Best Affirms Toa Re (Japan) Ratings; Downgrades U.S. Sub ICR

A.M. Best Co. announced that it has affirmed the financial strength rating (FSR) of “A+” (Superior) and the “aa-” issuer credit rating (ICR) of Japan’s Toa Reinsurance Company, Limited (Toa Re) with a negative outlook.

Best also affirmed the FSR of “A” (Excellent) of Toa Reinsurance Company of America; however the rating agency has downgraded the company’s ICR to “a” from “a+”. Best also revised its rating outlook for Toa Re America to negative from stable.

“The rating of Toa Re reflects its prudent capitalization, strong presence in the Japanese reinsurance market and high quality fixed income assets, “said Best. “Toa Re maintains a low net premium leverage of 0.48 times as of fiscal year 2004. Adjusted policyholder surplus (APHS) was JPY 211 billion ($1.962 billion), which is 53 percent of total assets as of fiscal year 2004.”

Best also noted: “Toa Re maintains a preferred status with its Japanese non-life insurance clients, who are also shareholders. The company enjoys an outstanding market presence as the only domestic professional reinsurance company in Japan.

“In recent years, the company has further diversified its portfolio into the life reinsurance market, overseas reinsurance market and cooperative market. The increasing presence outside of Japan will provide Toa Re with greater geographical risk diversification.”

However, Best indicated that “the high volatility of risk-based capitalization and the volatile underwriting performance of the company” constitute offsetting factors. It also indicated that the “consolidation of the Japanese non-life market resulted in reduced reinsurance premiums, and the increasing interest of Japanese direct companies into Asian businesses resulted in increased competition in this market segment.

“Toa Re holds 55 percent of the total assets or 104 percent of its APHS in equities as of fiscal year 2004. This single equity risk weighs heavily on the company’s risk-based capitalization, which will depend heavily upon the performance of the Japanese stock market. The company has indicated that it is undergoing a strategic review on this issue.”