AUGUST 16, 2019 10:02 AM (EDT)
AM Best Affirms Credit Ratings of Tokio Marine & Nichido Fire Insurance Co., Ltd. and Its US Subsidiaries
FOR IMMEDIATE RELEASE
HONG KONG - AUGUST 16, 2019 10:02 AM (EDT)
AM Best also has affirmed the FSR of A+ (Superior) and the Long-Term ICR of “aa-” of Tokio Marine Pacific Insurance Limited (TMPI) (Guam), a wholly owned subsidiary of TMNF. The outlook of these ratings is stable.
The ratings of TMNF reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, very favorable business profile and very strong enterprise risk management (ERM).
TMNF’s balance sheet strength is supported by its risk-adjusted capitalization, which is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). This is supported by a large adjusted capital base, which consists of reported capital, catastrophe loss reserves and price fluctuation reserves. While the high concentration in equity investments is the major strain on its BCAR score, the company has maintained a significant amount of adjusted capital relative to the equity price risk associated with such securities.
TMNF generated positive operating profit in fiscal year 2018, even though its underwriting performance deteriorated with a high combined ratio over 100% and an increased incurred loss ratio caused mainly by natural catastrophes. Underwriting results from overseas insurance business improved, however, which largely offset the negative impact to overall performance due to domestic natural catastrophes. Prospectively, AM Best believes TMNF’s underwriting performance will revert to a strong level.
TMNF’s business profile is diversified with operations spanning across different markets and lines of businesses. It is not only a domestic non-life market leader, capturing more than one-fourth of market share, but also has built a high-quality book of overseas insurance business successfully, with disciplined merger and acquisition strategies. AM Best believes that TMNF’s product and geographical diversification will help it navigate challenging market conditions while enhancing earnings stability over the medium to long term.
AM Best believes TMNF’s ERM program is very effective in managing its group-wide exposure to potential earnings and capital volatility, in which a sophisticated risk management framework is in place and embedded throughout the organization.
The stable outlooks reflect AM Best’s view that TMNF will continue to maintain strong business trends in its domestic non-life business and develop its overseas insurance business in a prudent manner. Negative rating actions could occur if there is a material decline in TMNF’s risk-adjusted capitalization due to a consistent deterioration in the company’s operating performance or a capital erosion from large-scale catastrophe events.
The ratings of TMPI reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate ERM. The ratings also reflect the wide range of support that TMPI receives from its parent, TMNF, as well as its affiliates, in areas including brand recognition, reinsurance cession, capital, risk management and operations.
TMPI’s risk-adjusted capitalization remains at the strongest level in 2018, as measured by BCAR, supported by high-quality assets, minimal reinsurance leverage and a conservative investment portfolio. Consistent retention of profits has grown the company’s capital and surplus steadily and organically over the past 10 years. In spite of two large-scale property/casualty losses in 2018, TMPI managed to record a positive, albeit small level of underwriting profit during that year. The company maintains a low operating expense structure and has a low product risk profile, as the majority of its revenue comes from its short-tailed group accident and health (A&H) line of business with high-frequency, low-severity claims. TMPI holds a solid leading position in Guam’s A&H market through a strong distribution partnership with its exclusive managing general agent, Calvo’s Insurance Underwriters.
Offsetting rating factors include TMPI’s concentration risk in the A&H business line. Despite the company’s sustainable competitive position in Guam’s A&H market and its active expansion in other accounts in recent years, there is business concentration in the Guam government’s health plan account, which has been a major source of revenue and is subject to renewal on an annual basis. TMPI also has a geographic concentration in Guam, where soft pricing conditions continue to pose challenges to underwriting profitability. The company is exposed to regulatory risk, as the non-renewal of its tax-exempt status, as well as uncertainties in various regulatory and industry fee requirements, add pressure to its profitability.
While positive rating actions for TMPI are unlikely over the near term, negative rating actions could occur if there is a significant deterioration in the company’s operating performance, a material decline in its risk-adjusted capitalization or a significant decrease in its A&H market share in Guam. Negative rating actions also could occur if there is a reduced level of support from TMNF.
The FSR of A++ (Superior) and the Long-Term ICRs of “aa+”, each with a stable outlook, have been affirmed for the following subsidiaries of 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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