Best’s News & Research Service - September 27, 2024 09:09 AM (EDT)
AM Best Affirms Credit Ratings of Sompo Japan Insurance Inc. and Its Subsidiaries
- September 27, 2024 09:09 AM (EDT)
//BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” (Superior) of Sompo Japan Insurance Inc. (SJ) (Japan) and its subsidiaries. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed list of companies).
Concurrently, AM Best has affirmed the Long-Term ICR of “a-” (Excellent) of Sompo International Holdings Ltd. (SIH) (Pembroke, Bermuda). In addition, AM Best has affirmed the Long-Term Issue Credit Rating of “a-” (Excellent) on $335 million 7% senior unsecured notes due by 2034 (which is guaranteed by SIH). The outlook of these ratings are stable.
The ratings reflect SJ’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management (ERM).
SJ’s balance sheet strength assessment reflects the company’s strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s financial leverage remains conservative with adjusted debt leverage ratios below 25%, albeit higher compared with its domestic non-life peers in Japan. While the company is exposed potentially to considerable equity risk from sizeable domestic stocks investments and underwriting risk from expanding overseas insurance business, it appears to have ample available capital to absorb such risks. AM Best also expects that the company’s announced plan to accelerate disposal of strategic equity holdings potentially could reduce its overall exposure to equity risk in the forthcoming years.
SJ has a track record of strong operating performance, supported by consistent growth in premium income and a five-year average return-on-equity ratio of 8.9% (fiscal year 2019–2023) on a consolidated basis, as calculated by AM Best. Despite higher incurred losses in automobile insurance for its domestic business in fiscal year 2023 (FY2023), SJ saw improved domestic underwriting profits driven by improving profit fundamentals of its fire line and reduced natural catastrophe losses during the year. The company also saw enhanced investment income, benefiting from a favourable interest rates environment and gains on the sale of strategic stock holdings. SJ’s overseas business, managed by SIH, the intermediate holding company under SJ, witnessed improvement in adjusted profit in FY2023, driven by higher investment income and reduced natural catastrophe losses, despite prior year reserve strengthening recorded in the same period.
SJ is the primary operating unit of SOMPO Holdings, Inc., its ultimate parent and one of the largest non-life insurance groups in Japan. The company holds a strong market position with approximately a one-quarter share of Japan’s highly consolidated non-life insurance segment, in terms of NPW. In addition, the company has a growing book of overseas insurance business, which accounted for approximately 40% of its NPW and 69% of its adjusted profits in FY2023.
Negative rating actions could occur if there is material deterioration in risk-adjusted capitalisation such as substantial investment losses caused by capital market volatility or large-scale natural catastrophes. Negative rating actions could occur if there is persistent and significant deterioration in operating performance stemming from weak underwriting and investment results. Positive rating actions could occur if the company demonstrates sustained improvement in its balance sheet strength metrics including its risk-adjusted capitalisation and financial leverage.
The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) have been affirmed with stable outlooks for the following subsidiaries of Sompo Japan Insurance Inc.:
- Endurance Assurance Corporation
- Endurance Specialty Insurance Limited
- Endurance Worldwide Insurance Limited
- Endurance American Specialty Insurance Company
- Endurance American Insurance Company
- Endurance Risk Solutions Assurance Co.
- American Agri-Business Insurance Company
- Sompo America Insurance Company
- Sompo America Fire & Marine Insurance Company
- Lexon Insurance Company
- Bond Safeguard Insurance Company
- SI Insurance (Europe), SA
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 AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.