A.M. Best Affirms Rating of New Zealand Local Government Insurance Corporation.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and assigned an issuer credit rating (ICR) of "a" to New Zealand Local Government Insurance Corporation Limited (Civic Assurance) (New Zealand). The outlook for both ratings is stable.

Civic Assurance has continued to maintain its profitable operating results for the past few years. The company recorded net income of NZD 2.2 million (USD 1.5 million) in fiscal year 2005, compared to NZD 2 million (USD 1.4 million) in fiscal year 2004. The company's combined ratio has been persistently kept at a level below 100%. The five-year average combined ratio stands at 68%. A.M. Best expects the company will sustain profitable operating performance going forward.

Best's Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, demonstrates the company's strong capital position. It has maintained a conservative net premium leverage ratio of 0.2 times in fiscal year 2005. Going forward, retention of earnings and moderate premium growth are expected to further enhance the company's capitalization on a risk- adjusted basis.

Civic Assurance maintains a liquid investment portfolio. Cash, bonds and mutual funds accounted for more than half of the company's total assets as of fiscal year 2005. This ensures that the company generates stable investment returns with limited volatility. The net investment yield further improved to 14.4% in fiscal year 2005 from 10.2% in fiscal year 2004.

Offsetting these positive attributes is the company's heavy dependence on its shareholders to generate business and the softening of premium rates in the commercial property markets.

Given the company's niche distribution strategy, the growth of Civic's insurance book will be highly dependent upon the activities in the public sector, although it plans to diversify the spectrum of its product lines.

Additionally, intense market competition along with softening in premium rates in the commercial property sector in New Zealand could translate into a higher level of volatility in underwriting results for Civic going forward.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

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.