Best Affirms Rating for Wing Lung Insurance Co.

May 24, 2005

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Wing Lung Insurance Company Limited (WLI) (Hong Kong). The rating outlook is stable.

The rating reflects WLI’s continuous strong operating performance, solid capitalization and improving underwriting leverage. The rating also considers the company’s conservative investment strategy with high financial flexibility.

WLI has generated stable underwriting surplus over the past two years, despite the negative growth in premiums written as a result of softening rates. The company has achieved one of the lowest expense ratios in the non-life industry. The consistent profitable underwriting results, coupled with recovering investment returns, have contributed favorably to the company’s operating margin.

The Best’s Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, demonstrated that WLI maintained a prudent capital position. It provided further comfort that the net premium leverage ratio was on an improving trend. Lower underwriting exposure along with steady growth of capital and surplus through retention of earnings could enhance the company’s financial strength.

WLI retained strong operating cash flows, supported by its liquid investment portfolio, with approximately 59% of its total assets in cash and 22% in debentures or bonds as of fiscal year-end 2004. The strategy of shifting its investments partially towards fixed income instruments has enabled the company to generate stable investment returns with limited volatility.

These positive factors are partially offset by the high concentration of business risk and weak profitability in the motor line.

Despite the moderate business growth, the heavy reliance in the general liability line is a concern given the premium volatility as well as the long tail exposure of this business segment. The underwriting performance and profitability could be improved by taking a disciplined approach with adequate assessment of the underlying risks and proper pricing.

As the company’s second largest business portfolio, motor was the sole business line operated with negative profit margin in 2004.

Although the loss ratio of the motor line has shown improvement, it was high in comparison with the industry average.

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