Fitch Puts China’s CIIH Ratings on Watch-Negative; S&P Comments

January 27, 2006

Fitch Ratings announced that it has placed China Insurance International Holding Co. Ltd.’s (CIIH) long-term rating of “BBB-” and the senior debt rating of “BBB-” assigned to the guaranteed issue of the wholly-owned subsidiary CIIH (BVI) Ltd. on Rating Watch Negative.

At the same time, the rating agency said it has affirmed the “A- financial strength ratings of China International Reinsurance Co. Ltd. (CIRe) and the “BBB+” FSR of Tai Ping Life Insurance Co. Ltd. (TPL) – both subsidiaries of CIIH. The outlook for bot ratings is stable.A.M. Best has also affirmed its ratings on CIRe (See previous article).

“These rating actions follow the announcement on Jan. 25, 2006 that the group expects its results for the year 2005 to be materially and adversely affected by recognition of an impairment of approximately HK$250 million [U.S. $32.3 million] in goodwill associated with its 100 percent owned asset management subsidiary CIGAML acquired in September 2002.” Fitch explained. “The group has stated that, as a result of this impairment, its consolidated net losses for the year ended Dec. 31, 2005 will significantly increase.”

Although it has so far taken no action, Standard & Poor’s Ratings Services said it has considered the announcement, and will review the CIIH Group’s financial condition. S&P currently rates CIIH “BBB” and “A-3” with a stable outlook. The rating agency noted that the “write-off of goodwill is a one-off, and does not affect the cash flow of the CIIH group.” It also indicated that it rates CIRe “A-” with a stable outlook.

Geoff Mayne, Managing Director in Fitch’s Insurance Group in London indicated that the rating agency is “concerned that the expected significant rise in consolidated net losses will elevate further the debt leverage and debt servicing coverage at CIIH. The agency regards this as an important consideration for the Long-term rating of CIIH and the guaranteed senior debt issue.” Fitch said it “expects to resolve the Rating Watch following receipt of the full year 2005 financials for the group.”

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