A.M. Best Lowers Rating of Misr Insurance Co.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Jan. 14, 2003

A.M. Best Co. has lowered the financial strength rating to A- (Excellent) from A (Excellent) of Misr Insurance Company, Egypt.

The rating action reflects the company's weakened risk-adjusted capitalisation given its sizeable equity position and the effect of A.M. Best's evaluation of country risk (see A.M. Best's Country Risk Methodology at www.ambest.com). A.M. Best continues to recognise the company's leading position in the Egyptian market and its excellent operating performance. The outlook is stable.

Reduced risk-based capitalisation--A.M. Best believes that risk-adjusted capital is subject to a significant degree of investment risk due to the company's constructive role in the long-term economic development of Egypt and therefore sizeable position in unlisted (EGP 1.2 billion (USD 262.4 million)) and listed (EGP 955 million (USD 206.4 million)) equities. Although A.M. Best recognises the company's conservative concentration limits and access to other liquid assets, it is concerned about the credit and liquidity risk associated with these investments, which is heightened by the country risk. In addition, the strong premium growth projected in 2003 could become a strain on capital.

Market leader--Based on preliminary figures for year-end 2002, A.M. Best expects Misr to consolidate its market share (above 30%) due to strong growth (16.6%) in gross premiums to EGP 894.6 million (USD 193.2 million), particularly within the aviation and energy accounts. Notwithstanding the liberalisation of the market, Misr has maintained its dominant business position--leader in the non-life market, second-largest in the life market--through offering significant gross underwriting capacity and technical expertise in specialist lines, combined with its excellent distribution capabilities. This is partially offset by the company's dependence on the Egyptian market for business.

Excellent operating performance--Net profit for year ended June 30, 2002, has increased 11% to EGP 203.1 million (USD 43.9 million) despite a 20 point deterioration in the loss ratio to 65%, attributable to prior year reserve releases in 2001 rather than adverse underwriting performance in 2002. The company has achieved a five-year average combined ratio of 47.7% through selective underwriting, conservative retention levels (40.8% in 2002) and efficient expense structure, which is reflected by the 20% expense ratio in 2002. Adjusted return on equity increased to 15.4% in 2002, as the company continued to achieve a favourable investment return of 7.7% in 2002 despite falling equity markets and a depressed economy.

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 .