Best Affirms Rating for Fuji Fire & Marine Insurance

June 23, 2005

A.M. Best Co. has affirmed the financial strength rating of B++ (Very Good) of The Fuji Fire & Marine Insurance Company Limited (Fuji Fire) (Japan). The rating outlook has been revised to positive from stable.

The rating reflects Fuji Fire’s improved capitalization, stable operating performance and good asset liquidity compared with the industry average. The rating also views favorably management’s commitment to business strategy and Fuji Fire’s close business alliance with American International Group (AIG) and ORIX.

Best’s Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, demonstrated Fuji Fire’s improved capital position in fiscal year 2004. The company reduced its equity investments and exposure to other risky assets, further strengthening its risk-adjusted capitalization.

Fuji Fire sustained a stable operating performance in fiscal year 2004. Compared with the industry average, its loss ratio remained low given the increased losses from the severe typhoons in Japan recorded in fiscal year 2004. This is supported mainly by focusing its resources on the personal accident line, as well as its prudent reinsurance protection. The continuous improvement in its expense ratio is achieved by persistent cost-reduction measures taken by management.

Cash and bonds accounted for more than 50% of Fuji Fire’s total assets as of fiscal year 2004, compared with the industry average of less than 40%, which ensures the company will generate consistent investment returns with limited volatility.

Fuji Fire has a strong business alliance with its two major shareholders, AIG and ORIX. Since 2002, the company continued to benefit from sharing management with both AIG and ORIX.

Offsetting these positive factors are Fuji Fire’s small market presence within Japan’s non-life insurance market and the competitive automobile insurance business in the country.

With its relatively limited distribution capacity, Fuji Fire has a small market presence in Japan. Its market share has been on a decreasing trend over the past five years.

As the competition is getting stronger within the automobile insurance business in Japan, Fuji Fire’s automobile line continued to have negative growth in terms of net premiums written as of fiscal year 2004.

A.M. Best believes that the strong competition within the non-life marketplace will be an ongoing challenge for Fuji Fire.

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