Press Release - AUGUST 17, 2018
A.M. Best Affirms Credit Ratings of Tokio Marine & Nichido Fire Insurance Co., Ltd. and Its U.S. Subsidiaries
FOR IMMEDIATE RELEASE
HONG KONG - AUGUST 17, 2018
A.M. Best also has affirmed the FSR of A+ (Superior) and the Long-Term ICR of “aa-” of Tokio Marine Pacific Insurance Limited (TMPI) (Guam), which is a wholly owned subsidiary of TMNF. The outlook of these ratings is stable.
The ratings reflect TMNF’s balance sheet strength, which A.M. 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 due in part to its risk-adjusted capitalization being 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 TMNF’s underwriting leverage is considered conservative, the major strain on TMNF’s BCAR score stems from its investment allocation. Nevertheless, the company has maintained a significant amount of adjusted capital relative to the equity price risk associated with such securities.
Despite the impact of natural catastrophes and some large losses, TMNF has continued to generate positive operating profits for fiscal-year 2018. This is underpinned by a solid underwriting margin within its domestic non-life business and a stable stream of interest and dividend income from its investment portfolio. While operating performance deteriorated in the fiscal year ended March 31, 2018, A.M. Best notes that a number of one-off factors drove the deterioration, including natural catastrophes. Prospectively, in the absence of these one-off factors, A.M. Best expects that underwriting and operating performance will revert to a strong level.
TMNF is a major non-life insurer in Japan, and its business profile benefits from its strong competitive market position and excellent product and geographical diversification. The company maintains a market leading position, capturing more than 25% of total domestic market share while demonstrating stable operating trends. Additionally, TMNF has a high-quality book of overseas insurance business, which now accounts for a sizable portion of its premium revenue and overall earnings. A.M. Best believes that TMNF’s strong franchise value, considerable scale and diversified operations will help it navigate challenging market conditions while enhancing its earnings stability over the medium to long term.
A.M. Best believes TMNF’s ERM program is very effective in managing its group-wide exposure to potential earnings and capital volatility while maximizing its value to various stakeholders, even as the company becomes increasingly globalized. A sophisticated risk management framework is embedded throughout the organization, and the company’s risk management capabilities are superior and broadly in line with the highly complex and diverse risk exposures.
The stable outlooks reflect A.M. Best’s view that TMNF will continue to maintain strong business trends in its domestic non-life business, as well as developing 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 negative impact from large-scale catastrophe events.
The ratings of TMPI reflect its balance sheet strength, which A.M. 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 TMPI receives from its parent, TMNF.
TMPI holds a very strong balance sheet consisting of high quality assets and a conservative investment portfolio. Capital and surplus grew steadily and organically in the past 10 years from consistently positive profit retention under a low operating expense structure. Despite its relatively high underwriting leverage, TMPI maintains a low product risk profile, as the majority of the company’s revenue comes from short-tailed group accident and health (A&H) products with high-frequency, low-severity claims. The company 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. In addition, TMPI receives various support from TMNF and its affiliates including brand recognition, capital, reinsurance, risk management and operational support.
Offsetting rating factors include TMPI’s concentration risk in the A&H business line, in particular with the Guam government’s health plan account, which has been a major source of revenue and is subject to renewal on an annual basis, as well as the company’s geographic concentration in Guam where soft market conditions continue to pose challenges to underwriting profitability. TMPI also is exposed to regulatory risks including political uncertainties and potential regulatory fees that could impact the company’s bottom-line performance.
While positive rating actions are unlikely in the near term, negative rating actions could occur if there is significant deterioration in the company’s operating performance or a material decline in its risk-adjusted capitalization. Negative rating actions could also occur if there is a material decline in the company’s A&H profitability or market share in Guam, or 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.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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