2013-08-22 19:29:01 -
A.M. Best Asia-Pacific Limited has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit rating (ICR) of “aa+” of Tokio Marine and Nichido Fire Insurance Co., Ltd. (TMNF) (Japan). Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and ICR of “aa-” of TMNF’s subsidiary, Tokio Marine Pacific Insurance Limited (TMPI) (Guam). The outlook for all ratings is stable.
The ratings reflect TMNF’s robust risk-adjusted capitalization, strong operating profitability and comprehensive and proactive enterprise risk management. TMNF’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has improved in fiscal year 2012, primarily owing to an increase in its unrealized gains and improved profitability. The adjusted capital and surplus (including catastrophe and price fluctuation reserves) increased
11% to JPY 2,762 billion at the end of March 2013, mainly driven by an increase in TMNF’s unrealized gains on its investment portfolio. In the past five years, TMNF has reported strong profitability with limited volatility. The operating ratio improved from 94.6% in fiscal year 2011 to 90.3% in fiscal year 2012, which is favorably compared to the five-year average of 93.3%. The recovery of profitability in the domestic non-life business (in addition to increasing contributions from the overseas businesses), which is well diversified in terms of business profile as well as geographic exposure, is expected to continue to boost TMNF’s overall profitability in the mid term. In addition, TMNF continues to reduce its exposure to market risks by selling strategic-holding stocks and enhancing its risk management program by proactively developing contingency plans in order to respond to emerging risks.
Offsetting rating factors include TMNF’s exposure to natural disasters and its high dividend payout to its parent company, Tokio Marine Holdings, Inc. Although the risks are diversified across the regions, TMNF is exposed to catastrophe claims such as earthquakes, tsunamis and typhoons, which could result in substantial claims. As the core subsidiary of Tokio Marine Holdings Inc., TMNF is expected to remain the key earnings source for the holding company through its dividend payout, although the group slowly diversifies dividend incomes across its subsidiaries.
Downward rating actions could occur if there is an adverse impact on TMNF’s risk-adjusted capitalization due to a material deterioration in its operating performance and/or large-scale occurrences of catastrophe events.
The ratings of TMPI recognize its improved capitalization level, stabilizing underwriting results and its dominant position in the accident and health (A&H) insurance sector in Guam. The ratings also acknowledge the support TMPI receives from TMNF in terms of capital guarantee, reinsurance and risk management.
TMPI's capitalization level has significantly improved on both an absolute and risk-adjusted basis. Its capital and surplus grew to USD 62 million as at year-end 2012, which was more than four times its position as at year-end 2007, and the company’s risk-adjusted capitalization level (as measured by BCAR) also improved in 2012, and is expected to remain satisfactory in the near term to support its projected business growth.
TMPI's underwriting performance has been gradually stabilizing in recent years with its five-year (2008-2012) combined ratio ranging from 86% to 92%. To reduce underwriting volatility in the A&H portfolio, management conducts regular reviews on its premium rate and policy coverage.
Underwriting performance in the property/casualty (P&C) insurance portfolio remained favorable in 2012.
TMPI enjoys a dominant market share in the A&H insurance market in Guam, and it has been the sole provider of the Government of Guam’s health plan since 2007. In addition, TMPI has been approved to participate in the federal employee health plan from 2013, which further enhances its leading position in the market.
Offsetting rating factors include TMPI’s business concentration risk and inherent catastrophe exposure.
TMPI is heavily reliant on its A&H portfolio, especially the Government of Guam account, as A&H premiums contribute 90% of the company’s gross premiums written. To reduce TMPI’s business concentration risk and diversify its business portfolio, the company continues to look for new growth drivers.
TMPI is exposed to natural perils namely typhoons and earthquakes. To limit its catastrophe exposure, the company takes a conservative approach in P&C underwriting. In addition, TMPI receives reinsurance support from the group for its P&C business exposure.
TMPI is well positioned for its current rating level. Negative rating actions could occur if there is a material deterioration in the company’s operating performance or a substantial decline in its risk-adjusted capitalization level.
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 : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ..
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
A.M. Best Asia-Pacific Limited 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 : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ..
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