S&P Assigns ‘AA-‘ Ratings to Tokio Marine & Nichido Fire Insurance; Outlook Stable

October 1, 2004

Standard & Poor’s Ratings Services announced that it has assigned its ‘AA-‘ financial strength and long-term counterparty ratings to Tokio Marine & Nichido Fire Insurance Co. Ltd. with a stable outlook.

“The rating action follows the inauguration of the new company established by the consolidation of Japan’s leading non-life insurer, Tokio Marine & Fire Insurance Co. Ltd. and sixth largest Nichido Fire & Marine Insurance Co. Ltd.,” said S&P. It also noted that it has withdrawn its ratings on the two former insurers, and that “all ratings on the related entities of the two former insurers are unchanged.”

“The new company is a leader in the Japanese non-life insurance market with ¥101.9 billion [$920 million] in capital, ¥9 trillion [$812 billion] in total assets, and 26 percent in premiums written (based on data on 13 domestic non-life insurers as of fiscal 2003, ended March 31, 2004),” said S&P. “Tokio Marine & Nichido has a strong business franchise, supported by the largest sales network in the industry and a broad customer base.”

It also noted: “The former Tokio Marine had a strong customer base, including the Mitsubishi group companies, while the former Nichido Fire enjoyed close relationships with small to midsize enterprises (SMEs) and regional financial institutions. The new Tokio Marine & Nichido inherited all such advantageous aspects of the former businesses.”

On the downside S&P observed: “A high level of growth of their key product, auto insurance, is not expected in the Japanese market. The company also faces challenges in improving operating efficiency by taking advantage of its scale, and in maintaining profitability by prudent underwriting. The key to sustainable growth will be to enhance ‘third-sector’ insurance business, sales of insurance policies at banks’ counters, and overseas businesses, which will supplement the company’s conventional non-life insurance business.

“The company is expected to diversify its revenue sources as a core company of the Millea Group. Tokio Marine & Nichido enjoys strong capitalization both in volume and quality within the Japanese non-life insurance industry, which maintains relatively strong credit quality within the Japanese financial sector.

“The company will require a further reduction in its risk assets, in particular its equity holdings based on business relations, not for pure investment purposes, to enhance the stability of its capital. A key issue for the company is whether the consolidation can bring further improvement in efficiency in addition to expansion in business size, and how the new company can make progress in its revenue diversification strategy in the medium- to long-term.”

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