Best Affirms FSR for China Re

January 27, 2006

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of China International Reinsurance Company Limited (CIRe) (Hong Kong). The outlook for both ratings is positive.

The ratings reflect CIRe’s continued growth in risk-adjusted capitalization, its excellent liquidity, well-established market profile in Hong Kong and diverse spread of geographical risk relative to other regional reinsurers in Asia. The company’s prudent reserving practice and consistent overall operating profits also contribute positively to the ratings.

CIRe, a regional reinsurer with more than two decades of operation, has a solid market presence with a strong business linkage to domestic insurers in Hong Kong and Macau. The company has a diverse spread of risk in terms of geographical coverage. About 70% of its reinsurance business is derived from regions outside of Hong Kong. Broad geographical diversification contributes favorably to CIRe’s consistency in generating positive underwriting profits, although its exposure to various catastrophic events in 2005 will lead to a lower underwriting earning.

CIRe maintains strong liquidity within its investment portfolio to support the short-tailed nature of its insurance liability. Cash and fixed income instruments accounted for more than 65% of the company’s assets as of June 2005. Additionally, its prudent investment strategy has enabled it to produce a stable investment yield, greatly offsetting the volatile underwriting results in the past two years.

Retention of operating earnings has fuelled CIRe’s growth on a risk-adjusted basis over the past five years. Best’s Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, indicates that the company is strongly capitalized. Although the net loss of HKD 75 million (USD 9.6 million) (as of Oct. 17, 2005) arising from claims due to Hurricane Katrina is expected to dampen the company’s overall underwriting result in 2005, the reported loss will have limited impact on the overall risk-based capitalization.

Offsetting these positive factors include CIRe’s catastrophe risk exposure in various overseas markets, limited capacity relative to other international reinsurance participants and CIRe’s immediate holding company’s (China Insurance International Holdings) ongoing financial support to the strong growth of the group’s operation in China.

Tai Ping Life and Tai Ping Insurance, CIRe’s sister companies, continue to experience a rapid pace of expansion in mainland China. A.M. Best remains cautious about the continued growth of these affiliates in the rapidly changing Chinese insurance market and the associated impact on the capital position of the group as a whole.

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