A.M. Best Affirms Rating of Electro Re SA; Upgrades Issuer Credit Rating.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of B++ (Very Good) and has upgraded the issuer credit rating to "bbb+" from "bbb" of Electro Re SA (Luxembourg). The outlook is stable.

The rating action reflects Electro Re's excellent capitalisation and improving underwriting profitability. An offsetting factor is Electro Re's aggressive investment strategy, which adds volatility in the company's net income.

In A.M. Best's opinion, Electro Re's prospective risk-adjusted capitalisation remains excellent, reflecting the build up of equalisation reserves through retained earnings, the maintenance of the existing comprehensive three-year retrocession programme and stabilisation in net written premiums at its current level. A.M. Best anticipates a slight improvement in Electro Re's underwriting profitability as a consequence of the increase in Alcatel's (its parent company) divestiture of loss-prone businesses and the rise in deductibles in the original policies (hence, improving Electro Re's claims frequency) and continuing cost cutting exercise. A.M. Best believes that Electro Re's investment strategy increases the volatility of its net income as its portfolio comprises an important part of equities (25%) and bonds with a relatively long duration.

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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 http://www.ambest.com.