TEXT-Fitch release on Argentine insurance industry for 2010

(The following statement was released by the rating agency)

July 15 – Fitch Ratings expects a 5%?8% growth rate in premiums in the
Argentine insurance industry given the anticipated expansion in GDP, the
favorable expectations in terms of patents, and the development of the
agriculture sector, which is anticipated to have a positive impact on auto
insurance, agricultural risk, and transportation, among other segments.

Argentina’s GDP is expected to recover by 3%-5% in 2010, after exhibiting
sluggish growth in 2009 (+0.8% according to official figures, -3% according to
private-sector estimates).

However, there is still significant uncertainty regarding the country’s
political stability and growing inflationary pressures resulting from increased
fiscal and private spending, which has not been matched on the production side
due to the country’s low investment rate. In 2009, the Argentine insurance
industry grew by 3.9% in real terms (down from a real 8.4% in 2008), with the
non-life and life insurance segments expanding by 11.3% and 7.2%, respectively,
and the retirement segment plunging by 74.5% as a result of the nationalization
of private pension funds in late 2008.

The industry’s technical results for the first six months of the fiscal
year (which ended in December 2009) plummeted due to an increase in the
industry’s loss ratio and operating costs, which combined led to an 8% increase
in the sector’s combined ratio. However, the industry was able to double its
net income thanks to higher returns on investments (particularly public-sector
instruments, which represented 50.4% of the portfolio), leading to a strong
gain in financial revenues.

For the current year, Fitch does not anticipate any major changes in terms
of: –Market structure, which is characterized by:

1) low penetration (2.5% of GDP as of June 2009),

2) high granularity of producers and companies (although this has been
gradually declining over the past few years),

3) high participation of the auto and workers’ compensation segments in
total production (56% of premiums written),

4) low incentives for life insurance with capitalization, and

5) high overall retention levels (of over 80%).

–Profitability: the industry continues to exhibit positive technical
results despite a growing combined index, with profitability levels being
subject to volatility in financial revenues.

–Stable capitalization, with an overall liabilities/equity ratio of about
4%. In the medium term, the most significant challenges for the industry are:

1) to adapt to the regulatory changes introduced in November 2009 in the
workers’ compensation segment (as of December 2009, the impact on the segment’s
technical performance was significant);

2) to implement measures that take into consideration inflationary
expectations and their impact on reserves, structural costs, investment
valuations, reinsurance rates, etc.; and

3) to adjust claims and litigation management controls and policies where
the levels are still high.

TEXT-Fitch release on Argentine insurance industry for 2010