S&P Assigns IAG ‘AA-‘ Ratings

Standard & Poor’s Ratings Services announced that it has assigned its ‘AA-‘ long-term counterparty credit rating to Insurance Australia Group Ltd., with a stable outlook.

“The rating reflects IAG’s role as the group’s ultimate holding company, its access to a range of dividend streams from its Australian subsidiaries, and a largely unregulated revenue stream from its sizeable operation in New Zealand (IAG New
Zealand Ltd.; AA/Stable/—)” said S&P. “Liquidity is strong, with positive net cash flows from operating activities of A$897 million [US $636 million] in the year to June 30, 2005.”

“The ‘AA-‘ rating, being one notch below the operating companies’ ratings of ‘AA’, reflects IAG’s structural subordination to the group’s key operating entities,”stated S&P credit analyst Kate Thomson. “The one-notch rating differential has been reduced from the standard two-to-three notch holding company/operating company differential, reflecting the absence of debt issued by the IAG entity.”

S&P noted: “Only hybrid equity instruments are issued by IAG, with debt instruments issued by/guaranteed by Insurance Australia Ltd., the group’s key insurance operating entity. The holding company has no senior debt on issue, constraining itself to issues of reset preference shares equating to a moderate 12.14 percent of capital.
Double leverage is a moderate 104 percent, well within the tolerance of the ‘AA’ category rating.”

“We expect that the group’s strong business franchise and solid underwriting capability will underpin sustainable financial performance and support ongoing balance-sheet strength,” Thomson added. “Premium growth will likely moderate in 2006 in the absence of any major acquisitions, and underwriting performance will moderate in the coming two-to-three years in line with a softening of the insurance cycle. Despite some moderation, earnings and capitalization are expected to remain consistent with the ‘AA-‘ rating.”