Best Rates Australia’s Guild ‘A-‘

June 26, 2006

A.M. Best Co. has assigned a financial strength rating of “A-” (Excellent) and an issuer credit rating of “a-” to Australia’s Guild Insurance Limited (GIL), with a stable outlook.

“The ratings reflect GIL’s improving risk-adjusted capitalization, continued profitability and satisfactory operating performance, ” said Best. “The ratings further recognize the company’s unique business model in the niche markets of healthcare and childcare.

“GIL’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, has improved. Its local solvency coverage stood at 2.02 times at fiscal year-end June 2005. The company’s risk-adjusted capitalization is expected to further strengthen in 2006 due primarily to stronger capitalization.

“GIL generated net income after tax of AUD 20 million (approximately $15 million) in fiscal year 2005, an increase of 77.5 percent. Loss ratios have improved moderately in the past few years to 52.2 percent in fiscal year 2005 from 56.1 percent in the previous year. The combined ratio was 81.5 percent in fiscal year 2005.

“With an operating history of 43 years, GIL has strong relationships with healthcare professions and childcare specialists. While the company is maintaining its niche underwriting focus in the pharmacy and child care sectors, GIL recently entered into the non-healthcare market, diversifying its underwriting portfolio.”

However, Best noted that the Company’s “higher retention of business, potential volatility in earnings and strong market competition” constitute partially offsetting factors. “GIL expects to retain more profitable business in the near term,” best continued. “However, due to uncertainties in claims experience as a result of the company’s higher retention of risk, A.M. Best views the ongoing capital support and sustainable profitability as essential.

“As of June 2005, equity investments accounted for about 32 percent of GIL’s total invested assets. This asset mix has generated satisfactory investment returns due to the favorable investment environment; however, it could expose GIL’s earnings to potential volatility.

“Strong market competition and continued softening of premium rates in Australia could challenge the company’s underwriting profitability going forward.”

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