Best Assigns Rating for Century Insurance

March 4, 2005

A.M. Best Co. has assigned a financial strength rating of B+ (Very Good) to Century Insurance Co. Ltd. (CIC) (Northern Mariana Islands). The rating outlook is stable.

The rating reflects CIC’s well established market presence in Saipan, continuous profitable operation and sound investment strategy with high liquidity. The rating also considers the company’s conservative dividend policy to sustain business growth.

CIC is the largest player in the general insurance market in Saipan. The company’s market presence is well-established given its expertise in the domestic insurance market. The newly developed strategic alliances with solid partners, namely Aon and Pacifica Insurance Underwriters, could assist the company in maintaining its strong market position going forward.

Despite the flat growth of the insurance industry in Saipan, CIC has been able to maintain positive profitability over the past five years. The five year average pre-tax return on net premium earned was approximately 27% for the period from fiscal year 1999 to 2003. The underwriting portfolio has contributed substantially to the bottom-line profit margin of the company.

The company retained strong operating cash flows, supported by its liquid investment portfolio, with 58% of its total assets in cash and cash equivalents as of fiscal year end 2003. The exposure to the financial markets is limited, as the company employs a very conservative investment strategy.

Offsetting factors include the modest capitalization to support the significant business growth, deteriorating underwriting margin and investment yield and the high catastrophe exposures associated with the new focus market in Guam.

The Best’s Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, indicates that the capital position of CIC is considerably weakened.

A.M. Best remains cautious about the company’s financial strength as its business volume expands.

Despite the positive return from the underwriting portfolio, the underwriting margin has gradually declined since 1999. Along with low investment returns, this decline could exert extra pressure on the company’s overall operating results.

CIC is exposed to catastrophic perils in Guam and Saipan, even though it seems reasonably protected under the current reinsurance programs. The profitability of the company could be challenged if more frequent and destructive catastrophic events occur.

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