Best Affirms Mitsui Sumitomo ‘A+’ Rating

June 24, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of Japan’s Mitsui Sumitomo Insurance Company Limited with a stable outlook.

“The rating reflects Mitsui Sumitomo’s superior capitalization, strong business profile supported by steady growth and expansion of the insurance business into other Asian regions,” said Best. “The rating also recognizes the company’s strong distribution capabilities and management’s commitment to achieving its business strategy.”

The rating agency noted: “The company has maintained superior capitalization over the years. Under the Japanese solvency margin ratio, the company’s ratio stood at 1056 percent as of September 2004. Excess capital is being generated through enhanced risk management, better risk diversification and reduction of cross-shareholding equity investments. Mitsui Sumitomo is utilizing the excess capital by making acquisitions in the Asian insurance market and buying back its own shares. A.M. Best expects that the company will maintain its current risk-based capitalization as it adopts efficient capital management.”

Best’s analysis also considered the effect of the merger between Mitsui Marine and Sumitomo Marine, noting that the two companies have been successfully integrated. It said: “The “company’s new business plan focuses on other business segments with growth potential: the life and overseas markets. The embedded value of the life subsidiary is showing high growth, and Asian business expansion has been accelerated through a series of acquisitions. Growth momentum of Mitsui Sumitomo remains one of the highest amongst the Japanese non-life companies.

“Mitsui Sumitomo maintains excellent distribution capabilities with various partners. In addition, there is growth potential in alternative distribution channels and business opportunities with cooperatives due to the company’s strong ties with the Mitsui and Sumitomo companies.”

Mitsui Sumitomo’s “high equity risk exposure relative to insurance risk, competitive motor insurance business and increased incurred loss ratio in fiscal year 2004 due to the heavy typhoons in Japan,” were cited as partial offsetting factors.

In a further analysis of these factors, Best noted that “despite prior reductions of equity portfolios, Mitsui Sumitomo still maintains considerable exposures to the equity market (30 percent of total assets as of September 2004). Both the Best’s Capital Adequacy Ratio and the Japanese local solvency ratio indicate that equity risk is by far Mitsui Sumitomo’s largest risk factor.

“Increased insurance losses from the typhoons in fiscal year 2004 and the continued competitive motor insurance market will put further pressure on Mitsui Sumitomo’s underwriting income.”

However, Best said it “expects that the price competition will soon subside as the combined ratio of major non-life companies are close to 100 percent. As cost reduction slows, these companies will be forced to further improve their loss ratios.”

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