Best Affirms ‘A++’ Ratings of Tokio Marine and Reinsurance Sub

June 17, 2003

A.M. Best Co. announced that it has affirmed the financial strength rating of A++ (Superior) of Japan’s Tokio Marine and Fire Insurance Company Ltd., (TMF), and, in a separate announcement, also affirmed the same rating for its Bermuda-based reinsurance subsidiary Tokio Millennium Re Ltd. (TMR). It assigned both insurers a “negative” rating outlook.

The report cited “Tokio Marine’s superior capitalization, strong balance-sheet flexibility and advanced risk management platform” as supporting the high rating. Best also noted the “company’s dominant position in Japan’s general insurance sector, which will remain a competitive advantage in the foreseeable future, and indicated that the “proposed merger with Nichido Fire to be completed in October 2004 is expected to further enhance the combined entity’s ability to generate internal surplus growth.”

Commenting on TMR, Best said that it receives strong support from its parent and “has established a growing presence as an innovative catastrophe underwriter and manager of insurance risks.” Best views the reinsurer as “strategically important to TMF as it helps accomplish the parent’s goal of enhancing capital utilization through arranging exchanges of natural catastrophe exposures and underwriting uncorrelated risks in the worldwide reinsurance market and by engaging in alternative risk mitigation strategies.”

TMF’s local solvency ratio–as measured by the solvency margin capitalization standard in Japan– as of March 31, 2003 was 1,088 percent, “the highest level amongst its peers,” Best observed. It “maintains a strong balance sheet flexibility, with only a modest level of financial leverage. Insurance risk diversification is achieved through extensive reinsurance coverage, exchange of catastrophe risks and the accumulation of catastrophe reserves. The reduction in equity exposure has also resulted in an improvement in the risk-adjusted capital,” the report continued.

TMF is Japan’s largest P/C insurer with a 19 percent market share as of March 31, 2002. It is affiliated with the Mitsubishi industrial group, and Best noted that it derives “significant marketing advantages” from the connection. Following the recent formation of the Millea Group with Nichido, it “is expected to develop into one of the dominant full service insurance groups in Japan,” said Best.

The rating agency indicated that the negative outlook on both companies “reflects the persistent unfavorable economic conditions challenging TMF in Japan.” It noted that the “deregulation of Japan’s general insurance industry, combined with sustained economic instability, has led to a difficult operating environment.” The outlook “reflects A.M. Best’s concerns with the company’s ability to cope with these factors, which are expected to result in slowed premium growth and volatile investment earnings. In addition, the high, albeit decreasing equity exposure and increasing credit risk exposure in the loans portfolio will likely contribute to greater earnings instability.”

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