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Constrained growth predicted for Inter-Ocean

Standard & Poor's (S&P) forecast that growth will be constrained for Bermuda-domiciled Inter-Ocean Reinsurance Co. Ltd. in 1998, due to the continuing soft traditional reinsurance market and the re-emergence of Lloyd's.

But through increased capacity provided by the Munich Re group and expected shareholder cessions, S&P believes Inter-Ocean should have roughly $200 million in gross writings for the 1998 year, with GAAP return on revenue (ROR) projected at 55 percent.

S&P affirmed its single-`A' claims-paying ability and issuer credit ratings for the reinsurer.

The ratings agency said the outlook is stable, reflecting Inter-Ocean's interaction with American Reinsurance Co.'s financial products division, and American Re's recent assimilation into the Munich Group.

S&P expects that Inter-Ocean will use Munich Re more as a retrocessionaire, rather than as a shareholder, and use the relationship to develop financially-oriented or securitised products to compliment its offered finite covers.

Parent Inter Ocean Holdings Ltd. has good shareholder relationships. It is owned by nine diversified insurance and reinsurance companies which have claims-paying ability ratings of single-`A'-minus or better.

Operations are controlled by American Re-Insurance Co.'s subsidiary, AmRe Managers Bermuda Ltd. (ARMB), who by contractual arrangement with shareholders, provides administrative, investment and underwriting services to Inter-Ocean through either its own skills or those of various affiliated entities.

Underwriting and timing risks are 100 percent retroceded, with retrocession obtained concurrent with, or prior to, acceptance of any risk.

Retrocessions are channelled to active shareholder members on either a proportioned basis through Inter-Ocean's claims-settlement facilities or individualised retrocession.

S&P was impressed with Inter-Ocean's profit margin over the past five years, as indicated by the ROR, which has surpassed the traditional insurance marketplaces.

As of September 30, 1997, ROR remained at 55.4 percent and is just below the company's five year calendar average of 56.7 percent.

With no risk retention, Inter-Ocean's capital base in all respects covers the true financial strength of the company's operations.

Using traditional measures of capital adequacy, operational leverage, as measured by gross written premiums to equity, equaled 1.8 (x) times as of September 30. Gross loss reserves to equity also equated to 1.8x. Both figures are considered modest for finite business.