Commercial Union (Australia)'s Rtgs Raised;Off S&PWtch Commercial Union Assurance Co. PLC.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/14/98 -- Standard & Poor's today raised its financial strength and counterparty credit ratings of Commercial Union Assurance Co. of Australia Ltd. (CUACA) to double-'A' from 'A'-minus and has removed the rating from CreditWatch where it was placed Feb. 26, 1998. The CreditWatch status on Commercial Union Lenders Mortgage Insurance Ltd. is to be resolved shortly pending a review. At the same time the 'A-1'-plus commercial paper rating of Commercial Union plc is affirmed. The UK1 billion program is guaranteed by Commercial Union Assurance Co. plc.

The financial strength rating is based on CUACA's position as a strategically important part of CGU plc, the company created by the merger of U.K. composite insurers, General Accident (GA) and Commercial Union (CU) in June 1998. In Australia, the combined operations of CU and GA (which operates under the name NZI Insurance Australia Ltd.) will have significant market share, becoming the second largest player in Australia. The combined entity is expected to take a leading share of the commercial lines market and will also benefit from strengthened distribution capacity.

The rating of CU is based on the improved business position the merger provides for both companies. The CGU group now has a well diversified spread of business internationally including a strong European presence with most individual operations having critical mass on a standalone basis. The group also has a good balance between life and non-life insurance - life represents 43% of premium income - including leadership positions in the U.K., France and Holland. The merger has solidified the capital strength of CU. The CGU group has strong capitalization supported by generally low risk and well diversified operations. The group also has the potential to improve already strong earnings and will benefit from greater financial flexibility.

MAJOR RATING FACTORS:

-- Sound commercial logic for the merger - CU had good European

businesses but lacked the capital to be able to pursue growth aggressively. The new group has a better spread of businesses and has a very good capital base plus potentially higher profit flows to fund growth both organically and through acquisition. The merger also protects and promotes the company's position in markets such as the U.K. and U.S. where consolidation was proving a competitive threat.

-- Business is very well spread both between life and non-life

business, geographically and by class of business. This provides a strong degree of stability as business cycles offset each other.

-- Strong individual market positions in the mature markets of U.K.,

USA, Canada, France, Holland, Australia and New Zealand with expanding operations in growth markets such as Eastern and Southern Europe and Asia. CGU has a relatively new operation in Germany which has a weak market position at present.

-- The new management team and structure appears strong with clear

leadership from Bob Scott. Management is spending a great deal of time considering the best way to merge the two entities in countries where the operations overlap - essentially the U.K., U.S. and Australia. Standard & Poor's believes the company is well placed to make the transition from planning to implementation although there will undoubtedly be issues of staff morale in the short term .

-- Improved profitability prospects and even greater stability of

results likely. Both companies exhibited stable profitability as a result of generally well controlled underwriting. GA was particularly strong in the U.K. where CU experienced poor results in 1997 due essentially to its motor and marine accounts. Overall profitability will improve as a result of cost savings generated by the merger - estimated to be UK225 million as a minimum, and through growth of the life businesses.

-- Capitalization is strong and is supported by excellent financial

flexibility. The new group has adopted CU's more aggressive philosophy in respect of capital allocation in order to achieve strong returns on capital such that capitalization will not return to the superior levels exhibited previously by GA. That said, capitalization of the group is strong and is supported by modest debt leverage plus the ability to generate large absolute profit flows to support growth and excellent access to capital markets.

EXPECTATIONS:

-- The company still has key decisions to make in terms of branding,

market positioning and the group's legal structure. Standard & Poor's expects the merger will be effectively carried out and expense savings from the deal will begin to emerge in 1999.

-- Continued growth in the relative importance of life operations

and growth in operations outside the U.K. Standard & Poor's believes the company will be well placed to capitalize on any developments in private pension provision and will have the resources to fund these developments although the pace of change is uncertain.

-- Capitalization will be maintained at a strong level over the

medium term, Standard & Poor's said.

---CreditWire

RATINGS RAISED AND REMOVED FROM CREDITWATCH

TO FROM Commercial Union Assurance Co. of Australia Ltd.

(& New Zealand Branch) Swann Insurance Australia Pty. Ltd. (& New Zealand Branch)

Counterparty credit rating AA/Stable AA-/Watch Pos

Financial strength rating AA AA-/Watch Pos RATINGS STILL ON CREDITWATCH POSITIVE RATING Commercial Union Lenders Mortgage Insurance Ltd.

Counterparty credit rating AA-/Watch Pos Financial strength rating AA-/Watch Pos RATINGS AFFIRMED Commercial Union PLC Commercial Union Assurance Co. PLC

Short-term counterparty credit rating A-1+ Commercial paper A-1+

    CONTACT:  Corinne Cunningham, London (44) 171-826-3550
               Jayan U Dhru, London (44) 171-826-3560
               Michael Vine, Melbourne (61) 3-9250-4542
     For more information on criteria or subscriptions:
     http://www.ratings.standardpoor.com