Best Upgrades First Hawaii Ratings to ‘A’ on Tokio Marine Takeover

December 16, 2011

A.M. Best Co. has upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) of First of Hawaii Group and its members. Best also removed the ratings from under review with positive implications and assigned a stable outlook.

The rating actions the completion of the acquisition of 50 percent of the outstanding shares of First Insurance Company of Hawaii, Ltd. (FICOH) by Japan’s Tokio Marine Holdings, Inc. from CNA Financial Corporation through its wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF), which had already owned 50 percent of the outstanding shares of FICOH prior to the acquisition, and now owns 100 percent of its outstanding shares.

The Tokio Marine Group “has been seeking expansion of its international insurance business to be a driving force for its mid- to long-term growth strategy through organic growth, as well as by means of mergers and acquisitions, to become a global top-tier insurer,” Best explained.

In the U.S. market, TMHD acquired Philadelphia Insurance Companies in December 2008, and in May 2011, Tokio Marine North America, Inc. (TMNA) was established to manage all U.S. business entities of the Tokio Marine Group for further growth in the market. In addition, Shared Service Company (SSC) was established to provide certain back-office services to Tokio Marine Group entities in the United States.

The ratings reflect the group’s “strong risk-adjusted capitalization, excellent overall earnings profile and sound localized market presence as a leading insurance provider in Hawaii,” said Best. “In addition, the ratings are enhanced by the financial flexibility of TMNF and the group’s strategic importance to Tokio Marine Group’s expansion in the United States.”

As partial offsetting factors Best cited the group’s “concentration risk as a single state insurer, its potential exposure to catastrophe losses, slightly elevated common stock exposure and the current weak economic conditions and highly competitive environment in its marketplace.

“The group will continue to operate locally in Hawaii and retain current management, with ultimate control at TMHD and direct ownership by TMNF. While some execution risks exist in integrating the group into Tokio Marine Group, it is now a member of a large, diversified, strongly capitalized and highly rated organization and should realize some economies of scale as a result of back-office functions provided by SSC, as well as potential explicit support provided by TMNF.

The ICRs have been upgraded to “a+” from “a” and the FSR of ‘A’ (Excellent) has been affirmed for First of Hawaii Group and its following members.
* First Insurance Company of Hawaii, Ltd.
* First Fire and Casualty Insurance of Hawaii, Inc.
* First Indemnity Insurance of Hawaii, Inc.
* First Security Insurance of Hawaii, Inc.

Source: A.M. Best

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