Best Affirms FSR for Sompo Japan

December 29, 2005

A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and assigned an issuer credit rating (ICR) of “aa-” to Sompo Japan Insurance Inc (Sompo Japan) (Japan). The outlook on both ratings is negative.

The ratings reflect Sompo Japan’s strengthened capitalization, clear focus on profitability and its extended distribution capabilities through ties with other major financial institutions. The company’s lower catastrophe risk retention through reinsurance coverage gives further comfort on the company’s current capitalization.

The negative outlook is maintained as the company remains susceptible to market risk; however, A.M. Best expects that the outlook could stabilize if the company can meet its forecast for financial targets for fiscal year 2005.

The company’s risk-based capitalization improved in fiscal year 2004 and is likely to improve in fiscal year 2005 as Sompo Japan continues its sales of equity holdings. The Japanese local solvency ratio as of September 2005 stood at 1,046.5%. Best’s Capital Adequacy Ratio (BCAR) stood below 160% as of fiscal year 2004, but A.M. Best expects the ratio to be above a level of 160% in fiscal year 2005.

Alliances with other major financial institutions such as Dai-ichi Life and Mizuho Financial Group have added new distribution channel opportunities to Sompo Japan’s already strong distribution capabilities. This is evidenced by the fact that the company has strong growth momentum in the stagnant non-life market.

Offsetting these positive rating factors is the company’s increased earned loss ratio in fiscal year 2004 and the low income from its maturity refund business due to the low interest rate environment.

The earned loss ratio of the Japanese non-life market increased in fiscal year 2004 due to typhoon losses and increased competition in the motor insurance business.

Catastrophe losses in fiscal year 2005 will decrease as the company was not exposed to major catastrophes; however the margin pressure from motor insurance will continue as the company has a higher portion of motor business compared to other non-life insurers in Japan.

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