Taiwan’s Chung Kuo Ins. Rated BBB+; Outlook Stable

August 16, 2002

Standard & Poor’s has assigned its triple-‘B’-plus insurer financial strength and counterparty credit ratings to Taiwan-based Chung Kuo Insurance Co. Ltd. (Chung Kuo), based on the company’s strong capitalization, prudent investment profile, and satisfactory underwriting performance.

The strengths are counterbalanced by increasing competition in a difficult operating environment, and the company’s susceptibility to an increasingly tough global reinsurance market in light of its high exposure to catastrophe risk.

At the same time, Standard & Poor’s withdrew its triple-‘B’-pi public information ratings on the company. The outlook on the long-term counterparty credit rating on Chung Kuo is stable.

“Chung Kuo’s premiums are expected to grow in 2002 at the 5 percent annual average rate projected for the wider market, driven by an increase in underlying premium rates and the company’s focus on personal lines of insurance,” Standard & Poor’s credit analyst Connie Wong said. “Because of this, the company’s underwriting performance is expected to remain stable despite increasing reinsurance costs,” she added.

Chung Kuo’s operating performance is satisfactory, as demonstrated by its average annual return on revenue of 19 percent over the past three years and its average annual return on equity of 7 percent over the same period. The company’s underwriting results, as shown by its combined ratio of 102 percent in 2001 and 2000, were also satisfactory given its higher-than-average weighting in commercial lines of insurance, which are deemed to carry higher risks than other lines of insurance.

Although a recent increase in global reinsurance costs may negatively affect Chung Kuo’s underwriting performance the company is committed to controlling costs. Increasing premium rates should help it to maintain its combined ratio at a satisfactory level of around 100 percent over the medium term.

The company’s investment returns have, however, been marginal due to its extremely conservative investment practices.

Accordingly, Chung Kuo’s overall operating performance could be constrained over the medium term. Chung Kuo has a strong balance sheet. The company’s solvency ratio (shareholder funds to net premium income) of 257 percent at the end of 2001 was extremely high despite its extensive exposure to catastrophe risk.

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