A.M. Best Affirms Ratings of Gerling-Konzern Allgemeine Versicherungs-Aktiengesellschaft and U.S. Subsidiary; Assigns Issuer Credit Rating.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Gerling-Konzern Allgemeine Versicherungs-Aktiengesellschaft (GKA) (Germany) and its U.S. subsidiary, Gerling America Insurance Company (GAIC) (New York). Concurrently, A.M. Best has affirmed the issuer credit rating (ICR) of "a-" of GKA and the debt rating of "bbb" of the EUR 250 million fixed-to-floating-rate subordinated notes issued by GKA and assigned an ICR of "a-" to GAIC. The outlook on all ratings remains stable.

The rating of GKA reflects its strong risk-adjusted capitalisation, sufficient earnings level and maintenance of a strong business profile as an industrial insurer in Germany despite the uncertainty surrounding GKA's future ownership.

Strong risk-adjusted capitalisation--A.M. Best expects GKA's risk-adjusted capitalisation to remain strong as higher capital requirements from the planned increase in net retention (to approximately 78% from 57.5% in 2004) are alleviated by retained earnings. Through normal run-off as well as commutations and other transactions, the net exposure to the former group reinsurer GLOBAL Re has been significantly reduced but is still high and not expected to change materially in 2006 and 2007.

Sufficient earnings level--A.M. Best expects GKA's net income to be sufficient to support the current rating despite an anticipated decline from EUR 92 million (USD 126 million) in 2004 to approximately EUR 70 million (USD 86 million) in 2005 (which translates into a return on premium of approximately 6%). The deterioration will be largely driven by higher catastrophe claims frequency as well as rate cuts in the property and liability businesses, resulting in an approximately 3% increase in the combined ratio to 98%.

Maintenance of strong business profile--A.M. Best expects GKA to maintain its strong business position as one of the three leading industrial insurers in Germany. It is likely to regain business previously lost due to the difficult financial situation relating to the Gerling group in 2001-2003. Consequently, gross premium income is expected to increase by approximately 6% to EUR 2.5 billion (USD 3.1 billion) in 2005, mainly driven by strong new business in industrial property largely from the United Kingdom. While A.M. Best believes that the future ownership of GKA remains uncertain, it does not expect this to have a negative impact on GKA's short-term prospective business profile.

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