Best Affirms NIPPONKOA ‘A’ Rating

January 25, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) of Japan’s NIPPONKOA Insurance Company Ltd. with a stable outlook.

“The rating reflects the company’s strong business profile, moderate risk-adjusted capitalization and improved operating results,” said Best. “The rating also recognizes the success in the company’s market strategies through effective distribution arrangements with major life insurers and the establishment of a direct distribution channel, Sonpo 24.”

Best noted that Nipponkoa is one of the five largest general insurers in Japan with a market share of 10 percent in terms of net premiums written as of fiscal year 2003. It also indicated that the “alliance with Meiji Yasuda Life and the recent establishment of Sonpo 24 will provide Nipponkoa with new distribution opportunities to complement existing distribution capability.”

Best said that its “Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, indicates that Nipponkoa is prudently capitalized as of fiscal year-end 2003. The company’s local solvency ratio also improved from 840.5 percent in fiscal year 2002 to 996.4 percent in fiscal year 2003.”

However, the rating agency also noted that these “factors are partially offset by a relatively high expense ratio, intensified competition in the Japanese non-life market and vulnerability of the local equity market.

“Nipponkoa’s expense ratio remains relatively high among the major non-life insurers in Japan. Although the loss ratio showed a slight improvement, the combined ratios remained somewhat high in fiscal year 2003.”

Best also pointed out that “Nipponkoa’s asset portfolios have a relatively high concentration on domestic equities. Although the company benefits from the recovery in Japanese equities, vulnerability to the equity market remains a considerable risk factor to the company.

“Other offsetting factors include Japan’s competitive non-life insurance marketplace due to the deregulation and liberalization of the financial services industry as well as the entry of foreign companies into the market.”

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