S&P’s Affirms FREMAP ‘AA’ Rtgs., Outlook Stable

May 21, 2003

Following a review, Standard & Poor’s Ratings Services affirmed its ‘AA’ long-term counterparty credit and insurer financial strength ratings on Spanish social security mutual FREMAP Mutua de Accidentes de Trabajo y Enfermedades Profesionales de la Seguridad Social (FREMAP). The outlook is stable.

“The ratings reflect FREMAP’s extremely strong capitalization, very strong operating performance, strong business position, and very proactive management,” said Standard & Poor’s credit analyst Peter McClean. These factors are offset by a rigid legislative framework that constrains further product diversification and limits the company’s earnings potential.

FREMAP was established in 1933 as a mutual insurance company covering work-related accidents and illnesses. The company has full control over its administration expenses, but the level of contributions and the minimum charge per hour for risk management services (RMS) are set by the Ministry of Labor.

Standard & Poor’s expects FREMAP to continue to be the leader in the Spanish social security market for the insurance of work-related accidents and non-work-related illnesses.

The company is expected to maintain at least its current 23 percent market share, as well as increasing its market penetration in the provision of related RMS, with the volume of these contracts expected to increase by about 14 percent in 2003. FREMAP’s capital adequacy is expected to remain extremely strong, at the ‘AAA’ level according to Standard & Poor’s risk-based capital model, and the capital adequacy ratio is not expected to fall significantly below 300 percent.

Operating performance is expected to remain very strong, with the combined ratio falling below its current level of 80 percent as the results of the non-work-related illnesses portfolio improve following an increase in tariffs.

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