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FOR IMMEDIATE RELEASE
HONG KONG - AUGUST 21, 2015 09:21 AM (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). Concurrently, A.M. Best 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 all ratings is stable.
The ratings reflect TMNF's solid risk-adjusted capitalization, continued trend of favorable operating performance and strong market profile. TMNF is a wholly owned subsidiary of Tokio Marine Holdings Inc. As the main operating company in the group, TMNF accounted for a significant contribution to the group in terms of premium income and earnings. Moreover, it acted as the central hub in implementing the group's overseas expansion strategies. Major acquisitions since 2008 have included Philadelphia Consolidated Holdings Corp., Delphi Financial Group Inc. and Tokio Marine Kiln Group Limited. In June 2015, the company announced its 100% acquisition of HCC Insurance Holdings, Inc. (HCC), a specialty insurer with a strong focus in property & casualty and the accident & health (A&H) lines. These international expansions have contributed to TMNF in terms of growth in revenue and earnings, as well as a more globally diversified underwriting portfolio.
TMNF's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), improved in fiscal year 2014, chiefly driven by the increase in its capital and surplus, led by the strong increase in unrealized gains on securities amid the favorable market conditions. Moreover, TMNF's BCAR level remained supportive of its current ratings after accounting for the impact of goodwill associated with the HCC acquisition.
Continued improvement in operating performance at TMNF also supported the organic growth in the retained earnings, which in turn strengthened the capital and surplus. The adjusted earnings for the domestic non-life business, as defined by the company, improved significantly in fiscal year 2014, mainly driven by the continued improving trend in combined ratio, led by better claims experience in the auto line and a relatively benign catastrophe environment. In addition, the company continued to benefit from a strong stream of interest and dividend income to support the net investment income.
Partially offsetting factors include natural catastrophe risk and uncertainties in the financial market environment, which may lead to volatility in the company's operating results and capital position.
TMNF is well-positioned for its current rating level. Downward rating actions could occur if there is an adverse impact on TMNF's risk-adjusted capitalization due to a material deterioration in operating performance, large-scale occurrences of catastrophe events or significant interruption in overseas business integration that creates negative impact to the financial profile.
The ratings of TMPI reflect its favorable risk-adjusted capitalization, leading position in Guam's A&H market and profitable underwriting results. The ratings also acknowledge the support TMPI receives from TMNF in terms of capital guarantee, reinsurance and risk management.
TMPI's capital base has achieved significant growth over the past five years, mainly attributed to its strong underwriting profits during the period. TMPI maintains a solid risk-adjusted capitalization, as measured by BCAR, and its capitalization level is expected to remain satisfactory in the near term to support its projected business growth.
Being the largest health insurance provider in Guam, TMPI's business growth relies largely on the A&H product, Calvo's SelectCare program. The program has a strong market presence in Guam and was the sole provider of the Government of Guam health plan from 2007 to 2013. Although TMPI lost its exclusive position with the Government of Guam health plan in 2013, it still managed to retain almost all of the policies in the 2014 renewal.
Offsetting rating factors include TMPI's business concentration risk, its catastrophe exposures and the soft non-life insurance market in Guam.
TMPI is heavily reliant on A&H business, as approximately 90% of its premium is generated from this segment. To diversify the portfolio and recover the premium lost from Guam government health plan, TMPI has expanded the business in the federal government employee health insurance program and personal automobile segment.
TMPI is exposed to natural perils namely typhoon and earthquake. The company protects itself from sizable catastrophe losses through treaties with parent companies and other high quality reinsurers.
Ratings are communicated to rated entities prior to publication, and 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 visit A.M. Best's Ratings & Criteria Center.
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