S&P Upgrades NZ Insurer Promina Outlook to Positive

March 29, 2004

Standard & Poor’s Ratings Services announced that it has revised the rating outlook on Promina Group Ltd. to positive from stable, and affirmed the holding company’s “A-” long-term counterparty credit rating.

S&P also indicated that it has affirmed the long-term “A” insurer financial strength and counterparty credit ratings on the group’s general insurance businesses, Vero Insurance Ltd. and Vero Insurance (New Zealand) Ltd. (including its rated subsidiaries of AA Insurance Ltd., Vero Accident Insurance Ltd., and Vero Liability Insurance Ltd.), and has also upgraded their respective rating outlooks to positive.

“The outlook revision to positive reflects the strong earnings momentum exhibited by the group and its underlying financial and capital strength. However, Standard & Poor’s did not move Promina to a higher credit rating, as the strong earnings momentum has been achieved in a relatively short trading period since the initial public offering (IPO) in May 2003,” stated S&P credit analyst, Financial Services Ratings, Paul Clarkson.

The rating agency said it “expects that Promina could migrate to a higher credit standing, but this will depend on consistent earnings, franchise maintenance, and continued strong capital position, which Standard & Poor’s will assess post the first-half results of 2004.”

S&P noted that the “Promina group was formed in May 2003 following the successful IPO, and the separation from a long-term supportive parent, Royal & Sun Alliance Insurance Group PLC (RSA). As a newly formed listed group, Promina has reported strong earnings for both the half-year results to June 2003 and the full-year results to December 2003, performing stronger than the forecast earnings in the prospectus issued at the time of the IPO.”

Clarkson indicated that “Many of our concerns about Promina group’s separation from the RSA have been ameliorated by stability in senior management, maintenance of strong business fundamentals following the adoption of the new trading names, Vero and Asteron, for the intermediated general insurance business and the life insurance business, respectively, along with solid operating performances.”

“The strong rating on Promina, the group’s holding company, reflects structural subordination to the main operating entities, with the holding company relying on dividend up-streaming to service holding company obligations,” the bulletin continued. “The one notch differential is supported by the group’s strong business fundamentals, strong capital position measured on a group basis, geographic and product diversity, and strong earnings by the group’s main rated operating subsidiaries. Promina’s main operating entities of Vero Insurance Ltd. and Vero Insurance (New Zealand) Ltd., including its rated subsidiaries of AA Insurance Ltd., Vero Accident Insurance Ltd., and Vero Liability Insurance Ltd., all exhibit solid business fundamentals and well-recognized franchise via the group’s specialist focus business model. All rated operating companies have demonstrated strong earnings growth in 2003, helped by favorable operating condition in general insurance especially in Australia. The life insurance businesses in Australia and New Zealand, although showing less dominant business positions, have also demonstrated strong growth in earnings and supporting diversity in the group earnings.

“The group capital position is robust and supports Promina group’s rating. Its capital position is further strengthened with the issuing of A$250 million [U.S.$ 187 million] reset preference shares, which will help support the insurer’s growth in the medium term. The proposed reset preference share issue has been rated ‘BBB-‘ reflecting Standard & Poor’s view that the issue has equity-like characteristics, such as subordination, interest deferral, and perpetual term. Standard & Poor’s takes account of this debt issue in its risk-based capital assessment model, and scores the group’s capitalization as very strong.”

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