A.M. Best Co. announced that it has affirmed the financial strength rating of B++ (Very Good) of Japan’s Fuji Fire & Marine Insurance Company Ltd. with a stable outlook, and the A+ (Superior) financial strength rating of New Zealand’s Accident Compensation Corporation (ACC), also with a stable outlook.
Fuji’s rating “reflects the company’s secure capitalization, new leadership and strategies for competing in Japan’s deregulated and highly competitive financial services marketplace,” said Best. It also recognized the company’s “expense-conscious operations, strong claims servicing capability, enhanced product development capability and strong customer loyalty.”
“Capitalization is enhanced by Fuji Fire’s financial flexibility, comprehensive reinsurance coverage and substantial reserves to mitigate catastrophe losses,” said the report.
Best noted that “Japan’s intensely competitive non-life insurance marketplace, where deregulation of the insurance industry and liberalization of the financial services industry in general has encouraged consolidation of traditional market players,” is an offsetting factor. “The competitive environment, combined with the depressed Japanese economy, has resulted in sluggish premium growth, sharply reduced investment income and weak underwriting profitability,” said the rating agency.
“While these weakened fundamentals will likely result in continued pressure on Fuji Fire’s operating performance over the near term, the company has developed strategies for improving future premium growth and profitability, including seeking support from majority shareholders, AIG and ORIX,” Best concluded.
Best said that ACC’s rating reflects its unique status, “which gives it the New Zealand government’s support of its unfunded liabilities, and its commitment to reach fully funded status.” This could be offset by “a minimal risk of a change in legislation;” it noted, however, that it sees this as unlikely.
“ACC’s unique status as a Crown Entity provides its unfunded liabilities the support of the New Zealand government. Due to its change on July 1, 1999, from a pay-as-you-go basis to a fully funded basis, ACC currently has a NZD 3.6 billion (USD 1.9 billion) reserve shortfall in its long-tail actuarial liabilities. While the company is currently under-reserved, A.M. Best recognizes ACC’s on-target progress towards its commitment to become fully funded by June 30, 2014, through premium pricing and tail levies,” said the report.
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