Best Affirms Egypt Re ‘B++’ Ratings

A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) and the issuer credit rating (ICR) of “bbb” of The Egyptian Reinsurance Company with a stable outlook.

“The ratings reflect Egypt Re’s solid risk-adjusted capitalization, very good investment return and prominent business profile,” said Best. “An offsetting factor is the company’s continuing dependence upon investment income to offset underwriting losses.”

Best noted that it “expects Egypt Re’s prospective risk-adjusted capitalization to remain solid, despite the high level of credit risk associated with the concentration of the company’s investment portfolio in Egypt. Approximately 40 percent of the company’s total investments by market value are invested in domestic equities and, in A.M. Best’s opinion, this exposes the company to the volatility in the stock market.”

The rating agency also said it “believes that in 2006 and 2007, Egypt Re will continue to be reliant on investment income to offset underwriting losses. The 2006 and 2007 investment return is expected to be reduced to approximately 11 percent-12 percent, compared to 13.2 percent in 2005, due to a high but declining interest rate environment in Egypt.”

Best forecasts that “the company’s very high combined ratio is likely to stabilize at approximately 130 percent in 2006 and 2007, in line with the 130.5 percent in 2005. This is mainly due to poor run-off of the Motor Act (compulsory motor) business and the high acquisition costs in Egypt (approximately 39 percent for Egypt Re in 2005).”

Best indicated that it “believes that Egypt Re will maintain its prominent business profile and forecasts that the company’s gross written premiums is likely to reduce by 5 percent each year in 2006 and 2007 compared to 1 percent reduction in 2005 as a result of continuing reduction in domestic unprofitable business.”