A.M. Best Affirms Ratings of The Toa Reinsurance Company, Limited and Upgrades Rating of The Toa Reinsurance Company of America

HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and issuer credit rating (ICR) of “aa-” of The Toa Reinsurance Company, Limited (Toa Re) (Japan).

Concurrently, A.M. Best has upgraded the ICR to “a+” from “a” and affirmed the FSR of A (Excellent) of The Toa Reinsurance Company of America (TRA) (headquartered in Morristown, NJ). The outlook for all ratings is stable.

The ratings of Toa Re reflect its strong underwriting performance, superior risk-adjusted capitalization and continuous diversification of income sources.

Toa Re recorded a combined ratio of 92% with a five-year average of 94%. In addition to the favorable combined ratio, the company has reduced its peak risk over the previous year, which was the primary cause for a higher loss ratio and high volatility. With the improved risk management, Toa Re expects to maintain the current profitability with lower volatility in underwriting income.

In addition to the reduction in the underwriting volatility, Toa Re also has reduced its investments in equities, which resulted in the stabilization of its risk-based capitalization. Toa Re’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remained superior, and the global financial crisis had little impact on its capitalization.

The company enjoys an outstanding market position in Japan, especially in the non-marine main treaties. Toa Re strives to diversify its income sources by expanding its life reinsurance, co-operative and overseas businesses.

Offsetting these positive factors is the shrinking insurance market in Japan, which has been diminishing over the past decade, and the high competition in the Asian reinsurance market. Although Toa Re has directed its resources toward finding new revenue sources, it was inevitably affected given that the major premium sources of its business were derived from Japan. Additionally, this is creating a difficult environment for the company to improve its cost efficiency.

As more Asian reinsurers are expanding outside their own primary market, competition in the Asian reinsurance market has increased in recent years. However, Toa Re is well-positioned financially to compete in the Asian reinsurance market.

The ICR upgrade and affirmation of the FSR of TRA recognizes its established niche in the U.S. regional markets, stable underwriting performance and strong risk-adjusted capital position. TRA’s ratings also benefit from the global presence and strength of Toa Re. TRA is a profitable investment for Toa Re, providing strategic expansion and portfolio diversification.

TRA’s book of business is predominantly casualty-oriented. A partially offsetting risk factor for TRA is the softening U.S. casualty market, which could dampen the company’s profitability if prices continue to deteriorate.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.