S&P Explains How Mitsui, Aioi, Nissay Merger Plans May Affect Ratings

January 5, 2009

Standard & Poor’s Ratings Services said today that media reports of a possible merger among Mitsui Sumitomo Insurance Group Holdings Inc., the holding company of Mitsui Sumitomo Insurance Co. Ltd. (MSI) ( AA/Stable/A-1+), Aioi Insurance Co. Ltd. (A+/Stable/–), and Nissay Dowa General Insurance Co. Ltd. (A+/Stable/A-1) may affect the ratings on the companies.

“The ratings on MSI may be negatively affected, while there could be positive implications for the ratings on the remaining two insurers if the merger is confirmed,” said the announcement.

S&P also noted that so far none of the three companies have made any official statement on the rumors. The rating agency indicated that in its view the “progress and content of their discussions remain uncertain. S&P added that it would “scrutinize the effects of the merger on the ratings on the three companies once a concrete plan is announced.

“If MSI, Aioi, and Nissay Dowa merge under a holding company, as some media have reported, the move would create one of the largest non-life insurers in Japan, with net premiums written exceeding ¥2.4 trillion [$25.75 billion] (three companies combined, based on March 2008 figures), and total assets exceeding ¥10.8 trillion [$115.9 billion].

“If Aioi Insurance and Nissay Dowa merge first and the merged entity and MSI then operate under a holding company, it is likely that Standard & Poor’s will view both entities as core entities of the new insurance group.

“If MSI, Aioi, and Nissay Dowa merge, bringing their respective affiliations with the Mitsui and Sumitomo groups, Toyota Motor Corp. (AAA/Negative/A-1+), and Nippon Life Insurance Co. (AA-/Stable/–), they will create an insurance group with a diverse and strong business profile.”

S&P added that it “expects the merger to have a positive impact on the three companies’ business profile. However, the merger may create new risks for the three companies, particularly in the short run, as the insurers’ resources may be diverted from the insurance business to aid integration. In the long run, the merged entity’s ability to generate stronger earnings based on its enhanced business profile and economies of scale will be a key ratings.”

Source: Standard & Poor’s – www.standardandpoors.com

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