Best Affirms Rating for AMI Insurance Ltd.

October 15, 2004

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of AMI Insurance Limited (AMI) (New Zealand). The outlook is positive.

The rating reflects AMI’s consistent underwriting performance, excellent risk-adjusted capitalization, well-established local presence and prudent investment portfolio. The rating is based on an analysis of the consolidated financial accounts of the AMI Members Trust, of which AMI is the only operating entity.

Given its long operating history in the non-life market, AMI has established a strong distribution network. As an insurer focusing on personal lines in New Zealand, the company has managed to tap into the mass market through its own sales distribution channels across the country.

AMI has consistently generated underwriting earnings for the company over the past five years. Despite significant claim costs resulting from the February 2004 flooding event in New Zealand, AMI lowered its loss ratio to 65.3% in 2004 from 68.3% in 2003. Solid underwriting performance, in addition to stable investment income, greatly reduced the operating ratio to 81.0% in 2004 from 84.4% in 2003.

The liquidity position of the company remains strong. As of fiscal year-end 2004, cash and short-term investments accounted for about 26% of the asset portfolio, while bonds represented 40% of AMI’s total assets.

The Best’s Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, demonstrates that AMI is strongly capitalized. The capital and surplus increased by 15.7% in 2004, compared to 12.9% in 2003. Going forward, consistent growth in internal surplus, along with a moderate premium growth approach, will likely further strengthen the company’s capitalization in the near term.

These positive factors are partially offset by AMI’s exposure to catastrophic perils and intense market competition with limited industry growth potential. Although AMI is exposed to certain catastrophic perils in various geographic regions in New Zealand, the company is reasonably well protected under the reinsurance programs.

In addition, after the market consolidation over the past two years, New Zealand’s non-life market is now dominated by a few foreign-owned insurance companies, and AMI could be challenged by the strong competition.

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