A.M. Best Upgrades Terra Nova Insurance Ltd., Terra Nova (Bermuda) Insurance Ltd

A.M. Best Co. announced it upgraded Terra Nova Insurance Co. Ltd. and Terra Nova (Bermuda) Insurance Co. Ltd. to "A" (Excellent) from "A-".

The rating reflects the group's excellent financial performance, liquidity and conservative investment strategy. It also reflects its experienced management team, which has profitably expanded the business since the holding company, Terra Nova (Bermuda) Holdings, was established in 1994.

The holding company's financial performance continued to improve during 1997, with reported underwriting profit decreasing slightly, to $7.5 million from $7.9 million in 1996. The combined ratio remained satisfactory, at 94.1% (up from 93.7% in 1996), particularly in view of the highly competitive trading environment.

Terra Nova (Bermuda) Holdings' conservative investment strategy, with most assets invested in fixed-interest securities, produced an average investment yield before realized gains and losses of 6.2%. The combination of profitable underwriting and solid investment performance resulted in an increase in net income for the group in 1997 of 14.9% to $73.4 million.

The group is a lead underwriter in the majority of its chosen classes--property, casualty, marine, aviation and auto--and is expanding its geographical presence. The most recent example of this expansion strategy was the acquisition of Compagnie de Reassurance d'lle de France, Paris in September 1997, which brings a portfolio of profitable business to the group and enhances penetration of the continental European markets. Terra Nova (Bermuda) Holdings is also growing through the acquisition by Terra Nova Capital Ltd.--the group's Lloyd's corporate capital investor--of an increasing share of Octavian Syndicate Management Ltd.'s underwriting capacity at Lloyd's. The group continues to concentrate on growth through acquisition during the soft market cycle and is seeking to position itself geographically and structurally to benefit from any future upturn in underwriting conditions.

Offsetting these positive rating factors are the extremely competitive conditions in most of the major markets in which the group operates, rapid growth in gross and net premium volumes and historic reinsurance recovery issues. Mitigating these concerns is the group's profitable underwriting approach. In addition, premium growth is focused on the acquisition of a larger share in the business written by Octavian, which A.M. Best considers to be developed and historically profitable. Management also has made significant improvements in the group's overall reinsurance collection profile.