Best Affirms Tunisia’s B.E.S.T Re ‘B++’ Ratings

A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) of Tunisia’s B.E.S.T. Reinsurance (BEST Re). It also assigned an issuer credit rating (ICR) of “bbb” to the company. The outlook on all ratings is stable.

“The ratings reflect BEST Re’s consistently profitable underwriting performance and a diversified spread of business,” Best said. “The ratings also factor the company’s good overall risk-adjusted capitalisation, which is partially offset by constrained liquidity due to significant deposits being held with ceding companies and relatively low reserve levels.”

The bulletin noted that “on a risk-adjusted basis, the company’s capital position is supportive of the current rating. A high proportion of assets, however, are held as deposits with cedants and as reinsurance recoverables, somewhat impairing the quality of capitalisation.” Best said it recognizes that “BEST Re tends to settle claims promptly but is concerned that the ratio of reserves to premium remains low. Further funds may be necessary if BEST Re is to pursue its aggressive 12.5 percent growth strategy planned for each year until 2007.”

Prospectively, Best indicated that it “expects BEST Re to continue to adhere to its conservative underwriting philosophy and envisages an improvement in its operating performance in 2004, with retained profits increasing to approximately $5.4 million (2003–$ 4.5 million), translating into a very good return on premium of 8.8 percent. BEST Re’s ability to enhance earnings through investment income is limited due to investments mainly being held in non-interest bearing securities and cedants’ deposits.”

The rating agency also noted that although the company is domiciled in Tunisia, it “operates as an offshore company and its premium income is well diversified, both geographically and by class. BEST Re’s market profile in each of its chosen markets remains limited by its relatively small size, restricting access to certain lines of business, such as liability.”