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FOR IMMEDIATE RELEASE
HONG KONG - OCTOBER 10, 2019 12:39 PM (EDT)
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of “aa-” of Tokio Marine Pacific Insurance Limited (TMPI) (Guam).
These Credit Ratings (ratings) reflect TMPI’s balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The negative outlooks reflect the deteriorating trend in the company’s operating performance, as well as the expected reduction in its market share and increase in operating performance volatility following the non-renewal of the Guam government’s health plan account.
Historically, TMPI’s major source of income has come from the Guam government’s health plan, which is subject to annual renewal through a bidding process. This account contributed to a significant portion of TMPI’s total revenue in 2018. However, there has been a continuously deteriorating trend in the account’s loss ratio and underwriting performance in recent years, which is attributable mainly to intense rate competition and rising medical inflation. As a result of this plan’s poor underwriting performance, TMPI is expected to suffer its first net loss in 10 years in 2019.
In the most recent annual bidding process, TMPI was not selected as a provider for the Guam government’s health plan for its fiscal-year 2020 cycle. While AM Best expects the plan’s non-renewal to ease the increasing pressure on TMPI’s underwriting margin, it also will cause a material reduction in TMPI’s gross premium written in 2020. In addition, with a smaller market share and net premium base, TMPI faces a higher expense ratio, and is more vulnerable to potential volatility in its operating performance. AM Best will continue to monitor TMPI’s business and risk profile, its underwriting and operating performance, as well as the management team’s mitigation actions toward rising expense pressure.
While positive rating actions are unlikely in the medium term, negative rating actions could occur if, despite the non-renewal of the loss-making Guam government’s health plan account, the deteriorating trend in TMPI’s underwriting and operating performance continues. Negative rating actions also could occur if there is a reduced level of support from its parent, Tokio Marine & Nichido Fire Insurance Co., Ltd.
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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