A.M. Best Downgrades Ratings of Quanta Capital Holdings Ltd. and Places the Ratings Under Review With Negative Implications

Business Wire, March 2, 2006

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength ratings (FSR) to B (Very Good) from A- (Excellent) and the issuer credit ratings (ICR) to "bbb" from "a-" for the insurance/reinsurance subsidiaries of Quanta Capital Holdings Ltd. (Quanta) (NASDAQ: QNTA) (Hamilton, Bermuda). The rating actions apply to Quanta Reinsurance Ltd. (Quanta Re) (Hamilton, Bermuda), its subsidiaries and Quanta Europe Ltd. (Dublin, Ireland). A.M. Best also has downgraded Quanta's ICR to "bb" from "bbb-" and the securities rating to "b " from "bb" of its $75 million 10.25% Series A non-cumulative perpetual preferred shares.

All ratings have been placed under review with negative implications and will remain under review until A.M. Best is comfortable with management's business plans and its ability to execute those plans. The under review status also contemplates the impact of the downgrades as it pertains to rating triggers, collateral requirements, the need to develop strategic alternatives and any other constraints, which have not yet been quantified.

These downgrades follow Quanta's significant fourth-quarter 2005 net loss of between $40 million to $45 million reported today, which included unexpected loss reserve development for hurricanes Katrina and Rita, as well as other actuarial reserve adjustments and reported charges. The underlying causes of the higher than expected fourth-quarter net loss, as well as the significant changes in key management positions in recent months, which, while generally viewed favorably by A.M. best in the long term, have heightened A.M. Best's concerns regarding Quanta's ability to successfully execute its revised business plans and grow its businesses profitably. While A.M. Best recognizes that current management is making positive pro-active operational and strategic improvements, some concerns remain related to Quanta's prior risk management practices, its market positioning, cost structure disadvantages and increased reliance upon reinsurance to mitigate earnings volatility. In addition, certain key management positions have yet to be filled, and business strategy decisions remain.

In the near term, there also exists the risks of upward development of Quanta's Katrina, Rita and Wilma hurricane losses and potential charges related to changes in its business plans. In addition, Quanta is currently operating with a far above-average expense ratio, which senior management is addressing and expects to lower in 2006, although to a level that will still be high.

Despite these negative factors, Quanta's capitalization is supportive of its current ratings, which take into consideration the company's successful capital-raising initiatives in December 2005. The majority of the proceeds were contributed to its operating subsidiaries with approximately $14 million held at Quanta to cover one year of interest and dividend payments at the holding company in 2006.

Quanta's proforma financial leverage (debt plus preferred-to-total capital) at September 30, 2005, adjusted for its $75 million preferred shares and $62 million common stock offerings in December 2005 (including over-allotment), was about 24%--about 10 percentage points above its actual debt-to-total capital as of that date. As a result of Quanta's fourth-quarter 2005 net loss, debt financial leverage rose slightly to 26% at year-end.

The FSRs of A- (Excellent) and ICRs of "a-" have been downgraded to B (Very Good) and "bbb", respectively, for Quanta Reinsurance Ltd. and its following subsidiaries and Quanta Europe Ltd.:

--Quanta Indemnity Company

--Quanta Reinsurance U.S. Ltd.

--Quanta Specialty Lines Insurance Company

The ICR of "bbb-" has been downgraded to "bb" for Quanta Capital Holdings Ltd.

The following securities rating has been downgraded:

Quanta Capital Holdings Ltd.--

--to "b " from "bb" on $75 million 10.25% Series A non-cumulative perpetual preferred shares

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.