A.M. Best Affirms Ratings of Mitsui Sumitomo Insurance Company, Limited

HONG KONG--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit rating (ICR) of “aa” of Mitsui Sumitomo Insurance Company, Limited (MSI) (Japan). The outlook for both ratings is stable.

The ratings reflect MSI’s adequate level of risk-adjusted capitalization, its strong business profile in domestic and overseas markets and its expected improvement in operating performance.

MSI’s risk-adjusted capitalization is expected to remain at an adequate level for the current ratings, supported by its efforts to reduce risks in both the investment and underwriting portfolio, and the issuance of subordinated notes worth USD 1.3 billion (about JPY 105 billion) in March 2012.

MSI forecasts robust growth in both domestic and overseas businesses in the mid term as the company could benefit from the existing cross-selling channels based on business alliances.

The company’s operating performance is expected to improve, mainly owing to the recovery in its auto underwriting results, the largest segment in MSI’s portfolio. In addition, the overseas businesses are anticipated to turn around on the back of a hardening reinsurance market and due to favorable progress in expansions in both life and non-life businesses, especially in Asia.

Offsetting factors are MSI’s exposure to natural catastrophe risks, vulnerability to the adverse financial market movements and deterioration in its absolute amount of capital and surplus in recent years. MSI is exposed to catastrophe risks, including earthquakes, tsunamis and typhoons, which could result in substantial claims.

Although the company has actively sold its stock to reduce market risks, the investment into stock remains at about 28% of the total investment portfolio at the end of March 2012, which could weigh on MSI’s capitalization in the event of adverse financial market movements.

MSI reported a substantial decrease in its capital and surplus over the past two years due to the significant amount of catastrophe claims and a sharp reduction in unrealized gains. The adjusted capital and surplus declined by JPY 353 billion to JPY 1,354 billion in the past two years. It is estimated that it will take longer to recover to the level before the recent natural disasters (including the Japan earthquake and Thailand floods) under the weak financial market conditions.

Downward rating pressure could arise if there is an adverse impact to the company’s risk-adjusted capitalization, material deterioration in its operating performance and a sharp deterioration in the Japanese economy.

The methodology used in determining these 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. Key criteria utilized include: “Understanding Universal BCAR”; “Risk Management and the Rating Process for Insurance Companies,” and “Natural Catastrophe Stress Test Methodology.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Seewon Oh, +852-2827-3404
Senior Financial Analyst
[email protected]
or
Moungmo Lee,+852-2827-3402
General Manager
[email protected]
or
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
Senior Manager, Public Relations
[email protected]
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.