2008-11-09 03:27:02 -

www.ambest.com - A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Fidelity Life Assurance Company Limited (Fidelity) (New Zealand). The outlook for both ratings is stable.

The ratings reflect Fidelity's stable growth in capitalization, conservative earnings retention practice and continued strong operating performance.

Fidelity's capital and surplus

increased 22.6% to NZD 76.1 million in fiscal year 2008 from NZD 66.5 million in the prior year. On an absolute basis, capitalization has steadily increased over the past five years, growing at an average annual rate of 25.0% due predominantly to strong investment performance and conservative earnings retention practice. Dividend payout ratio averaged 6.9% during the same period. Risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio, increased in the past financial year from consistent operating profitability and slower growth of underwriting business relative to prior fiscal year.

Fidelity has experienced consistent operating profitability and business growth. Gross risk premiums have grown at an average annual rate of 14.6% over the past five years. Risk premiums grew 14.4% in fiscal year 2008, slightly advancing its share of the New Zealand life insurance market. Although underwriting experience strains persisted due predominantly to higher than planned commission rates, Fidelity's operating profitability was supported by solid investment returns. Five-year pre tax profit to net premium written averaged 28.3%, and the company managed a return on assets of 3.4% over the same period.

Partially offsetting these positive factors is the increasing pressure on the solvency position due to consistent business growth, instability in the financial market and uncertainties with regards to tax reforms.

Fidelity's solvency position continued to experience strain over the past year primarily due to strong organic growth and the continued shift towards risk business from saving business. Nonetheless, risk-adjusted capitalization improved during the financial year due to the company's conservative investment practice and strong capital accumulation.

Instability in the financial market has induced additional volatility to Fidelity's prospective investment performance and, consequently, the company's capital position in the near term. Nonetheless, non-linked assets are invested in a conservative manner as at year-end June 2008, with approximately 84.2% of assets invested in cash or fixed interest instruments. This conservative investment approach will offer sound liquidity and capital preservation.

Finally, taxation reforms will have an impact on Fidelity and life insurance companies in general. A.M. Best remains cautious of the potential impact of tax changes on the industry's profitability and the market dynamics that the changes will introduce to the life insurance market.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Co.
Analysts:
Billy Wong, +852-2827-3414
billy.wong@ambest.com
or
Terrence Wong, +852-2827-3403
terrence.wong@ambest.com
or
Public Relations:
Jim Peavy, +(1) 908 439 2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
rachelle.morrow@ambest.com