Best Affirms Sovereign Assurance (NZ) ‘A’ Rating

January 7, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) of New Zealand’s Sovereign Assurance Company Limited with a positive outlook.

“The rating reflects the company’s prudent capitalization, market leadership and diversified strategies for competing in a highly competitive industry,” said Best. “The rating also recognizes the improved operational performance shown in the current year, as well as the demonstration of tight internal underwriting controls.”

The bulletin noted: “Sovereign maintained prudent capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) which measures capitalization on a risk-adjusted basis. The company has been the market leader for the past four years, capturing 27.5 percent of the in force premium market in fiscal year 2004. Sovereign remains competitive by focusing on aligned channels such as ASB Bank. Operating fundamentals have improved with tighter underwriting standards and product repricing.

“The growth in the company’s embedded value provides further comfort to A.M. Best’s view on the profitability of the business. Sovereign grew embedded value from NZD 589.5 million (USD 371 million) in fiscal year-end 2003 to NZD 687 million (USD 432 million) in fiscal year-end 2004.

“These factors are partially offset by the company’s sizeable exposure in equities, strong business competition and the potential operational risks associated with the major information system project being conducted. Sovereign has indicated that there have not been any major setbacks since the commencement of the legacy system consolidation project.

“The company’s investment exposure of over 50 percent in equities and listed property trusts is considered high. This could lead to strain on Sovereign’s operating performance in turbulent years.

“Strong competition for new business premium from niche players is putting pressure on Sovereign’s market share. However, Sovereign’s scale in marketing and product development places the company in a better position to compete effectively.”

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