Best Affirms FSR for Wing Lung

December 12, 2005

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and assigned an issuer credit rating of “a-” to Wing Lung Insurance Company Limited (WLI) (Hong Kong). The outlook for both ratings is stable.

The rating reflects WLI’s prudent risk-adjusted capitalization, consistently positive operating results, improved net premium leverage ratio and the conservative investment strategy.

WLI’s underwriting profitability remained stable in 2004 despite continued softening in premium rates in the local non-life market. The company’s consistent positive operating result for the past five years has fueled its surplus growth. The risk-adjusted capitalization, as measured by the Best’s Capital Adequacy Ratio, remained adequate and supportive of WLI’s current rating.

Additionally, the company’s net premium leverage ratio improved from 1.29 in 2002 to 0.95 in 2004, falling within a comfortable margin to offset any short-term pressure on underpricing or increase in losses.

Although WLI increased its investment in fixed income instruments, the liquidity of its investment portfolio remained strong. Cash and fixed income instruments represented about 48% and 29%, respectively, of the company’s assets as at June 2005. The prudent investment strategy and portfolio have allowed for a stable investment return with a fair degree of financial flexibility.

These positive rating factors are partially offset by the continued decline in premium rates of WLI’s major lines of business and the concentration on liability business in its portfolio.

WLI has a narrow spread of risk due to the heavy concentration on general liability business, which represented about 67% of its total business in 2004. The deteriorating premium rates and intense market competition could lead to a higher degree of premium volatility and undermine the stability of the company’s operating earnings going forward.

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