Shinkong Outlook Revised to Negative

August 12, 2002

Standard & Poor’s Ragtings Services has revised its outlook on Taiwan-based Shinkong Insurance Co. Ltd.’s single “A-” counterparty credit rating from stable to negative.

The counterparty credit rating as well as the single-‘A’-minus insurer financial strength rating on the company remain unchanged.

The action reflects a deterioration in the company’s operating performance beyond Standard & Poor’s expectation. Weakening operations are likely to make it difficult for Shinkong Insurance to maintain its financial profile at a level commensurate with the current ratings over the medium term.

Although Shinkong Insurance had posted satisfactory underwriting results in the past, with combined ratios consistently below the industry average by at least five percentage points during the 1998-2000 period, since the middle of 2001, the company’s performance has deteriorated significantly to an extent where it may no longer outperform the market average.

This deterioration can be mainly attributed to the company’s strategy of rapidly enlarging its market position, a blueprint that requires additional outlays to expand its network. It can also be attributed to rising loss ratios in Taiwan’s tough underwriting market. In addition, to maximize profitability, Shinkong Insurance has gradually exposed itself to riskier equity holdings, which were seriously impacted by falling share prices in the first half of 2002.

The ratings could be lowered if the company’s declining operating performance significantly affects its financial profile.

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