Best Affirms MERITZ ‘B++’ Rating

January 30, 2006

A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) and assigned an issuer credit rating of “bbb+” to South Korea’s MERITZ Fire & Marine Insurance Company, Ltd. with a stable outlook.

“The ratings reflect MERITZ’s moderate risk-adjusted capitalization, stable underwriting performance and conservative investment strategy,” said Best. “MERITZ’s capitalization has been strengthened during the past five years. The company has maintained a Korean solvency ratio of 179 percent as of fiscal year 2004. The Best Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, also indicates the company’s moderate capital position.

“During the past five years, MERITZ has shown consistent operating performance which is in line with other major non-life companies in Korea. Its combined ratio has been maintained at a stable level, with a 5-year average of 105 percent.

“The company maintains an investment portfolio with bonds accounting for approximately 47 percent of total assets as of fiscal year 2004. A conservative investment strategy will continue to contribute to the company’s financial stability.”

However, Best noted that the company’s “relatively high insurance leverage and the continuing low interest rate environment and intensified competition in the Korean non-life insurance market,” constitute partially offsetting factors.

“MERITZ’s insurance leverage, excluding pure savings premium with a capital charge of 4 percent on the savings reserve, stood at 2.82 times, indicating a relatively high ratio among the major non-life players as of fiscal year 2004,” best continued.

“The low interest rate environment in Korea will continue to exert pressure on the company’s investment yield as well as the interest margin of its long-term product portfolio. MERITZ is shifting its business portfolio towards floating rate products to mitigate the problem of low interest rates.”

Best also indicated that it “anticipates that the increasing competition in motor insurance from market penetration through direct channels will exert pressure on the company’s profitability in the near future.”

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