A.M. Best Affirms Rating of Alliance International Reinsurance Company.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Sept. 11, 2002

A.M. Best Co. has affirmed the financial strength rating of B++ (Very Good) of Alliance International Reinsurance Company, Cyprus.

The affirmation recognises the company's very good capital strength and improved prospective financial performance. Offsetting factors include the concentration of invested assets and 2001 results, which did not meet the business plan. The rating outlook is stable.

Very good capital strength--A.M. Best believes that the financial strength of the company, on a risk-adjusted and traditional solvency basis, supports the B++ rating level. Despite the disappointing 10% reduction in surplus at year-end 2001, A.M. Best forecasts steady growth in capital through retention of earnings in the short- to medium-term. Further, the company continues to assess a variety of options that may be utilised to strengthen its currently limited financial flexibility in the near-term.

Improved prospective financial performance--The company's operating performance fell short of business plan expectations at year-end 2001 and a loss of CYP 2.4 million (USD 4.2 million) was reported. The company benefits from the longstanding relationships of senior management with the leading global brokers and, despite its absolute size and focus on specific geographic markets excluding it from certain risks, the company continues to focus on strict underwriting guidelines and pricing structures. A.M. Best expects Alliance Re to benefit from the significant improvement in trading conditions in global reinsurance markets, which continued in 2002. As a result, an operating profit of between CYP 1.0 and CYP 1.5 million (USD 1.8 million and USD 2.6 million) is forecast, producing a return on equity of approximately 3.5%.

Concentration of invested assets--Alliance Re's investment strategy is largely driven by the relatively high interest rates--most recently 6%--available on deposits held in Cyprus. This has led to substantial concentration risk with 82%of cash assets held with Cypriot domiciled banks. Further, risk has been evidenced through the company's equity investments--15% of invested assets at year-end 2001--which are largely held in public and private companies based in Cyprus. These resulted in realised and unrealised losses of CYP 4.8 million (USD 8.4 million) in 2001. Although some further deterioration in the company's equity portfolio is forecast in 2002, it is unlikely to be of the same magnitude as 2001.

Expectations:

-- A.M. Best has previously defined management's ability to meet its business plan as the key factor in the rating process, and this remains the case. Any further significant deviation from plan is likely to result in a revision of the rating and outlook. A.M. Best will continue to monitor the company's adherence to its revised performance objectives on a quarterly basis.

-- The company will continue to limit its exposure to equity investments to a maximum of 12.5% of the portfolio, and any new investments will be made in fixed income or cash & cash equivalents.

-- The company will set reserve levels in line with the recommendations of external actuaries.

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.