Best Affirms Aioi ‘A’ Rating

February 1, 2006

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) and assigned an “a” issuer credit rating to Japan’s Aioi Insurance Company Ltd. with a stable outlook.

“The rating reflects Aioi’s solid market profile, improved risk-adjusted capitalization, enhanced asset portfolio and stable operating performance,” said Best.

“Aioi is the fourth-largest general insurer in Japan with premium market share of about 10.8 percent in fiscal year 2004,” the bulletin continued. “The company continues to leverage the experience of Toyota Motors, its major shareholder, to further develop its automobile insurance business. The business tie-up with Toyota Motors and other new business distribution channels would further increase Aioi’s consolidated premium income.

“The company’s Best’s Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, has improved steadily over the past few years despite the extraordinary catastrophic events in Japan. Aioi has a relatively lower exposure in the fire insurance businesses, and its reinsurance program has also helped to stabilize its current capitalization in the event of catastrophe risk. The local solvency ratio has also shown similar improvement, with an increase to 952 percent in fiscal year 2004 (from 910 percent in fiscal year 2003). A.M. Best expects that the company’s capitalization will improve further in fiscal year 2005.

“The quality of Aioi’s asset portfolios is enhanced with a more stable income stream and lesser equity exposure. The investment portfolio is also well diversified with high quality asset classes.”

Best also indicated, however that there are “offsetting factors,” including “the ongoing intense competition within the non-life insurance marketplace and high catastrophe exposure in Japan.

“The competition in Japan’s non-life insurance market remains competitive due to the deregulation and liberalization of the financial services industry. Foreign insurers, as well as life insurers, entered the market and intensified the competitive environment. The extraordinarily high occurrence of natural disasters in fiscal year 2004 undermined the profit-earning capability on non-life insurance companies. As there were only a few natural disasters in Japan in fiscal year 2005, A.M. Best expects that Japanese non-life insurers will likely report an improvement in their loss ratios.”

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