S&P Raises Aioi Rating Outlook to Positive

April 27, 2005

Standard & Poor’s Ratings Services announced that it has revised its outlook to positive from stable on the “A-” financial strength and long-term counterparty ratings on Aioi Insurance Co. Ltd., “reflecting increased likelihood of improvement in the company’s capitalization.” It also affirmed the present rating.

S&P noted that “Aioi’s capitalization has been significantly eroded in recent years due to massive losses from its overseas reinsurance transactions with Fortress Re Inc. and losses on its domestic equity portfolio caused by the stagnant stock market.”

The rating agency indicated, however, that “further significant deterioration is less likely now, thanks to the stable investment environment and the company’s reduced domestic equity holdings.”

“Aioi’s underwriting profitability has been improving, supported by improvement in its insurance product mix,” said S&P credit analyst Kai Nakajima. “Growth of fire and casualty insurance sales indicates there may be an overall upturn in premiums.”

“Other factors contributing to the insurer’s improved underwriting profitability include decreasing loss ratios related to auto insurance and progressing reforms of the company’s cost structure,” S&P stated. “Moreover, the insurer can expect a medium-term increase in premium income in line with its overseas business development with the Toyota group.

“The company’s combined ratio as of year-end fiscal 2004 (ended March 31, 2005) is very likely to be higher than that of the previous fiscal year, due to large payouts on damage from typhoons and other natural disasters. The risk of massive claims related to natural disasters remains a threat.

“However, Aioi is likely to achieve steady improvement in its capitalization through its continued efforts to reduce risk assets. If the company can achieve a quick increase in premium income while continuing to improve its capitalization, the ratings could be raised. Aioi is the fourth largest non-life insurance company in Japan on a net premium income basis. A key business and financial strength for the insurer is its strong affiliation with Toyota Motor Corp. (AAA/Stable/A-1+), its largest shareholder with a 33.4 percent stake,” the bulletin concluded.

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