rating of Inter-Ocean Reinsurance Co., Bermuda, to A (Excellent) from A minus (Excellent).

Best said this rating action reflected the company's strong strategic relationship with its strong shareholders, stable fee-based earnings trends and increasing broker market acceptance as an alternative risk provider.

Best said the rating also considered the company's excellent capitalisation supported by its nonrisk bearing operating structure, strong risk management and conservative balance sheet strategies. It also said the company's unique partnership with recognised industry leaders had provided a diverse book of finite risk business by cedant and by geographical zones.

It added that the company was employing sophisticated modelling techniques to price and evaluate risk potential associated with exposure submissions. The company's underwriting team had access to a range of underwriting expertise through its international shareholder base affiliations. It said the company had consistently attracted profitable new business based on the capabilities of its professional staff, strategic affiliations, market presence, financial strength, quality service and the economic value and versatility of its tailored products.

Best said earnings trends and return on equity had remained strong, with the company reporting positive net operating income each year since its first full year of operation.

With each insurance risk exposure fully reinsured, the company's strong level of capitalisation adequately covers its operations, reflecting a conservative credit and investment risk profile.

Best stated the company's liquidity position was supported by a high quality investment portfolio and $50 million credit facility and partially offsetting these strengths are competitive challenges from insurers and reinsurers entering the market, eroding market prices and increasing pressure to maintain market share.

It said the company continued to be challenged to broaden its revenue base by expanding its sources of new business and reducing its dependence on certain of its retrocessionaires. Because finite exposures may generate relatively high premium volume in one year and are subject to possible non-renewal in the following year, fee income is subject to considerable variability.

Best said in this regard, management would be challenged to balance its desire to grow fee income with adherence to profitability guidelines. However, A.M.

Best said it believed that management's adherence to its risk mitigation strategies would insulate the company's earnings from significant fluctuations.