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FOR IMMEDIATE RELEASE
HONG KONG - AUGUST 19, 2016 12:11 PM (EDT)
A.M. Best has affirmed the financial strength rating (FSR) of A++ (Superior) and the issuer credit rating (ICR) of “aa+” of Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF) (Japan). A.M. Best also has affirmed the FSR of A+ (Superior) and the ICR of “aa-” of TMNF’s subsidiary, Tokio Marine Pacific Insurance Limited (TMPI) (Guam). The outlook for each of these ratings remains stable.
The rating affirmations reflect TMNF’s strong risk-adjusted capitalization, track record of favorable operating performance and strong business profile. TMNF’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remained strong to support the company’s current rating despite the decrease over the past year mainly due to the sizeable increase in goodwill related to the acquisition of HCC Insurance Holdings, Inc. (HCC) (U.S.), in 2015.
The company consistently improved its operating performance with the consolidated operating ratio reaching a five-year low of 84.6%. Underwriting profitability was enhanced over the period through pricing adjustments, especially in the company’s major line of auto insurance. Despite challenging market conditions, the continuous positive contribution from investment income primarily through the reduction of business-related equities supported the profitable operating ratio over the same period.
TMNF is a wholly owned subsidiary of Tokio Marine Holdings, Inc., and as the main operating company of the group, generates the majority of the group’s premium income and net profit. TMNF is also the key entity to execute the group’s overseas expansion. TMNF has made large-scale acquisitions overseas in past years, which have relatively low exposure to catastrophe risks or a complementary business profile to its core businesses. These global insurance operations bring immediate benefits to TMNF in terms of earnings and risk diversification.
Partially offsetting factors are TMNF’s exposure to catastrophe risks and its high proportion of equity investments.
While positive rating actions are unlikely in the near term, negative rating actions could occur if there is a material decline in TMNF’s risk-adjusted capitalization due to a significant deterioration in the company’s operating performance led by adverse financial market conditions or significant decline in underwriting results. Potential large-scale catastrophe events could also put downward pressure on the ratings if capital levels are significantly affected.
The rating affirmations reflect TMPI’s favorable risk-adjusted capitalization, leading position in Guam’s accident and health (A&H) insurance market and track record of favorable operating performance. The ratings also reflect the support TMPI receives from TMNF in terms of capital guarantee, reinsurance and risk management.
TMPI’s capital and surplus achieved favorable organic growth over the past 10 years, mainly attributed to its strong underwriting profits during the period. The company maintains a solid leading position in the A&H segment with its strong distribution partnership with its underwriting agent, Calvo Insurance Underwriters, the sole distributor of Guam’s largest health care program. Additionally, TMPI benefits from its long-term relationships with other property/casualty brokers in the region.
Offsetting rating factors include TMPI’s moderate level of catastrophe exposures and the competitive market conditions in Guam.
While positive rating actions are unlikely in the near term, negative rating actions could occur if there is a significant deterioration in the company’s operating performance, a substantial decline in its risk-adjusted capitalization or a reduced level of support provided by TMNF.
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 rating(s) 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.
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