S&P Rates Germany’s ARAG ‘BBB’

March 22, 2007

Standard & Poor’s Ratings Services has assigned its ‘BBB’ long-term counterparty credit and insurer financial strength ratings to Germany’s insurer ARAG Allgemeine Rechtsschutz-Versicherungs AG (ARAG RS) with a stable outlook.

“The ratings on ARAG RS reflect the ARAG group’s good competitive position, increasing international diversification in its core business line of legal expenses insurance, and adequate capitalization,” stated S&P credit analyst Johannes Bender.

S&P noted that these “strengths are partly offset by the group’s declining market share in legal expenses insurance in Germany, marginal competitive position in life business, and relatively short track record of good operating performance.”

The rating agency said the “stable outlook reflects our expectation that the ARAG group (ARAG) will defend its good competitive position, based on sound growth rates and growing earnings in international legal expenses insurance. The group’s market position in German legal expenses insurance is expected to stabilize from 2007 onward. ARAG’s premium growth rates in 2007 and 2008 on a consolidated basis are expected to be higher than in 2006, and Standard & Poor’s expects a continued upward trend in earnings.

“Underwriting performance in German legal expenses business should improve, with gross combined ratios of 102 percent and 100 percent in 2007 and 2008, respectively. Cost efficiency in life business is expected to come closer to the market average.

“Group capitalization should remain adequate, benefiting from increasing retained earnings.”

S&P said the “outlook could be revised to positive if ARAG were to exceed financial targets by maintaining growth in its domestic and foreign operations while further improving operating performance. Conversely, the outlook could be revised to negative if ARAG’s competitive position and solvency levels deteriorated or if operating performance targets were not reached.”

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