S&P Lowers NRMA Ratings to ‘AA’

October 3, 2002

Standard & Poor’s announced that it has lowered its double-‘A’-plus long-term insurer financial strength and counterparty credit ratings on NRMA Insurance Ltd. and IAG New Zealand Ltd. to double-‘A’, and assigned a stable outlook to the companies.

NRMA Insurance Ltd., Australia’s largest p/c insurer, and IAG New Zealand Ltd. are core underwriting entities of Insurance Australia Group Ltd. (IAG), formed when NRMA, formerly the insurance operation of the Australian Automobile Club was demutualized.

“The downgrade reflects the heightened strategic and operational risks associated with IAG’s articulated growth strategy, and evidence of more efficient capitalization benchmarks, both of which have evolved since the group’s demutualization in August 2000,” said the bulletin.

“While IAG maintains clear market leadership in general insurance, a very strong capital position, and sound and conservatively based reserving practices, its overall business and financial strength is more reflective of the double-‘A’ rating, especially compared with that of international peers,” stated Michael Vine, director, Financial Services Ratings.

“IAG’s reinvigorated business model has supported robust growth, diversification, and underwriting improvements, although its business has changed from being a simple motor insurer with abundant capital to a group now exposed to heightened complexity and associated risks, and a global economic environment that has seen downward rating pressure on insurers,” Vine continued. The stable outlook, however, reflects S&P’s view that IAG should be able to successfully manage these risks.

S&P said it expects IAG’s underwriting performance to continue to improve, and that it will “maintain its leadership business franchise and very strong capital and reserving position.” It remains the highest rated indigenous Australian insurer. S&P’s report also indicated that it ” views the current senior management and stewardship as strong and stable, with a heightened governance and risk-management focus.”

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