S&P’s Rates ESG Reinsurance

August 14, 2002

Standard & Poor’s Ratings Services has placed its double-‘B’-minus long-term counterparty credit and insurer financial strength ratings on ESG Reinsurance Bermuda Ltd., ESG Reinsurance Ireland Ltd., and European Specialty Ruckversicherung AG on CreditWatch with negative implications.

The companies are the main operating entities of Bermuda-based ESG Re Ltd. (ESG).

“The CreditWatch placement reflects ESG’s weak operating performance (just announced as part of its second-quarter results), the consequent impact on capitalization, and the potential for future additional provisions,” Standard & Poor’s credit analyst Manish Bakhda said. The CreditWatch placement is expected to be resolved in Sept. 2002 following further meetings with the company.

The second-quarter results, which include a pretax loss of $23.3 million, have been adversely affected by a poorly performing Norwegian health insurance treaty and related foreign-exchange losses. Uncertainties remain as to the ultimate losses payable under this treaty.

The ratings also continue to be constrained by the ESG group’s modest business position and limited financial flexibility—negative earnings and weak capital markets limit the company’s ability to increase capital.

Standard & Poor’s intends to meet with ESG management to review the treaty, prospects for future earnings, and capitalization. “If a downgrade is required at the end of this review, Standard & Poor’s expects this to be limited to two notches,” Bakhda added.

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