Best Affirms NIPPONKOA ‘A’ Rating

March 1, 2004

A.M. Best Co. has affirmed the A (Excellent) financial strength rating of NIPPONKOA Insurance Company Ltd (NIPPONKOA) (Japan). The rating outlook is stable.

The rating reflects NIPPONKOA’s excellent business profile, secure risk-adjusted capitalization and improvement in insurance results. Adding to these positive factors is a turn around in the Japanese equity market and economy in fiscal year 2003.

NIPPONKOA is one of the five largest general insurers in Japan with a market share of 10% in terms of net premiums written. The company was created through a merger of Nippon Fire & Marine and Koa Fire & Marine in fiscal year 2001 and has further merged with Taiyo Fire & Marine in fiscal year 2002. The larger economies of scale as well as a synergy effect from the mergers will strengthen the company’s operating efficiency.

NIPPONKOA Insurance is prudently capitalized on a risk-adjusted basis, with a local solvency ratio of 985% at the end of September 2003. The Best Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, also demonstrates the company’s strong capital position.

NIPPONKOA’s loss ratio and expense ratio both showed significant improvement over the last three years. Combined with the improved investment environment, the company’s operating result is expected to improve further in fiscal year 2003.

These factors are partially offset by NIPPONKOA’s vulnerability to the equity markets, intensified competition in the Japanese non-life industry and frequency of catastrophes in Japan.

NIPPONKOA’s asset allocation to domestic equities is maintained at a relatively high level. Moreover, the percentage of investments in the financial industry in its equity and loan portfolios is considered high. While the recent recovery in the Nikkei market benefits the company, its vulnerability to the investment environment, especially to the financial sector, remains as a negative factor.

Another negative factor is the intensified competition in the Japanese non-life insurance market. Competition has been induced by deregulation of the industry, liberalization of the financial services industry in general and the entry of foreign companies. The intensive competition will impact the company’s growth potential.

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