Central Reinsurance Corporation

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Central Reinsurance Corp. Outlook Revised To Positive From Stable

Research Update: Central Reinsurance Corp. Outlook Revised To Positive From Stable

Taiwan Summary

Publication date: 13-Dec-2005

Contact(s): Paul Clarkson, Hong Kong (852) 2533 3594; paul_clarkson@standardandpoors.com

Contact(s): Connie Wong, Hong Kong (852) 2533-3553;

connie_wong@standardandpoors.com

Susan Chu, Taipei (8862) 2368-8277; susan_chu@taiwanratings.com.tw

Local Currency

Credit Rating: BBB+/Positive/--

Rationale

On Dec. 14, 2005, Standard & Poors Ratings Services revised the outlook on its BBB+ insurer financial strength and counterparty credit ratings on Central Reinsurance Corp. (Central Re) to positive from stable. At the same time the ratings were affirmed.

The outlook revision reflects the companys good operating performance and strengthening capital position, and the prudent approach of its management. It specifically cknowledges increased management proactivity in strengthening technical skills and enhancing the companys risk management framework.

The ratings on Central Re reflect the companys good domestic position, satisfactory operating performance, prudent investment policy, and adequate capitalization. The company is, however, facing increasing competition.

Central Re has a good domestic business position and strong relationships

with local insurers, stemming from its position within the market as the

only domestic professional reinsurance company to offer both life and

nonlife reinsurance. In 2004 it had an 18% share of the nonlife

reinsurance market and a 26% share of the life reinsurance market in terms

of premiums ceded by domestic insurers. The company is planning to further

expand its business geographically as currently about 95% of its business

is sourced in Taiwan. The expansion will primarily be in Asia. Standard &

Poors expects this expansion to be managed prudently.

The Evergreen group, a conglomerate primarily engaged in the transport

industry, owns 53.2% of the company, with the Ministry of Finance

retaining a minority share of 23.3%. Managements strategies have been

prudent since the Evergreen group took control in 2003. The management

team, however, is now taking an increasingly proactive, profit-oriented

approach, and aims to improve the companys technical support and know-how

in line with its business expansion objectives.

Central Re has achieved stable and favorable underwriting results in an

operating environment in which the company is exposed to catastrophe risk.

Its combined ratio was 98% in both 2004 and 2003, a level that is

satisfactory by both domestic and international standards.

The companys capitalization is adequate for its risk written. Its capital position has been strengthened in recent years with its paid-up capital increasing to Taiwan dollar (NT$) 5 billion in 2005 from NT$3.6 billion in 2003. However, it is still low compared with the capital of its regional peers. At the end of September 2005, Central Res ratio of adjusted capital to net premium income stood at 50.1%. If the companys special reserve of NT$2.6 billion had been included, the ratio would have been 70.8%. The special reserve is a regulatory requirement. The companys financial flexibility is good as a result of its good earning stream, shareholder support, and adequate retrocession arrangements.

Outlook

The outlook revision reflects the companys good operating performance, its strengthening capital position, and the prudent approach of its management. It specifically acknowledges increased proactivity by Central Res management in strengthening technical skills and enhancing the companys risk management framework. The rating may be revised upwards if the companys good operating performance continues and its capital strengthens. The outlook could be revised to stable if the companys earnings were to deteriorate or its overseas expansion speeded up to an extent that put pressure on future earnings.

Ratings List

To From Central Reinsurance Corp. BBB+/Positive/-- BBB+/Stable/--

Complete ratings information is available to subscribers of Classic Direct,

Standard & Poors Web-based credit analysis system, at www.eclassicdirect.com. All ratings affected by this rating action can be found on Standard & Poors public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.