Best Affirms Rating of Tunisia’s BEST Reinsurance

October 15, 2003

A.M. Best Co. announced that it has, affirmed the financial strength rating of B++ (Very Good) of Tunisia’s BEST Reinsurance (BEST Re), reflecting the company’s “improved level of consolidated risk-adjusted capitalisation, consistently profitable underwriting performance and a diversified spread of business.”

The rating agency’s announcement noted, however, that these factors were somewhat offset by its evaluation of country risk and the company’s limited market profile, but also indicated that “the outlook on the rating has been revised to stable from negative, reflecting the prospective stabilisation of BEST Re’s risk-adjusted capitalisation.”

BEST Re’s “capital position is supportive of the current rating,” said Best. “A high proportion of assets, however, are held as deposits with cedants and as reinsurance recoverables, somewhat impairing the quality of capitalisation. During 2002, paid-up capital increased by 40% to USD 42 million. BEST Re expects to further increase paid-up capital by USD 8 -10 million before year-end 2003, mainly by means of a capital contribution from an Islamic bank joining as a new shareholder and also by retained earnings.”

Best indicated that it believes “the existing level of capital is adequate to support the company’s strategy over the next two years; however, if BEST Re is to pursue its aggressive growth strategy as planned until 2007, further funds will be necessary to support the current level of risk-adjusted capitalisation.”

The bulletin noted that, although “there was a small deterioration in BEST Re’s operating performance in 2002, with an increase in the non-life combined ratio from 86.0% to 89.2%, the operating performance remained excellent.” Best’s report praised the company’s “focused and disciplined business strategy,” which generated net profits of $4.9 million last year. Best said that “prospectively,” it “expects BEST Re to adhere to its conservative underwriting philosophy despite its ambitious growth strategy.”

It also noted that the company’s income sources are well diversified, “both geographically and by class. Since 2001, BEST Re has opened additional main offices in Turkey, Senegal and Algeria, supplementing existing offices based in Tunisia, Malaysia and Lebanon.”

Best’s report indicated that “the company continues to develop its product range through joint ventures with other reinsurers and financial services companies, ” but it also said that BEST Re’s “market profile in each of its chosen markets remains limited by its relatively small size, restricting access to higher quality business.”

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