Best Affirms Turkey’s Milli Re ‘B+’ Rating; Revises Outlook to Positive

October 5, 2006

A.M. Best Co. has affirmed the financial strength rating of “B+” (Very Good) and the issuer credit rating (ICR) of “bbb-” for Turkish reinsurer Milli Reasurans Turk Anonim Sirketi (Milli Re). Best also revised its outlook on both ratings to positive from stable.

“The positive outlook reflects A.M. Best’s expectation that the company will maintain its strong risk-adjusted capitalization following the significant improvement at year-end 2005,” said the bulletin. “This will be achieved primarily by retention of increased earnings coupled with the reduction in dividend payments. At year-end 2005 the company’s capital and surplus increased significantly by 154 percent to TRY 466 million ($347.1 million) from the 2004 level.”

Best also indicated that it “expects Milli Re to maintain its leading position in the Turkish reinsurance market, writing approximately 35 percent of the total gross reinsurance premium as well as expanding into the Afro-Asian countries.

“As a result, A.M. Best forecasts that Milli Re’s consolidated gross written premium is likely to be approximately TRY 800 million ($ 527 million) in 2006 and 2007 respectively (compared to TRY 724 million [$540 million] in 2005).Best also said it “expects Milli Re’s operating performance to remain good with pre-tax profits of approximately TRY 60 million ($ 39 million) in each of the next two years (TRY 55 million [$41.1 million] in 2005).”

The rating agency indicated that Milli Re’s “overall earnings will remain largely reliant upon investment income as underwriting performance is forecasted to remain satisfactory with a combined ratio of approximately 99 percent-100 percent in 2006 and 2007 (98.3 percent in 2005).” Best said it “forecasts that Milli Re’s net investment returns (including realized gains and losses) during the next two years are likely to be reduced to approximately 8-10 percent (compared to 10.3 percent in 2005) due to the expected stabilization of the interest rates in Turkey and the significant reduction in the local equity market during the first half of 2006.

“A.M. Best expects consistent improvement in Milli re’s combined ratio, geographical diversification of the premium income and maintenance of the company’s strong risk-adjusted capitalization before an upward rating review.”

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