Best Affirms Alliance Re ‘B++’ Rating

August 17, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) of Alliance International Reinsurance Company (Alliance Re), based in Limassol, Cyprus, with a stable outlook.

“The rating reflects the company’s strengthened risk-adjusted capitalisation, good and improved operating performance and good business profile,” said Best. Offsetting factors are the impact that a potential softening of the reinsurance market could have on the company and the impact of the reduction in retrocession cover purchased by the company.”

Discussing the company’s business profile, Best noted that although gross premium fell by 2.7 percentage points, “at a constant exchange rate, it grew by 7 percent.” In addition it noted that “an 18 percent increase in premium rates partly offset the 8 percent reduction in business.” Best said it “expects premiums to show a moderate increase in 2004, as premium rate increases in Alliance Re’s markets slow down, but remains concerned about the company’s long-term ability to attract profitable business as the reinsurance market softens.”

The rating agency also pointed out that the company “returned to profitability in 2003 as a five percentage point improvement on combined ratio was bolstered by a good investment performance (the first in the last three years).” Best expects the trend to continue in 2004 as the company’s focus is on reducing management expenses.

Best also noted that “Alliance Re’s risk-based capitalisation was strengthened in 2003 due to profit retention, the result of a more conservative investment policy. Reinsurance recoverables are expected to remain at low levels as the company reviewed its retrocession programme and decreased its vertical coverage.” Best indicated that it “believes that capital and surplus is unlikely to revert to its pre-2001 level, especially as the company falls under pressure to start paying dividends. However, A.M. Best believes that the vertical cover reduction may hinder the company’s effort to grow its facultative portfolio.”

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