S&P Rates Korea’s Dongbu ‘BBB+’

March 31, 2006

Standard & Poor’s Ratings Services announced that it has assigned its “BBB+” long-term counterparty credit and insurer financial strength ratings to Dongbu Insurance Co. Ltd., “reflecting its solid market position, strong capitalization, and good operating performance.” The outlook on the long-term rating is stable.

“The insurer is a solid competitor in the Korean market, especially in retail lines and long-term insurance. It is ranked third in the domestic non-life insurance market, with a 14.4 percent share of gross premiums written in fiscal 2004,” said S&P. “Dongbu Insurance’s capitalization is strong, and it has been improving over the past few years, mainly due to growth in retained earnings,” stated S&P credit analyst Koichi Hamasaki. “Given the company’s efficiency and operating performance, capitalization should remain at this high level.”

S&P also noted that the Company’s combined ratio “has stayed relatively healthy, mainly due to its operating efficiency. The combined ratio was at 101.7 percent in fiscal 2004, and it is expected to remain at about 100 percent.

“Dongbu Insurance’s invested assets are also satisfactory, with the proportion of fixed-income assets standing at 81.2 percent as of March 2005. The insurer’s investment in Hana Bank stock is significant, but the company is expected to sell down its stake over the next few years to realize capital gains.

“Notwithstanding its strength in retail operations, Dongbu Insurance is weak in commercial lines, due to its relatively low business volume with group companies. Also, the Dongbu brand is still not as strong as that of other major industrial groups in Korea. The company had 11.2 percent market share in commercial lines in fiscal 2004.

“Although the insurer makes independent business decisions under its current corporate governance structure, there exists the possibility that Dongbu group companies could affect its business decisions. As a result, the lower credit quality of the Dongbu group is a constraint on the ratings on Dongbu Insurance.”

S&P said the stable outlook “is based on the expectation that Dongbu Insurance will maintain its strong market position and operating performance. The outlook could be revised upward if the company improves its competitive position noticeably and can increase capitalization while maintaining profitability. The outlook could also be revised upward if the insurer can gain further independence from its parent industrial group.

“On the other hand, the outlook could be revised to negative if Dongbu Insurance faces increasing competitive pressure, hindering its operating performance and capitalization.”

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