S&P Japan Ratings Downgrade Hits Insurers

January 28, 2011

Yesterday Standard & Poor’s Ratings Services announced that it had lowered its sovereign rating on Japan to ‘AA-‘ from ‘AA’. The rating agency followed up that action by announcing that it has also lowered its financial strength ratings and long-term counterparty credit ratings from ‘AA’ to ‘AA-‘ on four Japanese insurance companies: Tokio Marine & Nichido Fire Insurance Co. Ltd.; Tokio Marine & Nichido Life Insurance Co. Ltd.; MassMutual Life Insurance Co.; and Allianz Fire and Marine Insurance Japan Ltd.

The outlooks on the financial strength and long-term counterparty credit ratings on the four insurers are stable. In addition S&P affirmed the short-term rating on Tokio Marine & Nichido Fire Insurance Co. Ltd.

S&P duly explained that the downgrades on the four insurers followed its lowering of the sovereign rating on Japan.

S&P also indicated that it has “lowered the ratings on the overseas subsidiaries and branches of Tokio Marine & Nichido Fire Insurance, as the ratings on these companies incorporate explicit and/or implicit support from their parent companies.”

The bulletin added that S&P also believes that the “ratings on a number of domestic insurance companies in Japan are constrained by the long-term sovereign rating on the country. This is because the insurers hold a high percentage of domestic assets in their portfolios and their businesses are concentrated in the domestic market. Due to this constraint, we lowered the ratings on the aforementioned four insurers to the same level as the sovereign rating.

“The outlooks on the financial strength and long-term counterparty credit ratings on the insurers are stable, which is the same as that on the sovereign rating. There is little likelihood that Standard & Poor’s will raise the outlooks and ratings on the insurers even if the insurers greatly enhance their financial profiles from their current levels, as long as the ratings and outlook on Japan remain unchanged. Conversely, if the ratings on Japan were lowered, the ratings on the insurers are also likely to be lowered.”

S&P summarized the revisions and the ratings outlook as follows:
Allianz Fire and Marine Insurance Japan Ltd. – Counterparty Credit Rating Local Currency AA-/Stable/– AA/Negative/– Financial Strength Rating Local Currency AA-/Stable/– AA/Negative/–

MassMutual Life Insurance Co. Counterparty Credit Rating Local Currency AA-/Stable/– AA/Negative/– Financial Strength Rating – Local Currency AA-/Stable/– AA/Negative/–

Tokio Marine & Nichido Fire Insurance Co. Ltd.
Tokio Marine & Nichido Fire Insurance Co. Ltd. (New Zealand Branch) Tokio Marine & Nichido Fire Insurance Co. Ltd. (U.S. Branch)
Tokio Marine Compania de Seguros, S.A. de C.V.
Tokio Marine Europe Insurance Ltd.
Tokio Millennium Re (UK) Ltd.
Tokio Marine Global Re Ltd.
Tokio Millennium Re Ltd.
Tokio Marine Retakaful Pte. Ltd.
Financial Strength Rating – Local Currency AA-/Stable/– AA/Negative/–

Tokio Marine Insurance Singapore Ltd.
Philadelphia Indemnity Insurance Co.
Philadelphia Insurance Co.
Counterparty Credit Rating – Local Currency A+/Stable/– AA-/Negative/– Financial Strength Rating – Local Currency A+/Stable/– AA-/Negative/–

Tokio Marine & Nichido Life Insurance Co. Ltd. – Counterparty Credit Rating Local Currency AA-/Stable/– AA/Negative/– Financial Strength Rating Local Currency AA-/Stable/– AA/Negative/–

Tokio Marine & Nichido Fire Insurance Co. Ltd.
Tokio Marine Financial Solutions Ltd.
Counterparty Credit Rating – Local Currency AA-/Stable/A-1+ AA/Negative/A-1+

Ratings Lowered
Tokio Marine & Nichido Fire Insurance Co. Ltd. Senior Unsecured from AA- to AA

Ratings Affirmed
Tokio Marine & Nichido Fire Insurance Co. Ltd. Commercial Paper A-1+

Source: Standard & Poor’s

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