A.M. Best Upgrades Rating of The Fuji Fire & Marine Insurance Company, Limited.

OLDWICK, N.J.Y -- A.M. Best Co. has upgraded the financial strength rating to A- (Excellent) from B++ (Very Good) and assigned an issuer credit rating (ICR) of "a-" to The Fuji Fire & Marine Insurance Company, Limited (Fuji Fire) (Japan). The outlook for the FSR has been revised from positive to stable. The outlook for the ICR is stable.

The ratings reflect Fuji Fire's improved capitalization, stable operating performance and well-covered catastrophe exposure.

Fuji Fire's risk adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), has been improving over the past 5 years. This is mainly due to increased capital & surplus and catastrophe reserves. The company has enhanced the financial soundness of its asset portfolio by disposing of equity shares, writing off bad debts and decreasing risk-monitored loan receivables and investing in fixed income assets for a more stable earning income structure.

Similar to the improving trend in BCAR, the company's local solvency ratio improved from 799% in fiscal year 2004 to 833% in fiscal year 2005. A.M. Best believes that Fuji Fire's risk-adjusted capitalization will continue to remain stable given the current operating performance and capital position.

The company has maintained a stable operating performance. Underwriting performance has improved across almost all business lines, with total net claim payments (including loss adjustment expenses) decreasing by about 3% in fiscal year 2005. Fuji Fire's combined ratio has been consistently maintained under 100% over the past four years. Aligned with its corporate strategy to focus more on the personal accident and fire line businesses, Fuji Fire recorded a noticeable net premium growth in these respective business lines. Fuji Fire's expense ratio has also been maintained due to its cost reduction plan.

Fuji Fire's catastrophe exposure is also well-protected. The company's catastrophe reserves, combined with its reinsurance programs, are comprehensive enough to cover the company's total net probable maximum loss (PML).

Partially offsetting rating factors include the intensified market competition and relatively weak distribution channels.

As of fiscal year 2004, Fuji Fire is the 8th largest player in the domestic non-life insurance market with a gross premium market share of about 4%. With the top five companies representing over 80% of the market share, Fuji Fire might find it a challenging factor to increase its small market presence by strengthening its sales growth in its portfolio.

Compared to other major non-life insurers, Fuji Fire has relatively weaker distribution channels with no strong business alliances with major financial groups. This could potentially limit revenue growth with comparatively fewer business partnerships.

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.