Best Affirms Winterthur ‘A-‘ Ratings

April 5, 2006

A.M. Best Co. announced that it has affirmed the financial strength ratings of “A-” (Excellent) and the issuer credit ratings (ICR) of “a-” of Winterthur Swiss Insurance Company and its core subsidiary, Winterthur Life Insurance Company, collectively known as Winterthur Group, with a stable outlook.

“The ratings reflect Winterthur Group’s recovering capitalization driven by stabilization and retention of earnings, despite the pressure on life business margins in core markets after almost completing its divestment program,” said Best. “The main offsetting factor is the remaining uncertainty as to the hybrid equity financing from Credit Suisse Group (Winterthur Group’s ultimate parent), after the group’s planned flotation in the stock market.”

Best said it “believes that Winterthur Group’s capitalization will continue to recover at a slower pace than in prior years when the group’s capitalization benefited from its divestments, restrained premium growth and retained profits. Risk-adjusted capitalization is unlikely to reach the historically high levels during the next two years and will be impacted by the group’s position on its post-flotation dividend policy, as well as the decisions to be taken in respect of the re-financing of the hybrid equity currently provided by Credit Suisse Group.”

The rating agency also indicated that “for the next two years financial results are likely to remain stable, at a level slightly above that shown in 2005 (at between CHF 1 billion [$760 million] and CHF 1.2 billion [$920 million]). The cost management measures are likely to result in further reduction in expense ratio during the next three year, thus offsetting the impact of softening rates in Winterthur’s mature non-life markets. Return on equity for the core Swiss life business, though improving, still remains below the overall group target of 12 percent.”

Best also said it “believes that, despite the lack of growth potential in Winterthur Group’s core markets in Switzerland and Germany (an annualized increase of just below 1.3 percent of total business as at September 2005), the region remains the main profit generator and maintaining the group’s leading position is crucial for its success. Additionally, the group’s expansion in Central and Eastern European and Asian markets is bound to continue, given its higher potential for rapid growth and profitability, particularly in the life and pensions segments.”

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