Connie Wong Director Financial Services Ratings Standard & Poor’s Taiwan Nonlife Insurance Sector Outlook Connie Wong Director Financial Services Ratings Standard & Poor’s

Taiwan Nonlife Insurance Outlook Outlook: Stable Major factors: Satisfactory financial profile Relatively good underwriting result Average investment profile Offset by: Reducing premium rates High reliance in reinsurance

Taiwan Nonlife Insurance Outlook Satisfactory financial profile: Generally with good capitalization; vary from very strong to weak among companies Satisfactory financial flexibility; majority of nonlife insurers are profit making and with support from shareholders Insurance companies are generally prudent in their balance sheet structure Expectation: remain stable in financial profile

Taiwan Nonlife Insurance Outlook Relatively good underwriting performance: Average combined ratio (net of reinsurance) for the last two years is expected to be around 96% Two profitable year in 2002 and 2003 was mainly attributable by increased premium rates and no major natural catastrophe losses Subject to volatility due to catastrophe risk exposure Expectation: remain adequate but subject to deterioration due to premium rates reduction

Taiwan Nonlife Insurance Outlook Average investment profile: Mainly invested in domestic market Average asset quality but good asset liquidity Subject to domestic investment market performance Improvement in investment return in past year Increase in risk appetite in investment in past two years Expectation: remain average as restrained by domestic investment market

Taiwan Nonlife Insurance Outlook Market softening: Premium rates (for non-tariff rated) reduced significantly for certain business lines Fierce competitions Market discipline short-lived Reinsurance companies’ continued support Deregulation of the market in long term Expectation: market softening will continue under strong competitions and weak market discipline

Taiwan Nonlife Insurance Outlook Heavy reliance in reinsurance: Exposure in natural catastrophe and mega risks Historical high cession ratio was encouraged by different tax treatment in ceded and retained premiums Increased retention in past few years as a result of tightened reinsurance marketplace Continued support from major reinsurers Underwriting cycle has high correlation with reinsurance capacity availability Expectation: remain high, but gradually reduced, reliance in reinsurance usage

Comparison of Life Insurance – Taiwan, Hong Kong, China

Life Insurance Market Comparison Business Risks Taiwan Hong Kong China Industry risks Moderately high Negative spread Moderately low High Business Review Competitive Dominant market share Dominant by foreign players Dominant by few major players Management & Corporate Strategies Market share oriented but increasing focus in profitability Mainly profitability oriented Market share oriented

Life Insurance Market Comparison Financial Risks Taiwan Hong Kong China Operating Performance ROA for 2003 : 1% (expected) ROA: 1% ROA: 0.5% Investment Average Mainly domestic, with high level of loans, increasing foreign assets Less sophisticated ALM Above above Low restriction in investment, good quality of assets Sophisticated ALM Below average Restrictive, mainly cash and fixed income Low sophistication in ALM Capitalization Adequate Weak Reserving Slightly inadequate Inadequate Financial Flexibility Vary from strong to weak Generally good

Comparison of Non-Life Insurance – Taiwan, Hong Kong, China

Nonlife Insurance Market Comparison Business Risks Taiwan Hong Kong China Industry risks Moderate Business Review One dominant player, with fragmented shares for the rest Fragmented market shares Few dominant players Management & Corporate Strategies Market share oriented but increasing focus in underwriting control Market share oriented but increasing focus in profitability Market share oriented but increasing focus in bottom line

Nonlife Insurance Market Comparison Financial Risks Taiwan Hong Kong China Operating Performance Combined ratio (COR) – around 96% COR – 90% COR – around 80% Investment Average. Mainly domestic assets, good liquidity Average. Mainly domestic, good liqudity Below average. Restrictive, mainly cash and fixed income Capitalization Satisfactory Below average Reserving Adequate Reinsurance High reliance Retention% - 49% Less reliance Retention% – 67% Low reliance Retention% - above 90% Financial Flexibility