A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” of Sompo Japan Insurance Inc. Best also, affirmed the FSR of ‘A+’ (Superior) and ICRs of “aa-” of Sompo Japan Insurance Company of America and its reinsured subsidiary, Sompo Japan Fire and Marine Insurance Company of America, both domiciled in New York, NY.
The outlook for all of the ratings is stable.
Best said the ratings reflect Sompo’s “sound financial position, growing overseas business, and low expense ratio. In terms of absolute capital, Sompo is ranked third among non-life insurers in Japan, with an adjusted capital and surplus of JPY 1.03 trillion ($13 billion) as of September 30, 2011.
“Although the company’s absolute capitalization has deteriorated in recent years, its risk-adjusted capitalization remains sound on a consolidated basis, as measured by Best’s Capital Adequacy Ratio (BCAR). In addition, Sompo’s local solvency margin ratio stood at 709.9 percent as of September 30, 2011. These indicators all support the company’s current ratings.”
The rating report pointed out that, as with most Japanese insurers Sompo is “faced with a domestic market with dropping birth rates, persisting deflation and an aging society.” As a result it is seeking “overseas business expansion and life insurance business, which have “become important to non-life insurers like Sompo for growth opportunities.”
Best noted that in the first half of 2011, the company’s overseas premium revenue amounted to JPY 46.7 billion [app. $60 million], which represented 6.8 percent of consolidated premium revenue and 55.2 percent growth compared to the previous year.” Best added that it expects Sompo’s overseas revenue to continue to grow as well.
The rating agency also noted that “over fiscal year 2010, Sompo reported another year of improvement in its expense ratio, from 34.1 percent to 33.7 percent. This improvement was largely driven by the reduction of underwriting expenses, which declined by 1.3 percent on a year-on-year basis. Sompo’s expense ratio of 33.7 percent was also competitive, while the top six weighted average was about 34.3 percent.”
As partial offsetting factors Best cited “the unfavorable investment climate and the expected deterioration in Sompo’s loss ratio. According to the company, natural disaster damage has reached JPY 27.7 billion [$35.5 million] mainly due to Typhoon No. 12 and 15 and hail damage in the first half of fiscal year 2011.
“Expected incurred losses from the flooding in Thailand is JPY 30 billion [$38.5 million] for the entire NKSJ Holdings, Inc. group, the joint holding company established on April 1, 2010 from the business integration of Sompo and NIPPONKOA Insurance Company Ltd. Sompo’s loss ratio will likely deteriorate in fiscal year 2011 as a result of these natural disaster losses.”
Source: A.M. Best
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