HONG KONG--(BUSINESS WIRE)--A.M. Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bbb” from “a-” of NIPPONKOA Insurance Company (China) Limited (NKC) (China). The outlook of these Credit Ratings (ratings) is stable. Concurrently, A.M. Best has withdrawn the ratings upon management’s request to no longer participate in A.M. Best’s interactive rating process.
The ratings of NKC reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
The rating actions reflect a considerable deterioration in NKC’s underwriting performance in light of two large-scale loss events in 2017, which led to a significant adverse deviation in the company’s profitability from its business plan. NKC’s high net retention level relative to its capital and surplus and high expense ratio have led to volatile underwriting results and operating losses that caused a substantial decline in the company’s capital and surplus. In addition, uncertainty regarding its scheduled merger with Sompo Japan Nipponkoa Insurance (China) Co., Ltd. (SJC), which has been pending regulatory approval since 2014, limits the company’s growth and business profile.
Positive offsetting rating factors include NKC’s solid balance sheet, as well as conservative and liquid investment portfolio. The company receives a wide range of support from its parent, Sompo Japan Nipponkoa Insurance Inc. (SJNK), in terms of business generation, reinsurance, risk management and operations. In addition, NKC strengthened its underwriting guidelines in 2017 and joined an additional quota-share reinsurance arrangement with its parent in April 2018 to reduce volatility in its underwriting performance and capitalization.
Positive rating actions could occur if the merger between NKC and SJC takes place and creates synergy, leading to an enhanced business profile or improved operating performance of the consolidated entity. Negative rating actions could occur if there is substantial decline in NKC’s risk-adjusted capitalization due to operating performance deterioration.
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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