(Double-A-Minus) claims paying ability rating of Capital Title Reinsurance Company (Capital Title).

Capital Title is a New York-domiciled title insurer that was founded in 1996 with an initial capitalisation of $25 million.

The company is a wholly owned subsidiary of KRE Reinsurance Ltd. (Bermuda) (KRE), and is ultimately owned by Capital Re. Capital Re is a publicly held insurance holding company, with consolidated assets of $1.5 billion and shareholders equity of $681 million at June 30, 1998.

DCR said the rating was based on the financial strength and explicit support of its parent organisation, Capital Re Corp. and Capital Title's conservative business plan for providing reinsurance products to title insurers, characterised by a strong management team, sound underwriting guidelines, reasonable risk exposures relative to surplus, and a prudent investment policy.

The rating also considers that Capital Title is developing its franchise as the first company solely dedicated to providing title reinsurance, and that ultimate market acceptance and demand for Capital Title's products is unclear.

Capital Re has subsidiaries engaged in financial guaranty reinsurance, mortgage guaranty reinsurance, credit, reinsurance and title reinsurance. KRE is a mortgage reinsurance subsidiary of Capital Re, and has a claims paying ability rating of `AA ' (Double-A-Plus) with DCR.

Reinsurance products offered by Capital Title include excess of loss treaties for commercial policies, stop-loss treaties on residential business, and facultative coverage for large individual commercial risks.

As a reinsurer, Capital Title has much lower operating expenses than primary writers of title insurance. However, underwriting results greatly depend on the underwriting expertise and loss experience of cedants.

Capital Title has developed well-defined underwriting and audit guidelines to assess the underwriting strength of potential reinsureds. Historically, very few title insurance claims have penetrated reinsurance layers. During its first full year of operations in 1997, Capital Title generated $2.5 million of earned premiums with a net underwriting profit of $455,000.

Capital Title's balance sheet is strongly protected through affiliated reinsurance arrangements and guarantees. Capital Title's business plan allows for individual risk limits to be offered on large commercial transactions up to 20 percent of the consolidated group's surplus, or approximately $100 million.

To limit its risk exposure, Capital Title retains policy limits up to 20 percent of policyholders' surplus. Policy limits above this retention are ceded to KRE, and supported by a binding, legal guarantee from Capital Reinsurance Company.

Total consolidated surplus at June 30, 1998, available to support large claims is in excess of $629 million. Capital Title will also be protected by a second reinsurance arrangement with KRE, that provides protection should losses from Capital Title's retained business cause the loss ratio to move above 100 percent, or cause policyholder surplus to fall below $25 million.