The ratings of Sompo Japan and NIPPONKOA reflect their robust risk-adjusted capitalization and strong market profile. Sompo Japan and NIPPONKOA, the core subsidiaries of NKSJ Holdings Inc., started the integration process of their operations in 2014 with an announced plan that the two companies will be merged into
This capital increase was mainly driven by favorable equity market conditions and adjustment of the reinsurance protection.
Offsetting rating factors include volatile operating performance, high exposure to stock investments and large exposure to catastrophe risks. Although both companiesí operating ratios have improved since fiscal-year 2011, the integrated entity is expected to report a large amount of one-off, merger-related costs in fiscal-year 2014.
Both companiesí exposure to stock investments remains relatively high despite efforts to reduce investment allocations to strategic domestic stocks. In addition, the companies have increased foreign securities over the past five years. In particular, foreign stocks (excluding stock of foreign subsidiaries) accounted for approximately one third of the total balance of foreign securities at the end of
Sompo Japan and NIPPONKOA are well positioned at the current rating levels. Downward rating pressure could arise at either company should a material decrease in capitalization occur due to substantially unfavorable operating performance or if a delay in the merger process causes a significant deterioration in their business profile.
The ratings affirmation of NIPPONKOA China reflect its solid risk-adjusted capitalization, conservative and profitable investment portfolio, strong liquidity and continued parental support in terms of operations, reinsurance and brand recognition.
The companyís risk-adjusted capitalization, as measured by Bestís Capital Adequacy Ratio (BCAR), remained supportive of its current ratings, despite unfavorable operating performance and strong growth in underwriting scale. However, NIPPONKOA China benefited from the stable stream of interest income from its conservative investment strategies to partially offset the underwriting losses in fiscal-year 2013.
NIPPONKOA China is scheduled to merge with
Partially offsetting factors include the unfavorable operating performance and the highly competitive operating environment in the Chinese non-life market.
While positive rating actions are unlikely in the near term, negative rating actions may occur if there is a material deterioration in the companyís risk-adjusted capitalization or operating performance.
The ratings of SJA and SJFM are based on Sompo Japan US Groupís role and strategic importance to Sompo Japan, and the explicit support provided by Sompo Japan in the form of quota share reinsurance. The ratings also reflect the implied support to be provided by Sompo Japan in the future in order to support the groupís operations in
Given the explicit support SJA has in place with Sompo Japan, any upward or downward movement of the ratings of Sompo Japan would influence the ratings of SJA and SJFM. In addition, if SJA's capitalization or operating performance falls markedly short of
The methodology used in determining these ratings is Bestís Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bestís rating process and contains the different rating criteria employed in the rating process. Bestís Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
This rating announcement has been issued by
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Seewon Oh, +852-2827-3404
Senior Financial Analyst
Manager, Public Relations
Assistant Vice President, Public Relations