Best Assigns Ratings to Polish Re

October 27, 2004

A.M. Best Co. announced that it has assigned a financial strength rating of “B+” (Very Good) and an issuer credit rating of “bbb-” to Poland’s Polskie Towarzystwo Reasekuracyjne S.A. (Polish Re) with a stable outlook.

“The rating reflects the company’s good risk-adjusted capitalisation, good domestic business profile and good but modest operating performance,” said Best. “Offsetting factors are the company’s limited geographical diversification and high business dependence upon one client.”

Best said Polish Re’s risk-adjusted capitalization is supportive of the company’s business strategy and planned growth for the next two years, and that it expects the capital base to marginally improve from retained earnings.

“Polish Re is the main reinsurance company in Poland,” Best noted, “but lacks a strong presence abroad. The company has no plans to become a global reinsurer, but it intends to gradually further penetrate Central and Eastern European markets by capitalizing on the region’s cultural affinities.”

“After a two-year decline, total gross premium grew 40 percent in 2003.” However, Best indicated that it is concerned that “one cedant (Polskie Towarzystwo Ubezpieczen S.A. [PTU]) accounts for approximately 45 percent of the gross premiums. In addition, the overall business mix is highly biased toward motor business, of which approximately 55.6 percent relates to PTU.” The company is actively increasing the share of its property lines to balance its portfolio and, in turn, to reduce PTU’s business concentration.

Best also said it “expects Polish Re’s technical performance to slightly deteriorate in the next two years as a result of increased operational costs due to the planned geographical expansion. Therefore, despite some improvements in its loss ratio (70.6 percent in 2003 and 70 percent expected in 2004), the combined ratio (98.2 percent in 2003) is likely to stabilize at around 100 percent over the next two years. Bottom line results are likely to improve (PLN 5 million [USD 1.3 million] net profit expected at year-end 2004), driven by a positive investment income arising from the sell of real estate and other investments.”

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