A.M. Best Affirms Ratings of Fidelity Life Assurance Company Limited.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Fidelity Life Assurance Company Limited (Fidelity) (New Zealand). The outlook for both ratings is stable.

The ratings reflect Fidelity's growth in absolute capitalization and continued strong business expansion. The ratings also consider the company's new partnership with the Farmers' Mutual Group as well as Fidelity's new business initiatives.

Fidelity's capital and surplus has increased substantially over the past five years, growing at an average annual rate of 22.9%. In fiscal year 2007, capitalization increased 31.1% due to strong operating performance as well as the transfer of equity to the Farmers' Mutual Group. Risk-adjusted capitalization, as measured by Best's Capital Adequacy Model, declined slightly over the past financial year.

Fidelity has experienced strong profitability and business growth. Gross risk premiums have grown at an average annual rate of 11.9% for the past 5 years. Risk premiums grew 24.4% in fiscal year 2007. The company managed a return on equity of 16.7% in fiscal year 2007.

A.M. Best views positively Fidelity's acquisition of Farmers' Mutual Life Limited (FMLL), which has given Fidelity an enlarged asset base and a new source of premium. The new distribution partnership has also provided Fidelity with greater access to regional customers.

Partially offsetting these positive factors is the increasing capitalization pressure due to strong business growth, continued experience strain and uncertainties with regards to tax reforms.

Competitive pressures have continually squeezed Fidelity's profit margins on new business. While risk premiums have been rising steadily, underwriting experience strains have persevered. Fidelity's strengthening of its assumptions on several lines of business has somewhat curtailed these strains.

Fidelity's solvency position deteriorated slightly over the year due partially to the company's organic growth and solvency strain from the FMLL business. Diligent capital planning by Fidelity's management provides A.M. Best comfort that growth will not exceed the company's capacity.

Finally, taxation reforms will have an impact on life insurance companies in general. A.M. Best remains cautious of the potential impact of tax changes on profitability. The ratings reflect uncertainties associated with impending taxation reforms.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.