AM Best Affirms Credit Ratings of Mitsui Sumitomo Insurance Company, Limited and Its Affiliates

AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa” (Superior) of Mitsui Sumitomo Insurance Company, Limited (MSI) (Japan). Concurrently, AM Best has affirmed the FSR of A+ (Superior) and the Long-Term ICRs of “aa” (Superior) of MSI’s U.S. operating companies, which are domiciled in New York, NY: Mitsui Sumitomo Insurance Company of America, Mitsui Sumitomo Insurance USA Inc. and MSIG Specialty Insurance USA Inc.

In addition, AM Best has affirmed the FSR of A+ (Superior) and the Long-Term ICR of “aa” (Superior) of Aioi Nissay Dowa Insurance Company Limited (ADI) (Japan). AM Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Aioi Nissay Dowa Insurance (China) Company Limited (ADIC) (China).

The outlook of all the aforementioned Credit Ratings (ratings) is stable. These companies are owned ultimately by MS&AD Insurance Group Holdings, Inc. (MS&AD), a major non-life insurance group based in Japan.

The ratings of MSI reflect the group’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management (ERM).

MSI’s balance sheet strength mainly reflects its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). This assessment is also supported by the company’s low financial leverage and good quality of capital. Although the company is exposed to considerable equity risk from its substantial domestic stock investments and potential interest rate risk associated with its sizeable bond investments, it maintains a resilient capital base capable of absorbing such risks. That said, AM Best expects that the company’s plan to accelerate disposal of strategic equity holdings could potentially reduce its overall exposure to domestic market risk in coming years. The ratings also reflect the favourable impact of MS&AD as the ultimate parent, which has robust balance sheet strength that is supported by ample available capital, low financial leverage, and high level of financial flexibility, enabling MSI to have good access to capital and debt markets.

MSI’s operating performance has remained strong; this assessment continues to be supported by the company’s consistent trend of steadily growing premium income in the past and a five-year average adjusted return-on-equity ratio of 5.4% (fiscal years 2018-2022), as calculated by AM Best. In fiscal year 2023, MSI’s overseas business demonstrated significant improvements, including growth in net premium written (NPW) across diverse regions and notable enhancements in underwriting performance, particularly in Europe, compared with the previous year. In its domestic market of Japan, MSI’s combined ratio slightly deteriorated to 98.3%, impacted by increased losses in voluntary automobile insurance and domestic natural catastrophes. However, AM Best expects that the company’s initiatives, such as rate increases on fire insurance and voluntary automobile insurance, will improve its domestic underwriting performance.

MSI remains a prominent insurer with a strong reputation in Japan’s highly consolidated non-life insurance sector, in which it continues to hold approximately one-fifth of the market share based on NPW, along with its leading and stable market position. The company’s overseas insurance business, contributing approximately 30% of its consolidated net premium income, also presents a significant opportunity for profit diversification.

The ratings of ADI reflect its balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate ERM. The ratings also consider ADI’s strategic importance to its parent company, MS&AD, as one of its two core operating entities and integral role in the group.

ADI’s balance sheet strength assessment reflects the company’s strongest level of risk-adjusted capitalisation, as measured by BCAR, conservative financial leverage and good quality of capital. The company is exposed to considerable equity risk from its substantial domestic stock investments and potential interest rate risk associated with its sizeable bond investments, but it possesses ample available capital to absorb such risks. That said, AM Best expects that the company’s plan to accelerate disposal of strategic equity holdings could potentially reduce its overall exposure to domestic market risk in coming years.

ADI’s operating performance has remained strong, supported by its stable premium income in the past. The company has demonstrated a solid financial performance with a five-year average return-on-equity ratio of 3.3% (fiscal years 2018-2022), as calculated by AM Best. Despite facing challenges in fiscal year 2023, such as increased losses from voluntary automobile insurance and natural catastrophes in its domestic market, ADI’s ordinary profit improved, primarily driven by higher investment income. Prospectively, AM Best expects ADI’s initiatives in its domestic market and realigned overseas strategy to drive solid future underwriting performance. Gains from equity disposals will also partially support the company’s bottom line.

ADI remains a major non-life insurer in Japan with a strong reputation and solid market position. The company’s domestic non-life insurance business continues to benefit from its longstanding partnerships with Toyota Motor Corporation and Nippon Life Insurance Company. However, ADI’s overseas insurance business remains relatively small compared with other major domestic insurers in Japan, which limits its potential for premium growth and profit diversification abroad.

The ratings of ADIC reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect the company’s strategic importance to its parent, ADI, as a key contributor of overseas business profit and a major component of ADI’s business expansion in China.

AM Best assesses ADIC’s risk-adjusted capitalisation at the strongest level, as measured by BCAR, supplemented by moderate underwriting leverage, a conservative investment strategy and sustained growth in capital and surplus. Following a significant capital injection of RMB 375 million from ADI in 2022, ADIC’s capital and surplus continued to grow moderately in 2023, supported by a partial retention of earnings.

AM Best views ADIC’s operating performance as adequate, as demonstrated by a five-year operating ratio of 95% and a five-year average return-on-equity ratio of 6% (2019-2023). In 2023, ADIC’s net profit after tax was RMB 80 million (USD 11 million), up by 49% year over year, driven by positive underwriting and investment results.

ADIC focuses on personal lines business in China, primarily Toyota-related motor insurance mainly sourced from inward reinsurance business, which has a high-frequency, low-severity nature. Going forward, the company will continue to explore opportunities for greater collaboration with its current and prospective business partners to achieve top-line growth, while strengthening underwriting and implementing adequate control activity measures to ensure its positive underwriting performance over the intermediate term.

Partially offsetting rating factors include the company’s limited business scale in China’s non-life insurance market and considerable concentration risk in premium source, despite being partly mitigated by its close ties with ADI and major distribution partners. Nonetheless, ADIC continues to benefit from parental support in terms of brand recognition, capital, reinsurance, human resources and operations.

Negative rating actions could occur for MSI if there is material deterioration in its risk-adjusted capitalisation caused by substantial investment losses or large-scale natural catastrophes. Negative rating actions could occur if there is persistent and significant deterioration in operating performance stemming from weak underwriting and investment results. Negative rating actions also could occur if there is significant deterioration in MS&AD’s credit profile, including its risk-adjusted capitalisation, financial leverage or interest coverage levels. Positive rating actions could occur if MSI shows substantial enhancement in its ERM, exemplified by the establishment of a strong risk culture through independent risk oversight and the alignment of risk management objectives with overall business goals.

Negative rating actions could occur for ADI if there is continuous deterioration in its operating performance stemming from weak underwriting and investment results. Negative rating actions also could occur for ADI if there is material deterioration in its risk-adjusted capitalisation caused by substantial investment losses or large-scale natural catastrophes. Negative rating actions could occur if there is significant deterioration in MS&AD or MSI’s credit profiles, including their risk-adjusted capitalisation levels, financial leverage or interest coverage levels. Positive rating actions could occur if ADI demonstrates sustained improvement in its balance sheet strength metric including its risk-adjusted capitalisation.

Positive rating actions could occur for ADIC if there is a sustained and notable improvement in its underwriting and operating profitability. Negative rating actions could occur if there is a substantial deterioration in the company’s risk-adjusted capitalisation, for example, due to a material deviation from the company’s business plan. Negative rating actions could also arise if there is a reduced level of support from its parent, ADI.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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