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 (MSIA), Mitsui Sumitomo Insurance USA Inc. (MSU) and MSIG Specialty Insurance USA Inc. (MSIGS).
AM Best also has affirmed the FSR of A+ (Superior) and the Long-Term ICR of “aa” (Superior) of Aioi Nissay Dowa Insurance Company Limited (ADI) (Japan). In addition, AM Best 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 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).
The ratings of MSI are extended to MSIA, MSU and MSIGS, as these companies continue to hold a strategically important role to the organisation, as U.S. domestic insurers. The U.S. operations support corporate global initiatives, providing support for worldwide clients of the group. The group receives direct capital support from its parent and participates in the enterprise-wide reinsurance programmes.
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. At the same time, the company is exposed to considerable equity risk from its stock investment and potential interest rate risk from its bond holdings amid recent uncertainties around interest rates in Japan, although the company has a significant amount of available capital to absorb such risks. The ratings also reflect the positive impact of the balance sheet strength assessment of strongest of its ultimate parent, MS&AD, which is supported by its high level of available capital, low financial leverage, and high level of financial flexibility that gives MSI 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 return-on-equity of 9% (fiscal years 2017-2021), as calculated based on comprehensive income. Over the past five fiscal years (2017-2021), the company’s underwriting performance in its domestic insurance business also remained strong with an average combined ratio of 94.1%. However, the company’s overseas business continued to be affected negatively by the unfavourable performance of MS Amlin companies in fiscal year 2022, although it has shown some improvements in underwriting performance compared with last year.
MSI is a major non-life insurer in Japan with a solid reputation and position in its domestic market. The company continues to be a market leader and holds a significant share of approximately one-fifth of Japan’s highly consolidated domestic non-life insurance market, based on net premium written. The company also has a sizable overseas insurance business that contributes approximately 30% of its consolidated net premium income, and it is looking to further increase the scale and improve the profitability of its overseas operations to diversify its source of profits.
The stable outlooks reflect AM Best’s expectation that MSI will maintain its overall balance sheet strength assessment, supported by risk-adjusted capitalisation at the strongest level, as measured by BCAR, while ongoing strategic initiatives will help maintain its strong operating performance and favourable business profile over the intermediate term.
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 the two core operating entities and an integral part of 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. At the same time, ADI remains exposed to considerable equity risk from its sizeable stock investments and potential interest rate risk from its sizeable bond investments, although it appears to have a sufficient buffer in available capital to absorb such risks.
ADI’s operating performance has remained strong; this assessment continues to be supported by the company’s steady premium growth in the past and a five-year average return-on-equity of 6.5% (fiscal years 2017-2021), as calculated based on comprehensive income. Over the past five fiscal years (2017-2021), the company’s underwriting performance in its domestic insurance business also remained strong with an average combined ratio of 95.8%. The company’s overseas business turned to a loss in the fiscal year 2022 although it is expected to return to profitability in the fiscal year 2023. Nevertheless, the size and profit contribution of its overseas business had been relatively small. Over the long term, AM Best expects that ADI’s consistent and stable combined ratio in the mid-90 level in its domestic business will continue to sustain the company’s strong operating performance assessment.
ADI is a major non-life insurer in Japan with a solid reputation and market position. The company’s domestic non-life business continues to benefit from its long-term business relationship with Toyota Motor Corporation and Nippon Life Insurance Company. However, its overseas insurance business is relatively small compared to other major domestic insurers in Japan, which limits the company’s growth potential outside of Japan.
The stable outlooks for ADI reflect AM Best’s expectation that the company will maintain its overall balance sheet assessment, supported by risk-adjusted capitalisation at the strongest level, as measured by BCAR, while maintaining a strong and consistent operating performance in its domestic non-life insurance business over the intermediate term.
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 strategic importance of the company to its parent, ADI, as an important contributor of overseas business profit and a key component of ADI’s business expansion in China.
On 2 December 2022, ADI completed a capital injection of RMB375 million to ADIC after taking into consideration China’s regulatory requirement and its business development needs. As a result, ADIC’s reported capital and surplus reached RMB1,035 million as of 31 December 2022, an increase of 71% year over year. AM Best assesses ADIC’s risk-adjusted capitalisation at the strongest level, as measured by BCAR, supplemented by moderate underwriting leverage, conservative investment strategy and sustained growth in capital and surplus.
AM Best views ADIC’s operating performance as profitable, as demonstrated by a five-year operating ratio of 96.1% and a five-year average return-on-equity ratio of 6.0% (2018-2022). The company reported net profit after tax of RMB54 million in 2022, supported by a turnaround in underwriting profitability as it successfully mitigated the challenges from the comprehensive motor reform, and its stable investment income stream.
ADIC focuses on personal lines business in China, primarily motor insurance mainly sourced from inward reinsurance business, which has a high-frequency, low-severity nature. Going forward, the company will continue to explore more collaborative opportunities 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 limited business scale in China’s non-life insurance market and considerable concentration risk in premium source, despite being partly mitigated by the company’s close ties with ADI and major distribution partners. Moreover, 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 also occur if there is significant deterioration in MS&AD’s credit profile, including its risk-adjusted capitalisation, financial leverage or interest coverage levels.
Negative rating actions could occur for ADI if there is material deterioration in risk-adjusted capitalisation caused by substantial investment losses or large-scale natural catastrophes. Negative rating actions also could occur if there is significant deterioration in the credit profile of MS&AD or Mitsui Sumitomo Insurance Company, Ltd., including their risk-adjusted capitalisations, financial leverage or interest coverage levels.
Negative rating actions could arise for ADIC if there is significant deterioration in its operating performance, for example, due to sustained adverse underwriting results. Negative rating actions could also occur if there is a material deterioration in the company’s risk-adjusted capitalisation or 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.
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