A.M. Best Affirms Ratings of Wuerttembergische und Badische Versicherungs-AG.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of "bbb" of Wuerttembergische und Badische Versicherungs-AG (WUEBA) (Germany). The outlook for both ratings remains stable.

The ratings of WUEBA reflect its adequate risk-adjusted capitalisation, improved business profile and continuing good operating performance.

In A.M. Best's view, WUEBA's consolidated risk-adjusted capitalisation remains supportive of the rating despite a deterioration following the cash acquisition of Deutsche Versicherungs und Rueckversicherungs-Aktiengesellschaft (DARAG). WUEBA's consolidated risk-adjusted capitalisation is likely to improve prospectively through the partial retention of earnings, which benefit from the utilisation of a tax loss that has been carried forward and allocations to the equalization reserve. A.M. Best will monitor the dividend policy of the future shareholders.

A.M. Best believes that the acquisition of DARAG has strengthened WUEBA's business profile as a niche broker insurer, specialising in mid-sized German commercial business. DARAG added EUR 75 million (USD 105 million) of gross premiums written to the group in 2006, bringing the combined premium income to EUR 242 million (USD 340 million). Despite initial expectations, WUEBA renewed most of DARAG's business in 2007 due to the better than expected quality of the portfolio. In A.M. Best's view, DARAG's book of business complements WUEBA's existing property, liability, marine and transport portfolio while increasing the company's distribution network.

A.M. Best expects WUEBA's consolidated operating performance to decline in 2007 mainly due to the absence of non-recurring capital gains, which positively impacted 2006 earnings (totaling EUR 29 million/USD 41 million from the sale of bonds and affiliated shares). As a result, A.M. Best anticipates pre-tax earnings (before allocation to equalization reserve) in the range of EUR 10 - 13 million (USD 14 - 18 million) (EUR 34 million/USD 48 million in 2006), translating into a satisfactory return of premiums of 9% in 2007. This will be driven by a relatively stable underwriting performance (with a combined ratio of 99%) as a result of controlled underwriting and relatively stable claims development. An offsetting factor remains the high underlying expenses (expected to be above 30% in 2007).

A.M. Best has not factored any rating enhancement for WUEBA following the announcement that a subsidiary of American International Group (AIG) intends to acquire the company from entities associated with J.C. Flowers & Co. LLC before the end of 2007. However, A.M. Best will evaluate AIG's future strategy in Germany and its plans for WUEBA once it has been fully integrated.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and healthcare service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.