A.M. Best Affirms Rating of Empire Life; 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 (ICR) of "a" to The Empire Life Insurance Company (Empire Life) (Kingston, Ontario, Canada). The outlook for both ratings is stable.

The ratings of Empire Life reflect its excellent capitalization, strong growth in segregated fund sales, consistent profitability and expanding distribution. Empire Life has generated improved levels of profitability in recent years, although overall net income was down in 2005. Contributing to this decline in earnings were strong sales in its wealth management segment, which generated significant new business expense strain. Favorable markets and increasing productivity from its expanding distribution network have contributed to segregated fund sales, which have more than doubled. While increased sales led to lower earnings compared to the prior year, profitability continues to be above historical levels. This profitability has enabled the company to maintain favorable capitalization measures, allowing Empire Life the platform to expand its existing operations.

Offsetting these strengths are the challenges Empire Life faces in continuing to improve earnings within its group and individual insurance segments, growing exposure to equity market

performance and the ability to expand its core businesses in the Canadian life insurance market that is dominated by larger competitors. While Empire Life has benefited in recent years through the price rationalization within the group insurance segment, A.M. Best believes Empire Life will be challenged to further improve earnings and market share in group insurance, which is also dominated by larger, stronger competitors.

A.M. Best also believes that significant technology investments are required to compete effectively in group insurance as group clients continue to demand increasing levels of customer service. The earnings weakness in the individual insurance segment is primarily strain-related, although the low interest rate environment has also negatively impacted results. Empire Life's earnings and capital growth have become increasingly dependent on equity market performance, as growth in both capital and assets under management have been driven by favorable domestic markets.

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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.