A.M. Best Affirms Sovereign Assurance ‘A’ Rating

December 16, 2003

A.M. Best Co. announced that it has affirmed the financial strength rating of ‘A’ (Excellent) of New Zealand’s Sovereign Assurance Company Limited, with a positive outlook.

“The rating reflects Sovereign’s constant capital growth, the strategic alliance with fellow group member ASB Bank Limited and the positive developments in the earning profile,” said Best. “Sovereign has consistently increased its capital through the retention of earnings and capital injection. The company’s capital and surplus increased by 294% during the fiscal year- end 2000 to fiscal year-end 2002. As the company has merged with Metropolitan Life and Sovereign Life in fiscal year 2003, its capital will continue to increase further.”

The report noted that the strategic cooperation with ASB Bank “provides the company with opportunities to cross-sell its products (Sovereign and ASB Bank are fellow subsidiaries of Commonwealth Bank of Australia). This affiliation also mitigates Sovereign’s high expense ratio, which results from its dependency on agents and brokers.”

Best also said “Sovereign’s operating performance exhibits encouraging improvement since fiscal year 2001. The pre-tax losses have been reduced from NZD 60 million (USD 24 million) in fiscal year 2001 to NZD 10 million (USD 6 million) in fiscal year 2003, and its net investment income has improved in fiscal year 2003 as equity markets recover. In addition, Sovereign profits from full recoverability of tax benefit through group members.

“These factors are partially offset by the limited potential for premium growth and the dependency on the collectability of tax benefit from other subsidiaries within the group.”

The company is also affected by the population size of New Zealand, Best indicated; therefore, despite having a “sizeable market share” its future potential growth is limited.

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