June 23, 2006

A.M. Best Co. has affirmed the financial strength rating of “B++” (Very Good) and assigned an issuer credit rating of “bbb” to Germany’s SCHWARZMEER UND OSTSEE Versicherungs-Aktiengesellschaft SOVAG (Sovag) with a stable outlook.

Best noted that “Sovag is a specialist insurer for risks relating to the Russian Federation and the Commonwealth of Independent States (CIS). The company is expected to continue to focus on its traditional business (marine and property insurance and reinsurance) while opportunistically expanding into other business lines, such as property insurance for immigrants from Russia or personal accident insurance in Germany. However, A. M. Best does not expect this business to be a large part of Sovag’s portfolio.”

Best said: The ratings reflect its “expectations of a good prospective operating performance in 2006 and 2007 (of approximately €7 million [$8.8 million] before tax and allocation to equalization reserve), mainly driven by Sovag’s improved underwriting, especially in the personal lines business where the company has a mixed track record. Pre-tax earnings of €12.3 million ($15.5 million) in 2005 were—to a large extent—positively impacted by significant run-off profits of Sovag’s MAT portfolio (due to prudent reserving in prior years).

“Sovag’s risk-adjusted capitalization is expected to remain excellent in the next two years through the retention of earnings and increases in the equalization reserve.

“A partially offsetting factor is the recent reserve deficiencies in some of Sovag’s lines of business, such as accident and motor, although the overall run off of previous years’ reserves was positive in 2005. A.M. Best expects Sovag to stabilize its claims reserves following an improvement in its reserving methodology.”

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