A.M. Best Affirms 'A-' Rating of Max Re Ltd.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Feb. 7, 2001

A.M. Best Co. has affirmed the A- (Excellent) financial strength rating of Max Re Ltd., Hamilton, Bermuda.

The rating reflects the company's progress in executing its business plan, favorable risk-adjusted capitalization and integrated risk management practices that comprise well-developed asset/liability management processes. The rating also recognizes the management team's experience and ability to leverage relationships with prominent life and non-life insurance organizations, which have contributed to the company's successful first year of operations. These positive factors are tempered by the lack of a track record associated with a nascent company, including the limited seasoning of its book of business and the potential volatility inherent in the company's investment strategy.

Max Re Capital, the parent company, expects to raise additional funds during the next year through private or public subscriptions, thereby strengthening and diversifying its capitalization base, which is already supported by credit facilities from some of the largest and most stable financial institutions. A.M. Best expects that this level of added financial flexibility and capitalization will be achieved and will also allow the company to build scale and widen its client base in its core operations.

Max Re received its initial Best's Rating a year ago following the completion of the parent's two equity offerings, which raised approximately $511 million in capital. With most of the proceeds used to capitalize Max Re, a secure level of capitalization has provided considerable financial security for the operating company. In addition, an innovative investment strategy balances the underwriting of long-duration risks with traditional fixed income investment grade securities and alternative investment strategies. Max Re allocates approximately 60% of its investment portfolio to traditional assets and approximately 40% to an alternative investment portfolio comprised of private investment funds. This alternative investment portfolio, Moore Diversified Strategies Ltd. (MDS), is managed by Moore Holdings, a well regarded manager of hedge funds.

Max Re's operating activities focus on traditional, finite and specialty risk reinsurance of long-tailed liabilities that carry relatively predictable payout patterns. The company's initial successful execution of its business plan in 2000 demonstrated financial discipline in product pricing, which resulted in a positive net income. While these results have been in line with A.M. Best's expectations, the company's overall alternative investment portfolio has underperformed relative to the company's business plan due to unfavorable market conditions. However, Max Re has significantly diversified the pool of fund managers with funds uncorrelated with Max Re's initial concentration, effectively decreasing the portfolio's overall volatility. In total, Max Re now utilizes 38 private investment funds including four funds with MDS' affiliate, Moore Capital Management.

A.M. Best recognizes the risks associated with this investment strategy and continues to monitor extensively the performance and risk management controls of the organization and the sensitivity of Max Re's economic capitalization to unexpected changes in investment conditions. A.M. Best believes that Max Re's use of sophisticated proprietary and non-proprietary modeling of underwriting and investment risks provides the company with the ability to optimize the use of capital, properly match transactional cash flows and maintain capital adequacy. As a result, A.M. Best is comfortable with Max Re's operating leverage and its capacity to withstand potential volatility in investment returns without compromising policyholder security. However, A.M. Best will continue to observe Max Re's investment performance relative to its business plans and how it is impacted upon by competitive market conditions, which may not remain consistent.

Max Re Capital, Bermuda, offers a broad array of reinsurance products targeting insurance and financial services companies. As of December 31, 2000, Max Re Capital reported net premiums of $402 million, assets of approximately $935 million and stockholders' equity of $514 million.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.