S&P Comments on Promina’s Profit Figures

August 28, 2003

Standard & Poor’s Ratings Services issued a bulletin noting that Australia and New Zealand’s Promina Group Ltd.’s reported half-year profits of A$135 million ($U.S.$87 million) after tax, indicating that the results were “broadly in line with Standard & Poor’s expectations and consistent with its ‘A’ insurer financial strength and counterparty credit ratings on Promina’s two main operating entities.”

Promina’s two main operating entities are Royal & Sun Alliance Insurance Australia Ltd. and Royal & Sun Alliance Insurance (New Zealand) Ltd. S&P rates both as ‘A/Stable.’

“Like other Australian general insurers, Promina’s strong result benefited from a good operating environment in the Australian general insurance market, along with a positive contribution from the life and funds management operations,” stated S&P credit analyst, Financial Services Ratings, Paul Clarkson. The general insurance operating performance contributed A$105 million [U.S.$68 million] after tax to the group.

“A lower claims ratio through a favorable claims environment positively impacted the underwriting performance–with a combined operating ratio of 96.7% that included the losses from the Canberra bushfires–along with strong organic premium growth and increased investment income via their predominately fixed interest investment portfolio,” Clarkson added.

S&P also noted that “The life insurance and funds managements operations contributed a positive A$33 million to the group after-tax profit despite difficult trading conditions for life insurance companies.”

In discussing the Group, which held an initial public offering of its shares last May, S&P noted that it “has solid business fundamentals, with geographic and product diversity and strong business positions in both Australia and New Zealand. Product diversity includes its general insurance (both commercial and personal), life, and funds management operations in Australia and New Zealand.”

The Group is currently the third largest general insurer in Australia and the second largest in New Zealand, “although its position in the two life insurance markets is less dominant.” Promina operates separately from R&SA, and will cease using the name in the local markets. It has adopted the trading name “vero” for intermediate general insurance operations and “Asteron” for the financial services operations, said S&P.

“Promina also trades under other well-recognized brand names for its direct general insurance operations, including AAMI, AA Insurance, APIA, and Shannon’s. Capital levels remain robust and within the rating tolerance, backed by conservative reserving levels,” the bulletin concluded.

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