Best Affirms Tokio Marine, Nichido Fire ‘A++’ Rating

May 23, 2006

A.M. Best Co. has affirmed the financial strength rating of “A++” (Superior) and the issuer credit rating of “aa+” of Japan’s Tokio Marine & Nichido Fire Insurance Company Limited (TMNF) with a stable outlook.

“The ratings reflect TMNF’s dominant market position, strong capitalization, stable operating performance, diverse distribution channels, improved operating efficiency and well-managed catastrophe exposure,” said Best.

“TMNF is the market leader in the Japanese non-life insurance industry,” Best continued. “The company enjoys economies of scale in its underwriting and operating efficiency. Being the core member of Millea Group and having a strong business affiliation with Mitsubishi Group, TMNF has a competitive advantage in its diverse distribution channels. A.M. Best believes the company has the highest potential for sales growth within the sector.

“TMNF has a strong capital base. Its local solvency ratio improved from 968 percent in fiscal year 2004 to 1,020 percent at September 30, 2005. Compared to its peers, TMNF had the strongest adjusted surplus and highest catastrophe reserve ratio in fiscal year 2004. The company’s risk exposure is also well-managed with adequate catastrophe reserve and exchanges of catastrophe risk.” Best said it “believes TMNF will maintain its profitability and capitalization given the current capital structure and asset mix.

“In the new mid-term strategic business plan, TMNF would invest about JPY 42 billion ($ 380 million) from fiscal year 2006 to fiscal year 2008 to streamline its administrative processes and IT systems. Expense reduction would not be immediate, but operation efficiency would be realized over the medium term. This initiative helps the company move ahead of its competitors in renovating its business process and providing greater customer support and agency services in the long term.”

The rating agency did note that the high dividend payout, equity exposure, intensifying competition in underwriting business and high catastrophe events in Japan constitute “partially offsetting” factors. Specifically, Best said:”TMNF has a high dividend payout to Millea Holdings, which may dampen TMNF’s capitalization if it is not supported by an adequate surplus and capital structure.”

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