A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Japan’s NIPPONKOA Insurance Company Ltd, both with stable outlooks.
The ratings reflect NIPPONKOA’s “favorable risk-adjusted capitalization, conservative underwriting leverage and expected improvement in the motor insurance business,” said Best. It also observed that, although NIPPONKOA’s “risk-adjusted capitalization has declined in recent years, it remained sound on a consolidated basis, as measured by Best’s Capital Adequacy Ratio (BCAR). Its net underwriting leverage also was conservative at 1.01 times, and the company does not have a major exposure to the flooding in Thailand.”
Best added that, “following a multi-year decline in motor insurance premiums, the domestic industry in Japan showed a turnaround by 1 percent in fiscal year 2010. The turnaround was mainly due to the rate adjustments by subsidiaries under the big three domestic non-life insurance groups, which in total underwrite about 87 percent of the industry motor premiums. Since NIPPONKOA began to adjust its motor premiums in late fiscal year 2010 (+1.4 percent in December 2010 and an expected +1.8 percent in January 2012). Best said it “expects a favorable contribution starting in fiscal year 2011 or 2012.
“During the first six months ended September 30, 2011, NIPPONKOA’s net premiums written (NPW) from voluntary motor insurance increased slightly by 0.6 percent compared to the same period over the previous year. The overall NPW improved by 1.1 percent. As the underwriting cycle for motor insurance in Japan begins to show signs of hardening, the non-life insurance oligopolies in Japan could benefit as a whole. According to the company’s forecast, the overall NPW is expected to improve by 0.5 percent over fiscal year 2011.”
As partial offsetting factors Best cited NIPPONKOA’s “unfavorable investment climate, the company’s weakened market position and the high expense ratio.”
The report said the company’s “market position has deteriorated in the midst of intense competition and stagnant premium growth. Over the past five years, its overall market share has declined to 8.9 percent from 9.3 percent. In fiscal year 2010, the company’s expense ratio was reported at 35.8 percent, while the weighted average expense ratio of the top six domestic non-life insurers was about 34.3 percent.”
Source: A.M. Best
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