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HONG KONG, Dec. 9, 2010
A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating of "a" of Dongbu Insurance Company, Ltd. (Dongbu) (South Korea). The outlook for both ratings is stable.

The ratings reflect Dongbu¡¯s strong capitalization and favorable operating performance.

Due to its strong operating profitability, Dongbu has accumulated its retained earnings stably over the past five years. As at the end of fiscal year 2009, Dongbu¡¯s adjusted capital and surplus (including catastrophe reserves) stood at around KRW 1.6 trillion, which is the second largest in the industry. Dongbu¡¯s local solvency margin ratio improved to 226% in fiscal year 2009 from 193% in the previous year, due to the favorable investment market recovery. As Dongbu decided to reflect revaluation gains on land in fiscal year 2010 due to the introduction of International Financial Reporting Standards (IFRS), the company¡¯s capitalization has shown further improvement; Dongbu reported around KRW 368 billion of revaluation gains.

Although Dongbu experienced deterioration in its loss ratio, its bottom line profitability remained strong, attributed to its lower expense ratio and favorable investment income ratio. Dongbu¡¯s combined ratio and operating ratio stood at 100% and 93%, respectively, in fiscal year 2009. A.M. Best expects that Dongbu will maintain its current level of operating profitability.

Partially offsetting these positive rating factors is the unfavorable loss trend in the motor business line and the weakening of a competitive advantage in expense controls.

In the past, Dongbu has maintained a low expense ratio attributed to the lower personnel expense with high operation efficiency. Dongbu¡¯s expense ratio was around three percentage points lower than its peers in a five-year average. However, as Dongbu¡¯s sales costs are in an upward trend to support rapid top-line growth and its competitors attempt to reduce their personnel expenses through the abolishment of a progressive severance payment system, the expense ratio gap between Dongbu and its peers has begun to narrow.