A.M. Best Affirms Ratings of MS&AD Insurance Group Holdings, Inc.’s Main Operating and U.S. Subsidiaries
Concurrently,
The ratings of MSI and ADI reflect their strong risk-adjusted capitalization, improving trend in underwriting results and well-established market presence. As the main operating subsidiary of MS&AD, MSI provides material contribution in terms of revenue and earnings. ADI continues to benefit from the capacity to access a unique client base by leveraging its strong business relationships with Toyota Motor Corporation (Toyota) (
MSI’s and ADI’s risk-adjusted capitalization continued to strengthen in fiscal year 2014, mainly driven by strong unrealized investment gains due to favorable financial market conditions. Moreover, both companies reported improvements in their operating performance due to improved underwriting results. Going forward,
Offsetting factors for the ratings include their relatively high level of equity investments, which may lead to potential volatility in their capital position, should the investment environment deteriorate significantly. Moreover, MSI and ADI are exposed to catastrophe risks, including earthquake and windstorms, mainly originated from the domestic business in
MSI and ADI are well-positioned at their current rating level. Downward pressure on the ratings could arise if there were a material decline in their risk-adjusted capitalization due to significant deterioration in underwriting profitability and/or investment performance.
The ratings of ADIC reflect its prudent reinsurance structure, conservative and highly liquid investment portfolio and the support from its parent company, ADI, in terms of capitalization, business relationships and operations.
ADIC benefits from ADI in terms of strong business relationships, management expertise and know-how in underwriting and claims adjustments. In particular, the strong business relationship between ADI and Toyota contributed to establishing the Toyota motor inward reinsurance business at ADIC, forming an exclusive pipeline of premium income over the short to medium term. In addition, ADIC continues to benefit from ADI’s rich product knowledge and experience in claims handling in the motor line segment.
ADIC’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, experienced a material decline in fiscal year 2014, mainly driven by the increase in underwriting risk from the strong growth in its Toyota motor inward reinsurance business. To support the financial soundness and business development of ADIC, the parent company ADI injected capital of
ADIC maintains a conservative investment strategy as the majority of the portfolio is invested in cash and short-term deposits.
After experiencing large claims from the 2013 fire loss at the SK Hynix factories in
The outlook may be revised back to stable if ADIC can demonstrate an ability to generate sustainable improvement in its profitability, with a focus on delivering the forecasted underwriting profitability of the Toyota motor inward reinsurance business, while at the same time strengthening its risk-adjusted capitalization.
Negative rating actions could arise if there were material deterioration in the company’s risk-adjusted capitalization due to faster-than-forecast growth and/or adverse deviation from the forecast underwriting performance.
The ratings of MSIA and MSU largely reflect their strong risk-adjusted capitalization, strategic roles and importance as U.S. domestic insurers within MS&AD and the benefit of the explicit support provided through internal reinsurance by MSI, as well as the implied support from MS&AD. Similarly, the ratings of ADIA largely reflect its strong risk-adjusted capitalization, its role within the organization and the benefits of implicit support and explicit support provided through a comprehensive reinsurance program by ADI. Most insureds of ADIA are ADI clients that have operations in
Given the extent of implied and explicit support embedded in these ratings, any upward or downward movement on the ratings of MSI and ADI would likely influence the ratings of MSIA, MSU and ADIA. Any material changes to the financial condition of MS&AD and/or its commitment in
The methodology used in determining these interactive ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Equity Credit for
Hybrid Securities - Evaluating Country Risk
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
- Understanding BCAR for Property/Casualty Insurers
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
Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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