Best Lowers Toa Re (America) to “A”

November 23, 2004

A.M. Best Co. announced that it has downgraded the financial strength rating of The Toa Reinsurance Company of America (TRA), based in Morristown, NJ, to “A” (Excellent) from “A+” (Superior), with a stable outlook. Best also assigned an issuer credit rating (ICR) of “a+” to TRA with a negative outlook.

“The downgrade reflects A.M. Best’s decision to remove TRA’s core status,” said the bulletin. “Given the current environment within the industry, A.M. Best has refined its view of core as outlined in its updated methodology on rating members of insurance groups. (See Rating Members of Insurance Groups at Best indicated that while it “recognizes management’s efforts to further enhance its strategic importance, TRA has been removed from core after a comprehensive analysis. As a result, the rating of TRA’s parent company, The Toa Reinsurance Company, Limited (TRJ) (Japan), is no longer assigned to TRA.” Best did note that it “considers TRA to be a strategic subsidiary of TRJ, and rating uplift is applied to TRA’s stand-alone rating.”

Given the new status, Best said: “The rating reflects TRA’s strategic importance to TRJ, its strong capital position, comparatively favorable underwriting results, well established market position and long-term relationship with its clients. The company’s excellent stand-alone risk-adjusted capitalization is supported by its conservative invested assets, low credit risk and low catastrophe exposure.

“Additionally, excellent investment returns, especially from capital gains, have been the main driver for its good overall earnings and continued surplus growth. However, competitive pressures are expected to intensify over the near term, which, in A.M. Best’s opinion, may limit TRA’s business position within the U.S. reinsurance market. The stable outlook on the financial strength rating reflects its position within the A (Excellent) category, which includes strategic lift from the parent.”

Best explained that the negative outlook on the ICR reflects its “current outlook on TRJ’s financial strength rating and the potential for its ICR to change while its financial strength rating remains unaffected.”

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