HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa” of Mitsui Sumitomo Insurance Company, Limited (MSI) (Japan) and Aioi Nissay Dowa Insurance Company Limited (ADI) (Japan).
Concurrently, AM Best has affirmed the FSR of A+ (Superior) and the Long-Term ICRs of “aa” of MSI’s U.S. operating companies: Mitsui Sumitomo Insurance Company of America (MSIA), Mitsui Sumitomo Insurance USA Inc. (MSU), and MSIG Specialty Insurance USA Inc. (MSIGS). These companies are domiciled in New York, NY.
AM Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of Aioi Nissay Dowa Insurance (China) Company Limited (ADIC) (China). The outlooks for all of the aforementioned Credit Ratings (ratings) are stable. These companies are owned ultimately by MS&AD Insurance Group Holdings, Inc. (MS&AD), a major non-life insurance group based in Japan.
The ratings of MSI reflect the group’s balance sheet strength, which AM Best categorises as strongest, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management (ERM).
The ratings of MSI have been extended to MSIA, MSU and MSIGS, as these companies hold a strategic role within the organisation 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 capitalisation and additional implicit support provided by the parent. Effective Jan. 1, 2015, MSIA, MSU and MSIGS operate under a pooling agreement. This further strengthens the relationship among the U.S.-based entities and vertically through the organisation.
MSI’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation that AM Best expects to remain at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). With a significantly large portion of its investments allocated in equity securities, MSI’s risk-adjusted capitalisation is exposed to equity price risk in the event of market volatility. However, AM Best considers the company’s capital buffers sufficient to absorb the risks associated with those investments. The rating also reflects the balance sheet strength assessment of strongest of MS&AD, which is supported by its high level of available capital, as well as high financial flexibility that enables good access to capital and the debt markets.
MSI has a track record of strong operating performance, as demonstrated by a five-year average combined ratio of approximately 95%, excluding compulsory auto insurance. Overall underwriting results improved in fiscal-year 2019 (FY2019) compared with the prior year, mainly due to lower net domestic catastrophe incurred losses. Overseas business also contributed to the improved profitability in MSI’s overall results. Prospectively, in the absence of major catastrophe events, AM Best expects that MSI’s operating performance will remain at the strong level.
MSI is a major non-life insurer in Japan and holds a strong and competitive position, with an approximate 20% share of its domestic market. The company also has a sizable overseas insurance book, which accounts for a material portion of premium revenue. Since FY2019, the company has embarked on a reorganisation of its overseas business that AM Best expects will bring efficiency to its cross-regional operations and improve overall profitability in its overseas business.
Negative rating actions could occur if there is a significant deterioration in MSI's operating profitability or an erosion of capital resulting from significant investment losses or large scale catastrophes.
The ratings of ADI reflect its balance sheet strength, which AM Best categorises as strongest, as well as its strong operating performance, neutral business profile and appropriate ERM. The ratings also consider ADI’s strategic importance to MS&AD, as one of the two core operating entities.
ADI’s balance sheet strength assessment reflects the company’s strongest level of risk-adjusted capitalisation, as measured by BCAR, strong liquidity and good quality of capital. Partially offsetting these positive rating factors is the relatively high investment allocation in common stock, which exposes ADI’s balance sheet to considerable equity price risk in the event of market volatility. However, AM Best believes the significant amount of adjusted capital held by ADI is sufficient to absorb this risk.
As one of the top four major insurers in Japan’s non-life market, ADI is mainly focused on its domestic market and has a relatively small overseas portfolio. The company’s domestic non-life business benefits from its long-term business partnership with Nippon Life Insurance Company and Toyota Motor Corporation. However, the relatively small overseas book of business limits the company’s growth potential due to low growth at home.
ADI continued to experience premium growth during fiscal year 2019 mainly due to the strong sales in its fire and auto business. The company’s net loss ratio also improved, mainly driven by lower net incurred natural catastrophe losses domestically. Investment performance continued to be positive and contributed to the overall solid operating results. Prospectively, AM Best expects that ADI’s underwriting performance will revert to a strong level in the absence of major natural catastrophe events.
Negative rating actions could occur for ADI if there is a significant deterioration in its operating profitability or an erosion of capital resulting from significant investment losses or large scale catastrophes.
The ratings of ADIC reflect its balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect the strategic importance of the company to its parent, ADI, as a major contributor of overseas business profit and a key component of ADI’s business expansion in China.
ADIC’s balance sheet strength is assessed as very strong, as measured by BCAR, supplemented by its good quality of capital with high liquidity and appropriate reinsurance programme. The company is a small non-life insurer in China, with a market share of less than 1%. ADIC underwrites mainly motor inward reinsurance business, which accounted for more than 90% of its revenue and underwriting profit over the past three years. There are concerns over ADIC’s business profile as it faces potential product and channel concentration risk, given its current business structure. However, AM Best expects that the company’s longstanding and close ties with its motor insurance partners will help it secure a stable stream of premium and underwriting income over time.
Positive rating actions could occur for ADIC if it continues to demonstrate steadily improving underwriting and operating results while maintaining solid risk-adjusted capitalisation. Negative rating actions could occur if there is significant deterioration in ADIC’s operating performance or a material decline in its risk-adjusted capitalisation. Negative rating actions could also occur if there is a reduced level of support from ADIC’s parent.
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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