A strong capital base and conservative underwriting have won Bermuda-based reinsurer, Mid Ocean Reinsurance Ltd. an affirmation by rating agency Standard & Poor's of its double-'A' claims-paying ability rating and counterparty credit rating.

The rating affirmation came even though S&P noted the company's limited operating history and potential for catastrophe losses to cause significant earnings volatility.

The overwhelming positives for Mid Ocean Re included their product line diversification beyond property catastrophe reinsurance, which has come much faster than the other Bermuda cat reinsurers.

Mid Ocean's 1996 property catastrophe premiums accounted for just 31 percent of total premiums.

S&P said, "The company's investment in The Brockbank Group plc has enabled Mid Ocean to become a significant player in the London market, marine and aviation and motor lines, and represents the primary base for product line expansion. Mid Ocean's risk portfolio has also improved its geographical mix through branch expansion in London and Singapore.'' Management is broad-based for a young company, with substantial insurance industry experience in insurance brokerage and underwriting that is manifested in the company's early and cautious entry into Lloyd's, giving an alternative access to additional insurance premiums.

S&P said, "The company's earnings are excellent to date with an inception to date average of annual return on revenue of 37 percent.'' The ratings agency commented that capital requirements are stringent for writers of property catastrophe reinsurance, which is subject to severe losses.

Mid Ocean's capital adequacy is excellent as measured by S&P's catastrophe reinsurance model which includes a worst case catastrophe assumption along with their traditional line of business risk based capital model.

While Mid Ocean's underwriting track record is not as long as their multi-line reinsurance peers, the company has consistently set conservative reserves relative to claims while holding strong relative levels of capital.

The rating agency cautioned that potentially offsetting the company's earnings performance is Mid Ocean's expansion into new lines of business, which will increasingly spread management attention.

Underwriting performance to date has been good, as demonstrated by loss ratios averaging 53 percent since 1993. The reinsurer's underwriters have conservatively written risk, relying primarily on historical loss data and increasingly on various catastrophe modelling services.