A.M. Best Downgrades Rating of Sompo Japan Insurance Company of America.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) of Sompo Japan Insurance Company of America (SJA) (New York, NY). The rating outlook remains negative.

The downgrade reflects A.M. Best's decision to remove SJA's core status. Given the current environment within the industry, A.M. Best has refined its view of core as outlined in its updated methodology on rating members of insurance groups. (See Rating Members of Insurance Groups at http://www.ambest.com/ratings/membergroups.pdf.) As a result, the rating of SJA's parent company, Sompo Japan Insurance Company (SJ) (Tokyo, Japan), is no longer assigned to SJA. However, A.M. Best considers SJA to be a strategic subsidiary of SJ, and rating uplift is applied to SJA's stand-alone rating.

The downgrade also reflects the company's poor underwriting results over the past five years which led to a significant erosion of surplus. SJA's high loss ratios stemmed primarily from a severely under-priced book of U.S. third-party business, which SJA stopped writing in 2001. These accounts were not related to its parent company's multinational clients. Going forward, SJA will only write the business of its parent's clients who maintain operations in the United States. While SJA's operating performance remains weak with above-average losses projected for 2005, A.M. Best recognizes management's efforts to reverse this trend through expense reduction strategies, enhanced underwriting discipline and continued parental support.

SJA maintains an A (Excellent) rating due to its status as a strategic subsidiary of Sompo Japan Insurance Company (SJ) (Tokyo, Japan). SJA's primary directive is to provide top quality service to its parent's clients who operate in the United States. This arrangement is essential from SJ's perspective, as these clients account for a significant portion of the group's consolidated earnings. The rating also reflects SJA's excellent stand-alone capital position subsequent to a $100 million capital injection provided by SJ in November, 2004.

A.M. Best recognizes the above-mentioned improvements to SJA's capitalization and risk selection processes, but remains concerned with SJA's ability to improve its underwriting performance during a period of softening market conditions.

For current Best's Ratings, independent data and analysis on more than 3,000 individual property/casualty companies, groups and industry composites, please visit http://www.ambest.com/pc.

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.