S&P Rates Paris Re, Subs; Lowers CGRM Ratings to ‘A-‘

June 11, 2007

Standard & Poor’s Ratings Services has assigned its ‘A-‘ long-term counterparty credit and insurer financial strength ratings to PARIS RE (France) and PARIS RE Switzerland Ltd. At the same time, S&P lowered to ‘A-‘ from ‘AA-‘ its long-term insurer financial strength rating on Compagnie Générale de Réassurance de Monte Carlo (CGRM). The outlook on all entities is stable.

“The ratings on PARIS RE (France) and PARIS RE {Switzerland} reflect their core status within the newly formed PARIS RE group (PARIS RE or the group),” S&P explained. “The downgrade of CGRM reflects that the existing guarantee provided to this entity by AXA Re (AA-/Stable) has ceased and been replaced by a qualifying guarantee provided to it by affiliate PARIS RE (France).”

AXA concluded a definitive agreement to cede its reinsurance operations – AXA Re and its subsidiaries – to Paris Re Holdings Limited last year (See IJ web site June 7, 2006). A consortium of international investors led by Trident III, L.P., a fund managed by Stone Point Capital LLC is the principle investor. Paris Re recently announced plans for an initial public share offering (See IJ web site May 30).

“The ratings reflect the PARIS RE group’s clearly articulated strategy and track record of successful execution since 2003, when the current management team assumed leadership,” explained S&P credit analyst Peter Grant. “The ratings also reflect the group’s strong capitalization and strong financial flexibility.”

However, S&P indicated that ratings are “constrained” due to the “vulnerability of PARIS RE’s competitive position to the imminent termination of its fronting agreement with AXA Re, which is guaranteed by AXA France IARD (AA-/Stable/–), and its continuing, albeit diminished, earnings volatility.”

S&P said the stable outlook reflects its “expectation that PARIS RE’s competitive position will not be materially adversely affected by the termination of its fronting agreement with AXA Re.”

The rating agency expects “strong” earnings and a combined ratio of less than 95 percent along with less volatility. However S&P also indicated that the Group’s “current extremely strong capital adequacy is expected to weaken over time, largely as a function of the build-up of reserves and the potential for capital management initiatives, but to remain a key strength for the ratings.”

Future ratings decisions remain in flux. S&P said that if PARIS Re “demonstrated resilience” in its competitive position “following the cessation of the fronting agreement, coupled with a continuation of the group’s strong recent earnings momentum,” the outlook could be changed to positive.

On the other hand S&P said it is “unlikely” that the outlook would be changed to negative “over the rating horizon,” unless there is a “a material weakening of the group’s competitive position or the incurrence of a loss beyond the board’s stated risk tolerance.”

S&P said it “expects to assign ratings to other entities of the PARIS RE group in due course.”

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