A.M. Best Affirms Rating of Malayan Insurance Company, Inc.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Very Good) and assigned an issuer credit rating (ICR) of "bbb" to Malayan Insurance Company, Inc. (MICO) (Philippines). The outlook on both ratings is stable.

The ratings reflect MICO's consistent market leadership, strong risk-adjusted capitalization and stable stream of investment income. The ratings continue to recognize the company's extensive reinsurance arrangements.

MICO has established a solid position within the Philippines' non-life insurance market as a result of its 75 years of operating history. The company has maintained its market leadership in terms of gross premiums written for the last 35 years. Gross premiums grew by 20% to PHP 3.9 billion (USD 70 million) in 2004 from PHP 3.3 billion (USD 59 million) in 2003. MICO is the flagship insurance company of Yuchengco Group of Companies (YGC), which is a financial conglomerate in the Philippines.

Best's Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, demonstrates that MICO was strongly capitalized in 2004. Its net premium leverage ratio was maintained at a conservative level of 0.45 times. The reinsurance program is also supporting the company's capitalization, which is placed with diversified, high quality reinsurers.

A stable stream of investment income has contributed to the company's bottom line profits over the past five years. More than 80% of MICO's fixed interest securities are invested in USD-denominated instruments. However, MICO's exposure to equities continues to remain relatively high, accounting for 29% of total assets as of September 2005. Although this asset mix has supported relatively high investment returns, it exposes the company's earnings to potential volatility.

Offsetting factors include MICO's volatile underwriting performance, relatively high country risk and increasing market competition.

MICO's underwriting performance has been volatile over the past five years. As a result of an unstable loss ratio, the company's combined ratio has been maintained at a level of above 100%.

Given political instability, slow economic growth and a static non-life insurance industry environment, the risk profiles of non-life insurers in the Philippines remain relatively high. Market consolidation is expected to continue slowly, which will result in a more competitive environment for the industry. MICO will face challenges in maintaining its leading market position in the long term.

MICO anticipates increasing its market share and retaining more business. This increase in the company's retention ratio and its relatively high equity risk will exert pressure on the company's BCAR. Going forward, strong risk-based capitalization is crucial to the stability of MICO's rating.

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.