Best Affirms Mitsui’s ‘A+’ Rating

February 23, 2006

A.M. Best Co. announced that it has affirmed the “A+” (Superior) financial strength rating and assigned an issuer credit rating (ICR) of “aa” to Japan’s Mitsui Sumitomo Insurance Company Ltd. (MSI) with a stable outlook.

“The ratings reflect MSI’s strong premium growth, stable capitalization and strong distribution capabilities,” said Best. “In fiscal year 2004, MSI enjoyed a superior market share of approximately 18.7 percent in terms of direct premiums written (DPW), including their maturity-refund businesses. The company achieved its strongest growth in net premiums written (NPW) in the first half of fiscal year 2005, topping the growth of other Japanese insurers, and experienced an increase in underwriting profit due to a decline in natural hazards. The company recorded particularly strong growth in the fire, marine and third sector business lines.

“MSI’s capitalization has remained stable for the past few years. The company’s Best’s Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, has remained at a superior level, and its local solvency ratio stood at 1,026 percent as of fiscal year 2004. The company intends to continue to sell its stock to reduce risk exposure in the financial markets. A.M. Best expects MSI’s capitalization will improve further in fiscal year 2005.

“MSI is in the process of restructuring its agency network–reducing the current approximately 62,000 agents to 50,000 agents with proven sales capabilities by the end of fiscal year 2007. The company has also implemented “paperless and cashless” electronic processing systems to strengthen customer service delivered through its agents. This initiative should help strengthen the company’s distribution capabilities.”

However, Best noted that “these positive rating factors are partially offset by high loss and combined ratios, exposure in the equity markets and catastrophe exposure in Japan. In fiscal year 2004, MSI recorded higher loss and combined ratios compared to prior years. This is mainly driven by the high natural hazards which occurred in Japan during the period. In addition, the company experienced deterioration in its incurred loss ratio in the auto business lines in fiscal year 2004.

“Despite efforts to reduce its stock holdings, equity investments still compose about 35 percent of its overall portfolio. This high equity position exposes the company to stock market fluctuation and remains a high risk factor for the company.”

Best also noted that the “extraordinarily high occurrence of natural disasters in fiscal year 2004 undermined the profitability for Japanese non-life insurance companies. As there were only a few natural disasters in Japan in fiscal year 2005, A.M. Best expects that Japanese non-life insurers, including MSI, will likely report an improvement in their loss ratios.”

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