Best Affirms Polish Re ‘B+’ Ratings

August 23, 2006

A.M. Best Co. has affirmed the financial strength rating of “B+” (Very Good) and the issuer credit rating of “bbb-” of Polskie Towarzystwo Reasekuracji S.A. (Polish Re) with a stable outlook.

“The ratings reflect the improving risk-adjusted capitalization and business diversification, which are offset by the company’s current and prospective reliance upon investment income to generate profits,” said Best. “Although Polish Re’s strategy has not been negatively impacted,” Best said it “believes that frequent changes in the chief executive officer (CEO) position (the company has recently appointed its third CEO within a year) reveal a lack of stability in Polish Re’s management.”

Best also said it “believes that Polish Re’s risk-adjusted capitalization is likely to continue to improve over the next two years as a result of an expected improvement of the company’s capital base through retained earnings, and with a forecast stable level of underwriting risks in line with the current level of net premium income.”

The ratings report acknowledged that Polish Re “is diversifying its business portfolio by reducing its exposure to motor risks (by decreasing business derived from one single cedant) and gradually increasing the proportion of property risks accepted, despite remaining a small participant in the markets in which it operates, namely Poland, where it has a market share of approximately 6 percent.”

Best said it “views Polish Re’s overall earnings as very good but believes that the company will remain reliant upon net investment returns to generate profits. Investment returns in 2006 are likely to slightly decline to a range of 5 percent-6 percent compared to 6.8 percent experienced in 2005.”

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