A.M. Best Affirms Rating of EIG-Ansvar Limited; Assigns Issuer Credit Rating.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and assigned an issuer credit rating of "a-" to EIG-Ansvar Limited (New Zealand). The outlook for both ratings is stable.

The rating reflects EIG-Ansvar's continuous improvement in operating profitability, relatively conservative investment strategy and strong risk-adjusted capitalization. The rating also recognizes EIG-Ansvar as a strategically important subsidiary of its ultimate parent, Ecclesiastical Insurance Office plc (United Kingdom).

EIG-Ansvar remains strong in the niche markets of church and community sectors. The company experienced a stable business growth in 2004. Gross premiums written increased to NZD 16.3 million (USD 11.7 million), a growth of 11.9% from 2003. As a result of consistent improvement in the loss and expense ratios, the company's combined ratio further decreased to a level of below 80% in 2004. The company recorded strong profitability, with its compound annual return on equity of 11.4% over the past five years.

While EIG-Ansvar is maintaining its focus on the commercial property portfolio, the company will moderately increase its liability business within the niche markets in the coming years. A.M. Best anticipates that EIG-Ansvar is able to sustain its overall profitability in the near term. The company maintained its liquidity, with 55% of its total assets invested in cash and bonds in 2004. EIG-Ansvar has no exposure to equities, which ensures the company will generate stable investment returns with limited volatility. Investment yield for the year was 7.5%, with a five-year average yield of 8.1%.

Best's Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, demonstrated EIG-Ansvar was strongly capitalized in 2004. Going forward, its high retention of operating earnings will further reinforce the company's capitalization.

Offsetting factors include EIG-Ansvar's limited long term growth potential, intense market competition and the company's catastrophic exposure.

EIG-Ansvar's market niche, focusing on religious and community groups in the country, may limit its long-term growth opportunities. The New Zealand general insurance industry is mainly dominated by five leading insurers, capturing more than 80% of total market premiums. Going forward, softening rates in the commercial markets and increasing competition in the local non life insurance markets will exert pressure on EIG-Ansvar's profit margins.

As with other general insurers in New Zealand, EIG-Ansvar is exposed to catastrophic perils such as flooding. However, the company is reasonably well protected by its reinsurance programs.

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.