A.M. Best Affirms Rating of Aioi Insurance Company Limited; Upgrades Issuer Credit Rating.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and upgraded the issuer credit rating (ICR) to "a+" from "a" of Aioi Insurance Company Limited (Japan). The outlook for both ratings is stable.

The ratings reflect Aioi's continuous improvement in capitalization, stable operating performance and strategic growth with strengthening distribution channels.

Aioi is one of the five-largest non-life insurance companies in Japan. Over the past three years, the company has improved its financial stability. Aioi has reduced its strategic shares, sold impaired real estate assets and reduced the overall non-performing loans. The company also aims to build a more stable earnings growth structure by investing more into fixed income assets. In fiscal year 2003, Aioi's local solvency ratio stood at 910%, and it further improved to 952% in fiscal year 2004 and 961% at September 30, 2005. Best's Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, also shows a similar improving trend. A.M. Best believes that Aioi's capitalization will continue to strengthen with the ongoing improvement in its capital and reserving positions.

Aioi's operating performance has been stable over the past five years. In fiscal year 2005, Aioi achieved a satisfactory sales growth in various business lines, such as fire and marine. The decline in auto premiums has slowed since the switchover to "Top Run" and the introduction of high-end auto insurance products targeted to Lexus customers.

Aioi's strong business relationship with Toyota Motors provides excellent growth potential in the domestic and overseas markets. A.M. Best believes that Aioi has a competitive advantage in boosting income through Toyota's vast dealers' network, which will continue to fuel Aioi's sales growth momentum.

Partially offsetting these positive rating factors include the flat or negative industry automobile sales and weak financial distribution channels.

According to the data published by the Japan Automobile Dealers Association, new vehicle registrations in Japan were down 1.6% in 2004 and 0.9% in 2005. Aioi has a relatively heavier business composition in the automobile line (including CALI), which represents 74% of its overall business portfolio compared to that of the industry average of 63%. Although Aioi does not merely rely on the new vehicle market for business growth, the negative year-over-year growth in car sales might prove to be challenging for Aioi to strengthen its auto insurance sales in the saturated motor insurance market.

Unlike other major non-life companies, Aioi does not have strong business affiliations with financial institutions, which could potentially limit its revenue growth in bancassurance sales in the midst of the liberalization of bancassurance in December 2007.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.