A.M. Best Affirms Rating of Dao Heng Insurance Co.

June 30, 2003

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Dao Heng Insurance Company Ltd (DHI), Hong Kong. The outlook is stable.

The rating reflects DHI’s secure capitalization, consistent
underwriting profitability and short-tail risk exposure. A.M. Best believes that the company will need to enhance its business profile, given its diminished ties with the Dao Heng Bank.

The company is securely capitalized, according to the Best’s Capital
Adequacy Ratio, and maintains a conservative net premium leverage ratio of 0.66 times. An upstream dividend payment of HKD 30 million (USD 3.8 million or 25 percent of shareholders’ fund) was made in fiscal year 2002. Nonetheless, the decision to repatriate excess capital has not materially affected DHI’s balance sheet strength.

Operating performance has remained consistently strong from fiscal
years 1998 to 2002. Over this five-year period, the company posted an average combined ratio of 74.4 percent.

Furthermore, the expense ratio dropped by 10.5 percentage points in fiscal year 2002, driving significant improvements in underwriting profitability. This is attributable to a higher premium base as well as a shift away from bancassurance to telemarketing, which has a lower cost structure.

DHI’s risk exposure is short-tailed, with the majority of claims
being settled within one to two years. The general liability portfolio is
not yet of a size requiring actuarial certification. Reinsurance coverage is also deemed to be adequate.

Offsetting factors include the lackluster investment environment and
the competitive operating landscape, both of which will challenge DHI’s ability to strengthen its business and earnings profile.

Invested assets generated an overall return of 0.6 percent in fiscal year 2002. Given the prevailing interest rate environment and depressed equity prices in Hong Kong, investment earnings will continue to be under pressure.

Following the Development Bank of Singapore’s (DBS) purchase of Dao
Heng Bank, DHI’s ability to generate new business was substantially
undermined. While the company has developed various new channels to enhance its business profile, the effectiveness of these channels remains to be seen.

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