S&P Assigns ‘BBB’ Rating to Australia’s EIG-Ansvar Ltd.

August 9, 2005

Standard & Poor’s Ratings Services announced that it has assigned its “BBB” financial strength and counterparty credit ratings to Australia-based nonlife insurer EIG-Ansvar Ltd. with a positive outlook.

“The ratings on EIG-Ansvar Ltd. reflect its good stand-alone financial strength characteristics and role as a strategically important subsidiary of the U.K.-based insurer Ecclesiastical Insurance Office PLC (BBB+/Positive/—),” said S&P. Credit analyst Michael Vine observed: “EIG-Ansvar’s operating performance in the past five years has been solid, as demonstrated by its 16.3 percent return on equity over this period, and particularly strong results in 2004. Despite a weakening in underwriting and operating results in the period 1999 to 2001, EIG-Ansvar’s long-term earnings track record is considered good.

“A key factor constraining the ratings at the ‘BBB’ level is the entity’s very small position in the broader nonlife markets in Australia,” Vine continued. “As a small participant in the market, EIG-Ansvar’s ability to withstand competitive pressures is more moderate than peers. There is concentration in distribution, as EIG-Ansvar heavily relies on a few key brokers for its revenue streams.”

S&P described EIG-Ansvar as “a property insurer focusing on key niche markets of places of worship, religious organizations, and related aged care and retirement homes, as well as other community-based organizations. EIG-Ansvar’s competitive position draws strength from its niche focus on, and strong relationships with, protestant churches.

“Capitalization is assessed as adequate, constrained by a moderate absolute size of capital base, but benefits from strong risk-based capital ratios. EIG-Ansvar’s current very conservative investment stance supports this strong level of risk-based capital ratios, and any moderate increase in exposure to growth assets is not expected to reduce capitalization outside the tolerance of the rating.

“Prudent reserving practices and a robust reinsurance program support the capital base. EIG-Ansvar has set aside prudent financial reserves to cover ongoing and potential sexual abuse claims against its church clients, but some uncertainty remains about the ultimate exposure from this risk.”

S&P concluded, “as a strategically important subsidiary, the outlook on EIG-Ansvar is positive, reflecting the outlook on the parent EIO. Continued resilience of overall and niche operating performance may lead Standard & Poor’s to reassess EIO’s competitive position and, consequently, to raise the rating on EIO. This would likely lead to a ratings upgrade on EIG-Ansvar.”

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