Middle East/Africa Ratings Recap: Trust Re, Arab Orient, Leadway, E. Africa Re, Africa Re

June 30, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of Bahrain-based Trust International Insurance & Reinsurance Company (Trust Re) with stable outlook s. “The ratings reflect Trust Re’s strong risk-adjusted capitalization, excellent operating performance and continuously improving business profile,” said Best. The rating agency added that it “believes Trust Re’s current and prospective risk-adjusted capitalization is strong and is expected to remain supportive of its organic growth and its continuous effort in increasing its retention level in the coming years. Trust Re’s absolute level of economic capital of $200 million expected in 2008 is viewed as strong and is expected to be further improved by retaining a proportion of earnings in the future.”

Standard & Poor’s Ratings Services has raised its long-term counterparty credit rating and financial strength rating on Dubai-based Arab Orient Insurance Co. (PSC) (AOIC) to ‘A’ from ‘A-‘ and has affirmed a stable outlook. S&P explained: “The improvement in the rating reflects AOIC’s strong capitalization and consistently very strong and stable earnings, accompanied by prudential asset management with very strong liquidity. Management is a positive rating factor through its prudential risk discipline. These factors are offset by AOIC’s high use of reinsurance and the concentration risk from banking counterparties. The positive factors are reinforced by the long-standing strength of AOIC’s relationship with its parent, Al Futtaim Group (not rated). Credit analyst Kevin Willis added: “We expect that AOIC will maintain strong capitalization and very strong earnings. The investment profile will remain highly liquid and prudentially focused on bank deposits in securely rated banks. The competitive position will remain at least strong in the UAE, and the franchise will expand into neighboring regions in the medium term with the active support of the Al-Futtaim Group.” S&P concluded: “Negative rating action would be prompted should AOIC’s capitalization and earnings track record deteriorate materially, either through its own actions or those of its parent. Further positive rating action is highly unlikely over the rating horizon.”

A.M. Best Co. has assigned a financial strength rating of ‘B’ (Fair) and an issuer credit rating of “bb+” to Nigeria’s Leadway Assurance Company Limited with a stable outlook. Best said the “ratings reflect Leadway’s excellent risk-adjusted capitalization, strong operating performance with a well-diversified business portfolio. The main offsetting factors are the company’s unsophisticated catastrophe management and the limited application of recognized actuarial methods in setting its non-life loss reserves.” Best also indicated that it “believes that Leadway’s current and prospective risk-adjusted capitalization is excellent and is expected to remain supportive of its annual projected business growth of 30 percent in 2008 and 2009. Leadway’s absolute level of economic capital of $154 million expected in 2007 is viewed as strong and is expected to be further improved by retaining a significant proportion of earnings in the future.” However, Best also said it has concerns about the Company’s lack of a “sufficiently sophisticated catastrophe management framework, as well as its reserving methodology.

A.M. Best Co. has affirmed the financial strength rating of ‘B’ (Fair) and the issuer credit rating (ICR) of “bb” of Kenya’s East Africa Reinsurance Company Limited (EARe) with stable outlooks. Best said it “regards EARe’s risk-adjusted capitalization as good. The company’s 2007 underwriting profit has shown improvements, which represents approximately a fifth of total operating profits before tax.” Best also indicated that it “believes EARe’s relatively small size in terms of absolute capital and surplus when compared with its competitors in the region imposes challenges to the company in expanding its premium income. Best then announced that it has “withdrawn the ratings in response to the company’s request and has assigned it an NR-4 (Company Request).”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of {{dq8}} of Nigeria’s African Reinsurance Corporation with a stable outlook. “The ratings reflect Africa Re’s solid prospective risk-adjusted capitalization, robust operating performance and its recognized position in the African reinsurance market,” said Best. In Best’s opinion “Africa Re’s prospective risk-adjusted capitalization is expected to remain strong, despite a reduction in 2007 attributed to significant premium growth of 26 percent, mainly driven by an exceptional one-off opportunity from a client in South Africa. Going forward, premium growth is anticipated to stabilize at around 7.5 percent in 2008 and 2009, in line with rates expected across the African market. Any significant variations above this target may put the company’s risk-adjusted capitalization under pressure. Additionally, the company benefits from the financial flexibility of its shareholders, who are committed to provide financial support when required.” Best forecasts that Africa Re’s operating performance will “remain robust with pre-tax profits of approximately $30 million in each of the next two years (compared to $35 million in 2007).

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