A.M. Best Revises Outlook to Negative for Aioi Nissay Dowa Insurance (China) Company Limited

HONG KONG--()--A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Aioi Nissay Dowa Insurance (China) Company Limited (ADIC) (China).

The ratings reflect ADIC’s conservative and highly liquid investment portfolio and continued support from its parent company, Aioi Nissay Dowa Insurance Company Limited (ADI), in the areas of business development, capitalization, operations and reinsurance. The revised outlook reflects the expected material deterioration of the company’s risk adjusted capitalization due to the anticipated rapid business growth, in conjunction with the decline in capital and surplus over the medium term.

ADIC reported underwriting losses from the SK Hynix fire accident in China in 2013. The size of the retained loss had reached the company’s maximum level of per event retention, which, as a result, had adversely impacted the company’s operating performance and capitalization. Moreover, ADIC’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, is expected to materially deteriorate over the next two to three years in view of the high premium growth arising from the roll-out of its motor reinsurance business starting 2013. The business plan is expected to substantially increase its underwriting risk relative to its projected capital and surplus position. However, the company’s management is expected to receive financial support from its parent company ADI, to support its risk-adjusted capitalization in the medium term.

The outlook may be revised back to stable if ADIC receives significant financial support to restore its risk-adjusted capitalization to an adequate level to support its business plan and demonstrates an ability to generate sustainable operating profit.

Negative rating actions could arise if the company fails to maintain its risk-adjusted capitalization at an adequate level to support its current ratings over the next two years.

The methodology used in determining these interactive 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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.

This rating announcement has been issued by A.M. Best Asia-Pacific Limited, which is a subsidiary of A.M. Best Company. 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 © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Company, Inc.
Vivian Cheung, +852-2827-3411
Senior Financial Analyst
vivian.cheung@ambest.com
or
Moungmo Lee, +852-2827-3402
General Manager, Analytics
moungmo.lee@ambest.com
or
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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Contacts

A.M. Best Company, Inc.
Vivian Cheung, +852-2827-3411
Senior Financial Analyst
vivian.cheung@ambest.com
or
Moungmo Lee, +852-2827-3402
General Manager, Analytics
moungmo.lee@ambest.com
or
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com