HONG KONG--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa” of Mitsui Sumitomo Insurance Company, Limited (MSI) and Aioi Nissay Dowa Insurance Company Limited (ADI) (both domiciled in Japan). The outlook of these Credit Ratings (ratings) is stable.
Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and the Long-Term ICRs of “aa” of Mitsui Sumitomo Insurance Company of America (MSIA), Mitsui Sumitomo Insurance USA Inc. (MSU) and Aioi Nissay Dowa Insurance Company of America (ADIA). The outlook of these ratings is stable. All of these companies are domiciled in New York, NY and are direct subsidiaries of MSIG Holdings (Americas), Inc. A.M. Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of ADI’s subsidiary, Aioi Nissay Dowa Insurance (China) Company Limited (ADIC) (China). The outlook of these ratings is stable. The aforementioned companies are owned ultimately by MS&AD Insurance Group Holdings, Inc. (MS&AD), a major non-life insurance group based in Japan.
MSI’s ratings reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
MSI’s level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is at the strongest level, supported by a large adjusted capital and surplus base, and moderate underwriting leverage. The BCAR score remains at the strongest level even under stressed scenarios. As the lead rating unit of MS&AD, MSI also benefits from the group’s positive combined balance sheet strength assessment.
MSI’s operating performance has improved significantly over the past five years, and it has been one of the best performers among Japan’s major non-life insurers in underwriting and overall profitability, over the same period. The company’s five-year average return on equity is one of the highest among Japan’s major non-life insurers. Nevertheless, A.M. Best expects volatility in profitability to remain moderate, as MSI has exposure to natural catastrophes in domestic and overseas markets.
MSI is fully owned by MS&AD and is, on its own, the third-largest non-life insurer in Japan in terms of premium revenue in fiscal year 2016. The company has substantial overseas operations and continues to expand in these markets to improve growth prospects and diversify geographically.
The company’s ERM is appropriate for its risk profile. Equity investment risk, the company’s largest risk, is controlled partially through the gradual disposal of invested equities. MSI has been increasing its expertise in catastrophe risk management, and risks are mitigated by a comprehensive reinsurance program.
MSI is well-positioned at its current rating level. Negative rating actions could occur if an unfavorable trend develops in operating performance or in the event of a large-scale catastrophe that significantly impacts the company’s capitalization.
The ratings of MSI have been extended to MSIA, MSU and ADIA, as these companies hold a strategic role within the organization as U.S. domestic insurers, and receive the benefit of strategic direction and explicit support provided through internal reinsurance. The ratings also reflect their strong risk-adjusted capitalization and additional implicit support provided by the parent. Effective Jan. 1, 2015, MSIA, MSU and ADIA operate under a pooling agreement. This further strengthens the relationship among the U.S.-based entities and vertically through the organization.
Given the extent of implied and explicit support embedded in these ratings, any upward or downward movement on the ratings of MSI would likely influence the ratings of MSIA, MSU and ADIA. Any material changes to MS&AD financial condition or its commitment in the U.S.-based entities could cause these ratings to move.
The ratings of ADI reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate ERM. ADI’s ratings also consider the strategic importance to its parent company, MS&AD.
ADI’s risk-adjusted capitalization, as measured by BCAR, is at the strongest level and supported by the company’s moderate underwriting leverage. Although ADI has a high proportion of equity investments, its risk-adjusted capitalization remains at the strongest level under equity stress scenarios. High exposure to domestic natural catastrophes is addressed by the company’s appropriate reinsurance program.
ADI has reported profitable operating performance in recent years. Although underwriting performance has improved over the past five years, volatility remains moderate, as evidenced by the negative impact of large losses from overseas natural disasters in fiscal year 2017. On the expense side, maintenance costs have been on a declining trend, driving the expense ratio lower. Nevertheless, the company’s overall profitability, as measured by adjusted return on equity, continues to trail its peers.
Most of ADI’s business is concentrated in its domestic market, where it is one of the four-largest players in terms of net premium written. The company benefits from its long-standing business relationship with Nippon Life Insurance and Toyota Motor Corporation (Toyota), MS&AD’s major shareholders. Overseas expansion has been limited, and its concentration in its domestic market leaves the company exposed to natural catastrophes and low premium growth.
ERM is considered appropriate to ADI’s risk profile and is managed by MS&AD. ADI’s major business is auto insurance, a product line in which it has expertise. Its largest risk is investment risk; to manage this, ADI has been gradually disposing of its invested equities.
ADI is one of the major operating subsidiaries of MS&AD. Many of the company’s operations, such as ERM, corporate functions and part of product development, are integrated into MS&AD.
ADI is well-positioned at its current rating level. Negative rating actions could occur if there is a significant deterioration in operating profitability or an unfavorable trend develops in operating performance. Negative rating actions also could occur in the event of a large-scale catastrophe that significantly impacts the company’s capitalization.
The ratings of ADIC reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the wide range of support the company receives from its parent, ADI, which is wholly owned by MS&AD.
ADIC receives a high level of support from its parent in the form of business generation and capital injections. The strong business relationship between ADI and Toyota helped establish ADIC’s motor reinsurance inward business in 2016. As a result, ADIC recorded positive underwriting results in fiscal years 2016 and 2017. A.M. Best expects the company’s close ties with its motor reinsurance business source will secure a stable and steadily growing stream of underwriting income in the medium term. In addition, ADI injected capital twice into ADIC in 2015 to support the rapid growth of premium income, as well as replenishing capital loss following the sizeable losses caused by the Tianjin explosions.
Partially offsetting rating factors include ADIC’s business concentration risks, as the motor reinsurance inward business accounts for the majority of ADIC’s underwriting book. In addition, uncertainties in the political and regulatory environment in China add a layer of risk to ADIC’s business profile.
Positive rating actions could occur if ADIC continues to demonstrate favorable and stable operating results while improving its risk-adjusted capitalization by retaining profits.
Negative rating actions could occur if there is material deterioration in the company’s risk-adjusted capitalization due to faster-than-forecast premium growth or an adverse deviation from its forecast underwriting performance.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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