A.M. Best Revises Outlook to Positive for China Insurance (NZ) Company Limited.

OLDWICK, N.J. -- A.M. Best Co. has revised the outlook to positive from stable for China Insurance (NZ) Company Limited (CINZ) (New Zealand) and affirmed the financial strength rating of B+ (Good) and issuer credit rating of "bbb-".

The rating affirmations reflect CINZ's improved risk-adjusted capitalization and stable investment performance. The revision of CINZ's rating outlook reflects its recent profitable underwriting performance and the management's commitment to enhance the company's profitability. A.M. Best anticipates the new management will continue to guide CINZ towards operation efficiency and establish a quality book of business.

In fiscal year 2007, CINZ achieved a net income of NZD 488,000, compared to a net loss of NZD 246,000 in the prior year. The reversal of the negative operating result was due predominantly to CINZ's profitable underwriting result and stable investment result. Return on equity (ROE) for the year ending December 31, 2007 was 11.0%.

Although CINZ's underwriting performance was volatile over the past five years, it gradually improved in fiscal year 2007, as indicated by its combined ratio of 92.9% (compared to 121.9% in 2006 and 119.0% in 2005). This improvement was driven predominantly by both favorable claims experience and cautious control on the operating expense. The operating result for the first nine months of 2008 continued to demonstrate management's commitment to enhance CINZ's operation efficiency.

CINZ's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio, increased in 2007. This was primarily driven by the accumulation of operating surplus and a reduction in underwriting risk from the non-renewal of unprofitable business. As at December 31, 2007, the accumulated deficit was reduced to NZD 2.3 million. Prospectively, higher premium accumulation is expected to gradually weaken the company's risk-adjusted capitalization. Nevertheless, A.M. Best believes that CINZ will maintain a level of capitalization that will be supportive of its ratings and future business growth.

Offsetting rating factors include heavy reliance on reinsurance and the weakening economic environment of the New Zealand market.

Due to its limited underwriting capacity, CINZ extensively relies on reinsurance programs to lessen its exposures from accumulation and severity of losses pertaining to both non-catastrophe and catastrophe events. Nonetheless, the company's net retention for both catastrophic and non-catastrophic exposures is limited to NZD 300,000.

Going forward, CINZ's business generation might be adversely affected by sluggish economic activities. However, its operational profitability will likely be sustained due to more effective uses of operating resources and management's commitment to control the quality of CINZ's book of business.

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.