Kamakura Announces New Private Firm Model for Small Business Default Probabilities Basel II-Compliant Model Testing Included in Offering

HONOLULU, January 27, 2004: Kamakura Corporation announced today the launch of the Kamakura Risk Information Services Private Firm Model, a web-based browser that estimates the default probabilities of privately held firms. The KRIS Private Firm product offering includes complete model performance results required under the proposed "Basel II" capital accord of the Basel Committee on Banking Supervision outlined on www.bis.org. The KRIS Private Firm Model is country-specific and has been developed in cooperation with a number of the world's most sophisticated financial institutions on data bases ranging from 600,000 to 16 million observations. The KRIS Private Firm model incorporates financial ratios, macro-economic factors and public company default probabilities from the KRIS-cr default probability service to correctly model the cyclicality and correlation in small business defaults. The need to do this was noted in recent remarks by Alan Greenspan of the Federal Reserve Board and by Anthony Saunders and Linda Allen in Working Paper 126 of the Bank for International Settlements.

"A wide range of institutions from corporate accounts receivable departments to major international banks are looking for greater accuracy in modeling small business default," explained Warren Sherman, Kamakura President and Chief Operating Officer. "Traditional approaches to small business defaults have ignored the common macro-economic factors which cause peaks and valleys in the credit cycle. The KRIS Private Firm Model incorporates these insights from very large data bases around the world. As required by the Basel Capital Accords, an important part of the KRIS Private Firm Model is a report on model testing designed to far exceed the model performance requirements set by regulators." For more information on the KRIS Private Firm Model, see the KRIS Private Firm page on the products section of the Kamakura web site www.kamakuraco.com.

Kamakura's private firm modeling effort is based on the same "reduced form" and hazard rate modeling approach announced by the Federal Deposit Insurance Corporation of the United States on December 10, 2003. The model uses the insights of Professor Robert Jarrow, Kamakura's director of research and lead author of the FDIC Loss Distribution Model report. The KRIS Private Firm Model also has much in common with the Financial Institutions Monitoring System launched by the Board of Governors of the Federal Reserve System of the U.S. in the mid-1990s. The Kamakura approach is consistent with the advanced hazard rate modeling incorporated in Kamakura's integrated credit risk, market risk and ALM system Kamakura Risk Manager. Kamakura also works on a consulting basis with clients to do proprietary private firm modeling using the multi-period monte carlo simulation capabilities of the Kamakura Risk Manager system.

For additional information on private firm modeling and the macro-economic drivers of default, see Credit Risk Models and the Basel Accords by Kamakura's Donald R. van Deventer and Kenji Imai.

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