Best Affirms Toa Re ‘A+’ Ratings

September 19, 2006

A.M. Best Co. has affirmed the financial strength rating of “A+” (Superior) and the issuer credit rating of “aa-” of Japan’s Toa Reinsurance Company, Limited; however, the rating outlook is negative.

“The ratings reflect Toa Re’s strengthened capitalization, solid presence in the Japanese market and sound asset portfolio,” said Best. “Toa Re has a solid market presence as the only domestic professional reinsurer in Japan and a preferred status with its Japanese non-life insurance clients, which are also its shareholders. The solid market presence, coupled with the sound asset portfolio, has contributed to a stable income of underwriting and investment. Toa Re’s investment operation contributed to its profit, whereas the underwriting profitability weakened its overall earnings in comparison to its peers.

“The consistently low net premium leverage in the range of 0.4 times and 0.6 times provides further comfort to the company’s capital position. The risk-adjusted capitalization has also been strengthened to follow the competitive market trend. Such an improved capitalization has provided greater financial flexibility for Toa Re to sustain in the current reinsurance market.”

Best said the “negative outlook reflects the continued weak underwriting profitability and increased market competition in Asia. A.M. Best recognizes the strengthened capitalization of Toa Re following the reduction of asset risk. Nevertheless, the continuing weak underwriting profitability has undermined the competitiveness of the company to its peers. With the increased competition in the Asian reinsurance market, the earnings and hence, the ratings of Toa Re could become under pressure if the weak profitability persists. It is anticipated that a sound capitalization combined with strong earnings are sustainable factors in the current reinsurance market. A.M. Best expects Toa Re to improve its profitability so that it is in line with its peers to better face the challenges of the industry going forward.”

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