A.M. Best Affirms Ratings for Pacific Century Insurance Company Ltd.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating (ICR) of "a-" for Pacific Century Insurance Company Ltd (PCI) (Hong Kong). The outlook for both ratings remains stable.

The ratings reflect PCI's adequate risk-adjusted capital position and improving operating performance. The ratings also factor A.M. Best's view on PCI's increasing embedded value and prospective growth in new business under the favorable trend in domestic economic environment.

PCI experienced continued improvement in lapse rates and agency force productivity in 2005. The improving trend in 13th month persistency rate from 86.6% (2004) to 88.8% (2005) coupled with the improving agency productivity provide a supporting base and impetus to earnings growth going forward.

A.M. Best also recognizes the continued efforts of the company to support the core agency system with the setting up of a new training centre and implementing of a new policy administration system to enhance the operational efficiency. A.M. Best notes that such initiatives will be important to the success in expanding the revenue base and earnings growth in individual business segments going forward. The improving operating performance will ultimately enhance the company's embedded values.

In addition, PCI achieved steady growth of capital through earnings retention, increasing 5.5% in 2005. The company's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio, remained adequate and supportive of its current ratings.

Offsetting factors include decline in market position and lowered interest coverage ratio due to the declined earnings.

Leveraging the distribution networks and the customer base, the bancassurance insurers are continuing to pose challenges to their rivals with a rising market share. PCI's market share in the individual non-linked in-force business declined further to 2.7% in 2005 from the highest 5.3% in 2001, although the growing agency force and improving productivity are expected to strengthen the company's distribution capabilities and mitigate the severity of impact. Going forward, the pressures from the international players and bancassurers will persist and the resultant competitive market landscape will continue to pose a challenge to PCI.

Following the cancellation of the exchangeable notes in the Sino Life deal, the company continues to search for suitable investment opportunities to gain access to the China market. The issuance of USD 100 million in bonds by PCI to facilitate its business expansion plans in China will potentially lessen the company's overall financial flexibility. In fact, the company's interest coverage ratio declined to 2.3 times in 2005, giving pressures to the overall earnings. A.M. Best remains cautious about PCI's business expansion plans in China and the impact on the company's earnings stability.

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.