Fitch Affirms Imagine Insurance ‘A’ Ratings: Outlook Raised to Positive

September 13, 2004

Fitch Ratings announced that it has affirmed the “A” insurer financial strength rating of the Barbados/Bermuda-based Imagine Insurance Company Limited. The rating outlook has also been raised from stable to positive.

“The affirmation and Positive Rating Outlook reflect Imagine’s track record of profitable operations, its focus on finite-risk reinsurance (transactions with contractually capped loss profiles) and growth in capital from an initial $200 million to more than $500 million through retained earnings and capital contributions,” said Fitch.

The rating agency said it “considers Imagine’s products to be a relatively low risk form of reinsurance where the timing of loss payments, rather than the frequency or severity of losses, represents the majority of the risk assumed by the reinsurer.

“Imagine combines this focus on low volatility insurance liabilities with a conservative investment strategy. While Imagine has increased its capital to more than $500 million at August 31, 2004, it nonetheless remains small relative to other Bermuda-based reinsurers.”

Fitch also noted that Imagine “has a relatively short track record of four years of operation.” On the positive side it has “minimal property catastrophe exposure, unlike its Bermuda peers. Additionally, Imagine’s level of capital has grown appropriately given the company’s underwriting standards and focus on avoiding more volatile forms of reinsurance.”

Fitch said it “expects Imagine’s management team will continue to bind predominately low-volatility, contractually capped reinsurance policies which place a limited amount of capital at risk. Additionally, Imagine will employ a conservative investment strategy for the assets supporting insurance liabilities, closely matching asset and liability maturities and currencies.

“Imagine will consider transactions that require insurance expertise, but which may not necessarily be traditional finite reinsurance transactions. Nonetheless, Fitch expects all of the transactions entered into by Imagine to place a limited amount of capital at risk.

“Imagine discounts the reserves on four contracts for the time value of money. Fitch expects some adverse loss reserve development as a result of the unwinding of the loss reserve discount. However, given the matched investment strategy employed, such adverse development will be offset by investment gain and is factored into Imagine’s business planning model.”

Fitch noted that “Imagine is a Barbados-based general insurance company that was formed in and began conducting business in late 2000. Imagine is the principal subsidiary of Imagine Group Holdings Limited (together, the Imagine Group), a Bermuda-based insurance holding company formed in conjunction with Imagine. The Imagine Group’s primary investor is the Canadian-based Brascan Corporation through its Brascan Financial Corporation subsidiary.”

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