Best Affirms ‘B++’ Rating of Fuji Fire & Marine

March 16, 2004

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, Limited. Best also assigned a financial strength rating of “B++” (Very Good) to Fuji Fire’s wholly owned subsidiary, American Fuji Fire and Marine Insurance Company headquartered in Long Grove, Ill., and added that the outlook on both ratings is stable.

“The rating of Fuji Fire reflects its improved operating performance in fiscal year 2002 and its continued affiliation with American International Group (AIG) and ORIX,” said best. “A positive factor is the improved economic environment in Japan. Offsetting factors include the company’s relatively high level of leverage, a decrease in risk-adjusted capital in fiscal year 2002 and stagnant competition in the Japanese insurance industry.”

The bulletin noted that “Fuji Fire’s operating results showed significant improvement in fiscal year 2002 and the first half of fiscal year 2003. Due to more selective underwriting and improved operation efficiency, both loss and expense ratios have decreased. In addition, investment performance is improving as the Japanese equity market has been recovering in fiscal year 2003. As Japanese insurance companies tend to have a high weight on equities in their asset portfolios, the influence of equity markets to their capital position is significant.”

Best indicated that Fuji Fire benefits from its affiliation with AIG and ORIX as “these companies provide capital support and induce efficiency. Both companies are financially sound, as ORIX is a leading company in the Japanese lease market and AIG is one of the largest insurance groups in the world.”

Commenting on Fuji Fire’s capitalization, the rating agency said it “has a relatively high level of leverage, which is also reflected in its risk-adjusted capital level. The company’s risk-adjusted capital showed a significant decline in fiscal year 2002. Its local solvency margin dropped from 724 percent in fiscal year 2001 to 605 percent in fiscal year 2002. Adding to these negative factors is its relatively small market share (4.4 percent) and challenges the company will face due to stagnant competition in the Japanese non-life market. ”

“The rating of American Fuji reflects its low underwriting leverage, conservative operating strategy and good overall earnings. The company also maintains very strong capitalization and has produced consistent surplus growth through the retention of earnings. Offsetting factors include persistent underwriting losses driven by an above-average expense ratio and low premium volume. Based on management’s commitment to maintaining the company’s sound capital position, a stable rating outlook has been assigned,” Best concluded.

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