Research Update: Central Reinsurance Corp. Ratings Raised To A-;

Outlook Stable

Taiwan                                        Summary

Publication date:          20-Oct-2006

Contact(s):               Andy Chang, CFA, Taipei (8862) 8722-5815;mailto:andy_chang@taiwanratings.com.tw

Contact(s):               Connie Wong, Hong Kong (852) 2533-3553;mailto:connie_wong@standardandpoors.com

Steven Chen, Taipei (8862) 8722-5816;mailto:steven_chen@taiwanratings.com.tw

Rationale

On Oct. 20, 2006, Standard & Poors Ratings Services raised its insurerfinancial strength and counterparty credit ratings on Central Reinsurance Corp. (Central Re) to A- from BBB+.

The outlook is stable.

The rating action reflects Central Res strengthened capitalization and continued good operating performance. The ratings continue to reflect Central Res strong business profile, sustainable operating performance, and satisfactory capitalization. Moderating factors include the companys geographic concentration in Taiwan, where catastrophe risk is high.

As the sole domestic provider of both life and nonlife reinsurance, Central Re has a strong position and healthy relationships with local insurers. The company had a 22% share of the nonlife reinsurance market and a 14% share of the life reinsurance market in terms of premiums ceded by domestic insurers in 2005. About 96% of its business is sourced in Taiwan.

Central Res operating performance is good and stable. Benefiting from prudent underwriting controls, its combined ratio was 98% in the first half of 2006 and ranged between 96% and 97% in 2001-2005. With a stable investment return (including capital gains) of about 3% over the 18 months ended June 30, 2006, its return on revenue was a good 7.6% during the period.

Central Res capitalization is satisfactory. Its capital position has strengthened in recent years because of several capital injections. Its shareholders funds increased to Taiwan dollar (NT$) 6.6 billion at the end of 2005 from NT$4.5 billion at the end of 2003. At the end of June 2006, Central Res ratio of shareholders funds to net premium income stood at 49.1%, up from 38.8% at the end of 2003. Its special reserve of NT$2.9 billion provides an additional buffer. The companys capitalization is supported by its adequate reserves, while prudent retrocession arrangements mitigate its catastrophe exposure.

Central Res policy role, which primarily involves supporting government initiatives and the domestic insurance market, is beneficial to the companys business development. The Ministry of Finance holds a stake of 23.3% in the company and the Evergreen group, a conglomerate primarily engaged in the transport industry, holds a majority 54.4% stake. However, Central Re operates independently.

Outlook

The stable outlook reflects the expectation that Central Re will maintain its improved financial profile as it expands its overseas business over the medium term. The companys historical record of prudent growth mitigates concerns over its expansion strategy. Its strong local market base should offset possible volatility in the underwriting performance of its international business. The companys management strategy is expected to remain prudent and consistent, and its overall operating performance is likely to remain good over the medium term. The ratings on the company are unlikely to be raised further unless additional capital injections are forthcoming. The outlook could be adjusted to negative if its operating performance and capitalization weaken because of aggressive expansion.

Ratings List

Upgraded                              To                  From
Central Reinsurance Corp.

Counterparty Credit Rating

Local Currency                         A-/Stable/--          BBB+/Positive/--

Financial Strength Rating

Local Currency                         A-/Stable/--          BBB+/Positive/--

Complete ratings information is available to subscribers of ClassicDirect, the real-time Web-based source for Standard & Poors credit ratings, research, and risk analysis, 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.