A.M. Best Affirms Rating of Forsikringsaktieselskabet K.a.B. International.

Business Editors

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

A.M. Best Co. has affirmed the A- (Excellent) financial strength rating of Forsikringsaktieselskabet K.a.B. International (K.a.B.), Denmark.

The outlook is stable.

The affirmation reflects the company's excellent capital base, good domestic business profile and well-diversified investment portfolio and consequent high levels of liquidity. Offsetting these positive factors are the company's reduction in profitability in 2001 and its overall size relative to its peers.

Excellent capitalisation--At the end of 2001, capitalisation remained excellent and supportive of the current rating level according to A.M. Best's risk-adjusted capital model. Traditional solvency was also conservative at 0.2 times. Financial flexibility remains restricted, however, due to the parent company's mutual status.

Well-developed domestic business position--Net written premiums increased to DK 45.0 million (USD 6.2 million) in 2001, up from DK 40.0 million (USD5.5 million) in the prior year. The company benefited from the hard market conditions and the consequent improved rating environment in addition to achieving organic growth. Management also continued to develop new business to further strengthen its position facilitated by two new underwriters experienced in the Caribbean and European markets. New marine business is also being explored.

Diversified investment portfolio--K.a.B. continued to maintain a well-diversified portfolio during 2001. In line with forecasts, the portfolio contained a lower proportion of equities and unit trusts (41.3% of invested assets compared with 47% in 2000) initiated by recent poor performing equity markets. The remainder of the portfolio was accounted for by fixed income securities (48.7%) and cash and cash equivalents (9.8%). The current liquidity ratio remained strong at 247.5% in 2001.

Reduction in profitability--A substantial loss before tax of DK 24.2 million (USD 3.3 million) was reported in 2001, compared with a profit of DK 28.9 million (USD 3.9 million) in the prior year. A significant run-off loss from one individual contract was primarily responsible for the deterioration in the combined ratio, which increased to 142.9% in 2001 from 120.6% in 2000. Investment market volatility also had an impact, with the company recording a DK 9.5 million (USD 1.3 million) realised loss and DK4.1 million (USD 0.5 million) unrealised loss in 2001.

Absolute size and parental influence limit growth--The company's size in relation to its peers indicates that access to some risks and geographic markets is restricted. Additionally, a significant proportion of business is generated through a small number of core clients. Further, the parent company caps the level of gross premiums written, although the cap was recently increased from DK 75 million (USD 10.0 million) to DK 100 million (USD 13.4 million) in 2001 to enable K.a.B. to take advantage of the improved rating environment in the global reinsurance market.

Expectations:

- The company will maintain its excellent level of risk-based

capital and conservative solvency position.

- Underwriting performance is forecast to improve. The

one-year time lag in the company's reporting makes it

easier to forecast underwriting results. In the short term,

premiums are forecast to increase by at least 10%,

benefiting from market conditions and the potential

re-development of the diminished marine account.

- The absence of exceptional run-off costs, in addition to

the forecast continued reduction in equity exposure, should

lead to an improvement in bottom line results.

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.