Best Affirms Mitsui Sumitomo’s ‘A+’ Ratings

June 26, 2009

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa” of Japan’s Mitsui Sumitomo Insurance Company Limited (MSI). Best also affirmed the FSR of ‘A+’ (Superior) and assigned an ICR of “aa” for the U.S. subsidiary entities of the Mitsui Sumitomo Insurance Group (MSIG) which includes Mitsui Sumitomo Insurance Company of America and Mitsui Sumitomo Insurance USA Inc. The outlook for all ratings is stable.

“The ratings reflect MSI’s superior risk-adjusted capitalization, consistent underwriting performance and efficient distribution channels,” said Best. They also “reflect the company’s growing overseas and life business operations.

“MSI has maintained a strong capital position over the past five years. Although the company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), deteriorated in fiscal years 2007 and 2008,” Best noted that in its opinion MSI’s “current capitalization is still supportive of the current rating level. The decline in capitalization was attributed mainly to the fall of the Japanese stock index, resulting in a decline in unrealized capital gains for MSI. The local solvency ratio also showed a similar declining trend from 1,142 percent in fiscal year 2006 to 693 percent as of March 31, 2009.”

Best added that it “expects that MSI’s risk-based capitalization gradually will improve for the next three years. As the equity risk that was creating volatility in capitalization has reduced substantially over the last two years, volatility in risk-based capitalization is expected to be low as well. Equity composition out of the invested assets dropped to 25 percent in fiscal year 2008, compared to 41 percent in fiscal year 2006. Moreover, MSI has announced that it will reduce risky assets with an improvement in risk management in fiscal year 2009.

“MSI has achieved a stable underwriting performance over the past five years (with the exception of fiscal year 2004) with extraordinary natural disaster claims payments. The loss ratio (incurred/earned basis) has improved over the last two years, but the expense ratio has increased. The size of the Japanese non-life market is decreasing, and this adds pressure for the companies to maintain or improve the current expense ratio.”

The rating analysis described MSI as aggressively “expanding its overseas operations, especially in the Asian market. The company has one of the largest overseas networks among the Japanese non-life insurance companies. In fiscal year 2008, MSI’s overseas net premiums written were JPY 233 billion ($2.4 billion). The overseas business will continue to grow in absolute volume as well as constitute a higher portion of the consolidated revenue of MSI going forward. The company aims to increase the overseas portion to around 18 percent by fiscal year 2010.”

However, Best did note that the “stagnant Japanese non-life market and the unfavorable investment market are partially offsetting factors. “Net premiums written of motor, fire and marine will continue to decline due to low car sales and a decrease in house construction.”

Source: A.M. Best –

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