A.M. Best Affirms Rating of Hang Seng Insurance Company.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Dec. 11, 2002

A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) of Hang Seng Insurance Company Limited (Hong Kong).

The outlook is stable.

The current rating reflects the company's prudent capitalization, solid operating performance and superior distribution capabilities. The tremendous franchise value of Hang Seng Bank has provided the company with a competitive advantage in attracting new customers and retaining existing ones.

Hang Seng Insurance is prudently capitalized, as demonstrated by the Best's Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis. Although net premium leverage rose from 0.23 times in 2000 to 0.33 times in 2001, the current level is still considered to be conservative. Despite its decline from HKD 677 million (USD 87 million) to HKD 431 million (USD 55 million) in 2001, the investment revaluation reserve will continue to act as a buffer for capital and surplus. As of the end of the last fiscal year, the revaluation reserve was over 39% of total equity investments.

The company's financial performance has been consistently strong. Bancassurance, which has proven to be an effective mode of distribution for the company, will remain the primary sales channel. In 2001, the company posted a loss ratio and expense ratio of 31.0% (including movements in the inward treaty insurance fund) and 48.1%, respectively. The loss ratio is considerably better than the market average of 61.7%. With its superior underwriting performance, return on assets and return on equity have been maintained at relatively high levels.

Offsetting these factors is the company's exposure to Hong Kong's equity market and heavy dividend obligations; about 70% of total assets were invested in equities and equity unit trusts in 2001. The revaluation surplus position of Hang Seng Insurance will continue to be highly exposed to movements in equity prices.

Despite the company's strong capitalization, the shareholders' equity decreased from HKD 1,482 million (USD 190 million) in 1999 to HKD 1,095 million (USD 140 million) in 2001 as a result of a decline in its investment revaluation reserve in a depressed stock market environment. Furthermore, as an integral part of Hang Seng Bank, the company has to remit the maximum distributable profit as a dividend to its parent company. The dividend payout ratio for the past five years stands at over 125%.

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.