A.M. Best Assigns Rating to Pioneer Insurance Company Ltd.

OLDWICK, N.J.--Aug. 2, 20038, 2003--A.M. Best Co. has assigned an initial financial strength rating of B+ (Very Good) to Pioneer Insurance Company Ltd., New Zealand. The rating outlook is stable.

The rating reflects Pioneer Insurance's strong liquidity, consistently positive projected cash flows, conservative reinsurance strategy and short-tail risk exposure. Additionally, A.M. Best believes that as a start-up motor insurer, the company is well positioned to benefit from the support of its network of stakeholders in marketing and claims management.

The company is expected to maintain a sound liquidity position in its first five years of operation. Investment assets will be allocated to cash equivalents and government securities, which are projected to generate a return exceeding the rate of inflation in the foreseeable future. An arrangement with finance company clients to ensure advance payment of premiums will further enhance free cash flow generation at the initial stage.

Given its lack of critical mass in the first few years of operation, Pioneer Insurance will adopt a prudent reinsurance strategy in order to stabilize its underwriting experience. Through a stop-loss reinsurance cover that has been established with Munich Re of Australasia, the company anticipates that its loss ratio will not deviate materially from the market average. Furthermore, excess of loss and facultative reinsurance arrangements will serve to limit the company's exposure to a manageable level.

As a carrier of only motor physical damage risks, the company's underwriting exposure will be very short-tailed. As the portfolio matures and stabilizes, the frequency and severity of claims will demonstrate a high degree of consistency.

In terms of business profile, the venture is expected to benefit from its distribution agreements with its finance company clients, which will conduct the sales and marketing function. Claim management services will be outsourced to CRM Motor, an experienced captive manager in the field of motor insurance.

These strengths are partially offset by the company's modest capitalization and lack of track record.

On a risk-adjusted basis, the company's surplus as forecast will be pressured by robust business growth in the first three years of operation. As such, any material deviation from the business plan will exacerbate the adverse impact on the company's financial strength.

A.M. Best also remains cautious about the company's ability to execute its business plan and maintain a secure level of capitalization. To this end, A.M. Best will monitor the company on an ongoing basis, as well as measure its progress against pre-defined performance and capital adequacy benchmarks agreed upon with the company's management. Strict adherence to these guidelines is critical to the rating's stability over time.

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.