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A.M. Best Affirms Ratings of Co-operative Life Limited

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HONG KONG--(BUSINESS WIRE)--

A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of Co-operative Life Limited (Co-op Life) (New Zealand). The outlook for both ratings is stable.

Co-op Life is subject to a contingent commitment to the benefit of The Co-operative Bank Limited's (Co-op Bank) debt security holders (term depositors and capital note investors), who were invested in Co-op Bank at the time of its bank registration on October 26, 2011.

The affirmations reflect a capital (fully paid ordinary shares) injection to offset the contingent commitment's capital requirements and diminishing trend.

Co-op Life is expected to receive a NZD 12 million parental capital injection by October 24, 2012. This would help to reduce the contingent commitment's drag on Co-op Life's risk-adjusted capitalization, as measured by Best's Adequacy Ratio (BCAR), ensure compliance with regulatory solvency requirements ahead of its December 31, 2012, regulatory deadline and facilitate regulatory approval for the acquisition of an existing book of business. Co-op Bank has applied to its regulator for a temporary variation of the insurance asset limit clause in its Conditions of Registration to enable the capital injection.

As eligible funds mature, Co-op Life's contingent commitment will diminish over time, as will the drag on its BCAR and regulatory solvency ratio. The last of these funds are anticipated to mature by September 2016.

Co-op Life's primary offsetting rating factor is its plan to repatriate NZD 12 million before the commitment has fully expired.

Management anticipates that the variation to Co-op Bank's Conditions of Registration (insurance asset limit clause) will cease by August 31, 2013. At that time, it is expected that the NZD 12 million capital will have been fully repatriated to Co-op Bank. This will lead to a drag on Co-op Life's BCAR in fiscal year 2014, as funds qualifying for the contingent commitment will not have fully matured. A deterioration in Co-op Bank's financial strength could exacerbate the contingent commitment's drag on Co-op Life's BCAR.

Upward rating actions are unlikely before the contingent commitment fully expires and while the insurance asset limit (after August 31, 2013) applies.

A material deterioration in Co-op Life's BCAR would lead to downward pressure on its ratings.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding Universal BCAR” and “Understanding BCAR for Life/Health Insurers.” Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Chi-Yeung Lok, +852-2827-3414
Financial Analyst
chi-yeung.lok@ambest.com
or
Moungmo Lee, +852-2827-3402
General Manager
moungmo.lee@ambest.com
or
Rachelle Morrow, +(1) 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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