A.M. Best Affirms Rating of Sompo Japan Insurance Inc.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) of Sompo Japan Insurance Inc. (Sompo Japan) (Japan). The outlook is negative.

The rating reflects the company's superior market profile, stable profit structure and improvement in capitalization. The rating also recognizes Sompo Japan's excellent insurance risk management and strong distribution capabilities. Although the reduction of market risk exposure through the sale of equity holdings is underway, the negative outlook is maintained as the company remains relatively susceptible to market risk.

Sompo Japan is the second-largest non-life insurer in Japan measured by premiums and the third-largest insurer measured by total assets as of fiscal year 2003. The company maintains one of the fastest growths in the Japanese non-life market. The alliance with Dai-ichi Life has provided Sompo Japan with new distribution channel opportunities to complement its already strong distribution capability.

The company's risk-based capitalization improved in fiscal year 2003 due to two major factors: the recovery in the stock market and the sale of its equity holdings. Sompo Japan maintains a high local solvency ratio of 1,036% as of March 2004, but the Best's Capital Adequacy Ratio (BCAR) stands below the 160% level.

The company's underwriting performance is stable despite intensified competition in the market. Excluding the impact from the losses from the Fortress Re event, which was caused by Nissan Fire before the merger in 2002, nearly all lines of business have shown improvements. In addition, the company has kept its loss expense and operating expense low, enhancing operational efficiency.

An analysis of Sompo Japan's wholly owned U.S. subsidiary, Sompo Japan Insurance Company of America, is currently underway, along with the examination of its status as a core subsidiary of Sompo Japan. The result will be published shortly.

Offsetting these positive rating factors is Sompo Japan's vulnerability to the financial markets due to its high exposure to equities. Other offsetting factors are the intensely competitive motor insurance business and the liberalization of the financial services industry in general.

The fierce competition, combined with the low interest rate environment, will exert continued pressure on Sompo Japan's underwriting profitability. To cope with this challenge, the company is expected to further improve its expense ratio and to diversify income sources from its business portfolio.

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 http://www.ambest.com.