A.M. Best Affirms The Nichido Fire and Marine Insurance Cos. ‘A+’ Rating

April 14, 2004

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) of The Nichido Fire and Marine Insurance Company Ltd. of Japan and its reinsured affiliate, Nichido Insurance Company (Pacific) Limited (Guam). The outlook has been revised to stable from negative.

The rating reflects Nichido Fire’s excellent business profile, expected merger with The Tokio Marine and Fire Insurance Co. Ltd. and solid operating results. These factors are partially offset by the company’s high equity position and intensified competition in the Japanese non-life market.

The expected merger with Tokio Marine, which is Nichido Fire’s sister company under Millea Holdings, Inc., is likely to have a positive impact on the company. As Tokio Marine is a leading company in the Japanese non-life market with the largest market share, Nichido Fire will benefit from larger economies of scale. As of fiscal year 2002, the two companies account for 26 percent of the market net premiums.

Nichido Fire’s operating performance has been stable over the last five years. Despite the poor economic and market conditions in Japan in the past years, the company has been consistently generating profits. Its five-year average return on assets stood at 0.5 percent between fiscal year 1999 and fiscal year 2002. Moreover, the company’s operational efficiency is improving as it prepares for integration with Tokio Marine.

Negative factors include a relatively high level of exposure to domestic equities, which increases the company’s vulnerability to equity market movement. As of fiscal year-end 2002, the equity portfolio accounts for 28 percent of the company’s total assets. Although the company is reducing its equity holdings, the exposure is still considered high. As is the case of most Japanese non-life insurers, the equity market volatility can exert significant pressure on the company’s risk-adjusted capitalization.

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.

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