Best Assigns FSR to East Africa Reinsurance Co.

October 4, 2005

A.M. Best Co. has assigned a financial strength rating of B (Fair) and an issuer credit rating of “bb” to East Africa Reinsurance Company Limited (EARE) (Kenya). The outlook for both ratings is stable.

The ratings reflect EARE’s consistently high investment returns. Offsetting factors are the company’s strained risk-adjusted capitalization and its limited presence in the competitive East African reinsurance market.

A.M. Best believes that EARE’s prospective investment returns are likely to remain at the very good level of 8% over the next two years as a result of a high interest rate environment in Kenya and a prudent investment strategy, with approximately 80% of investments held in treasury bonds. In A.M. Best’s opinion, high investment returns will remain the only driver for positive earnings in 2005 and 2006.

A.M. Best believes that EARE’s risk-adjusted capitalization will remain under pressure over the next two years. While A.M. Best expects that EARE’s annual business growth over this period will be within the range of 15%-20%, the level of absolute capital is only expected to increase at a rate of 3%-4% each year. The current strain on risk-adjusted capitalization is a result of a strong business growth (57%) combined with a dividend payment of 49% of net profits in 2004. The company is expected to continue distributing between 40%-50% of its net profits over the next two years. However, in A.M. Best’s opinion, full earnings retention would serve to slightly strengthen EARE’s weak risk-based capital position.

EARE is a relatively small regional reinsurer within the highly competitive East African reinsurance market, although A.M. Best anticipates that it will likely benefit from opportunities arising from the market liberalization expected by the end of 2006.

However, EARE’s current domestic market share of 8% is not expected to significantly improve in 2005 and 2006 as the company is expected to continue writing small shares as a following reinsurer in regional treaty programmes.

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