Best Affirms GIL ‘A-‘ Ratings

April 25, 2007

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

Best said the ratings reflect GIL’s improved risk-adjusted capitalization, consistent operating profitability and thorough risk management. The ratings continue to acknowledge GIL’s entrenched market position in the healthcare and childcare sectors and the ongoing benefits derived from its unique distribution strategies.

Despite the competitive market environment, GIL has experienced consistent profitability, generating net earnings of AUD 22.7 million (USD 17.5 million) in year-end June 2006, an increase of 11 percent. Both favorable claims experience and a strong investment return improved the company’s bottom line. Its loss ratio improved to 51 percent in 2006 from 55 percent in 2005.

GIL’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remains adequate and is commensurate with its existing rating. The company’s net premium leverage declined as a result of consistent capitalization growth in fiscal year 2006.

GIL maintains its unique business model with a continued strong client base of healthcare professions and childcare specialists across Australia. While GIL has gained a foothold in the pharmaceutical, dental and childcare markets, the company also expanded its product reach to niche markets in New Zealand in 2006.

Partially offsetting these positive rating factors include uncertainty associated with GIL’s net claim experience as a result of the removal of the quota share arrangement, potential earnings volatility due to its exposure to equity markets and the prevailing soft market environment in the commercial sector.

GIL will be subject to higher underwriting risk due to the elimination of the quota share arrangement. Nonetheless, to support a higher level of retained business, A.M. Best believes that further strengthening capitalization through earning retention is crucial.

Additionally, the continued softening of commercial markets could exert pressure on GIL’s underwriting margin going forward.

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