related activities,” Best explained.

“Proceeds from the issuance of the notes will be deposited into a collateral trust account and will be available to pay any loss payments required to be made by the issuer under a multi-year reinsurance agreement entered between the issuer and Balboa Insurance Company and its affiliates (ceding insurer),” the bulletin continued. “The proceeds will be deposited into an eligible bank institution that has a long-term deposit rating that meets or exceeds the minimum pre-established rating threshold. The notes have limited recourse to certain assets of the issuer and are without recourse to the ceding insurer. These notes further strengthen the ceding insurer’s solid reinsurance program. The rating of the ceding insurer remains unaffected.”

Best noted: “The assigned rating represents an opinion as to the issuer’s ability to meet its financial obligations to the note holders when due. The rating considers the probability of loss payments being made when U.S. hurricanes, within the applicable risk period, have caused insured personal and commercial property losses in the covered territories to exceed a stated threshold amount.”

“In addition, the rating takes into consideration the creditworthiness of the ceding insurer, who under the reinsurance agreement, is responsible for making periodic payments (premium and expense reimbursements) to the issuer. Using its U.S. hurricane model and near-term sensitivity analysis, catastrophe modeler AIR Worldwide Corporation has estimated the annual attachment probability (the relative frequency of net losses exceeding a particular loss amount) at 1.38 percent, at which time indemnity payments to the ceding insurer will commence.”

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