paying ability rating Bermuda's Associated Electric & Gas Insurance Services Ltd. (AEGIS).

The rating reflects the company's strong position in its target market, low expenses and low level of operating leverage.

Offsetting these positives is the uncertainty surrounding the outcome of environmental pollution claims.

AEGIS is a Bermuda corporation organised in 1975 to meet the insurance needs of the US and Canadian electric and gas utility industries. The company's market penetration is high, as evidenced by a 75-percent market share of the utility industry when evaluated in terms of energy production.

Net premiums written during 1994 were $196 million, with general liability insurance representing 75.9 percent, and directors and officers liability insurance representing the remaining 24.1 percent.

AEGIS's operating leverage has historically been very low when measured by either the net premiums written to policyholders' surplus ratio, or by the ratio of total liabilities to policyholders' surplus.

The 1994 net premiums written to policyholders' surplus ratio was 0.41:1, while the ratio of total liabilities to policyholders' surplus was 3.55:1.

DCR believes that AEGIS's potential exposure to environmental pollution claims is large under an adverse scenario. However, the company appears to be ahead of the industry in reserving for such claims.