S&P’s Rates South China Insurance ‘BBB’; Outlook Stable

March 7, 2003

Standard & Poor’s has assigned its ‘BBB’ insurer financial strength
and counterparty credit ratings to South China Insurance Co. Ltd. The outlook on the counterparty rating is stable.

The ratings reflect the company’s satisfactory underwriting performance and strong balance sheet. These strengths are partly offset by South China Insurance’s modest market position and the longer term challenges of competition and deregulation.

South China Insurance is a short-tail general insurer with a 4 percent share of the Taiwan market in terms of gross premiums. The company focuses on personal lines of insurance. Auto insurance represented 59 percent of its gross premiums in 2001, fire insurance 17 percent, and consumer credits 12 percent. About 60 percent of its business
is generated through direct distribution channels.

South China Insurance’s underwriting management is conservative and better than the domestic industry average. Benefiting from good underwriting control, the company reported a three-year average combined ratio of 95 percent in the 1999-2001 period, which was better than the industry average of about 100 percent. However, the company’s operating performance has been subject to some volatility in investment returns in recent years.

South China Insurance maintains a strong balance sheet. Because of the short-tail nature of its business, the company’s capitalization is strong relative to its risks written, in the context of adequate reserving practices and good reinsurance protection. Its solvency ratio (reported capital to net premiums) stood at 111 percent at the end of 2001. The company’s investments are highly liquid. Almost 65 percent of its invested assets is in cash and deposits and 10 percent is in other fixed income assets. The cash and deposits are widely
diversified among banks with good credit quality by domestic standards.

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