A.M. Best Affirms Ratings of Sompo Japan Insurance Inc., NIPPONKOA Insurance
Company Ltd and NIPPONKOA Insurance Company (China) Limited
HONG KONG -- July 11, 2013
A.M. Best Asia-Pacific Limited has affirmed the financial strength rating
(FSR) of A+ (Superior) and issuer credit rating (ICR) of “aa-” of Sompo Japan
Insurance Inc. (Sompo Japan) (Japan) and NIPPONKOA Insurance Company Ltd
(NIPPONKOA) (Japan). A.M. Best also has affirmed the FSR of A- (Excellent) and
ICR of “a-” of NIPPONKOA Insurance Company (China) Limited (NIPPONKOA China).
The outlook for all ratings is stable.
The affirmation of the ratings reflects Sompo Japan’s adequate level of
risk-adjusted capitalization and its continuous actions to improve its
Sompo Japan’s risk-adjusted capitalization, as measured by Best’s Capital
Adequacy Ratio (BCAR), has improved in fiscal year 2012, which remains at an
adequate level to support its current ratings. A.M. Best recognizes that the
company’s capitalization will further improve in the intermediate term, which
should be the result of substantial reduction in its investment risk and
enhancement of reinsurance protection. In March 2013, Sompo Japan issued the
subordinated bonds worth USD 1.4 billion that is expected to replace the
existing subordinated bonds issued in 2009, which is expected to reduce
funding costs. The financial leverage ratio is expected to remain at an
adequate level to support the current ratings.
Sompo Japan’s profitability has improved in fiscal year 2012 primarily owing
to the increases in premium rates of the major auto insurance products and
substantial reduction in strategic stock holdings. Sompo Japan and NIPPONKOA,
the core subsidiaries of NKSJ Holdings Inc., will be merged in fiscal year
2014, which should lead to an improvement in operating efficiency of the
integrated entity, despite a one-time increase in operating costs related to
the integration of an IT system in the near term.
Offsetting rating factors are high investment leverage and large exposure to
catastrophe risks. Although Sompo Japan has reduced its strategic holding
stock in the past years, the investment leverage (investment amount into stock
excluding subsidiaries’ stock to adjusted capital and surplus) remained high
at about 70% at the end of March 2013. Sompo Japan is highly exposed to
catastrophe risks such as earthquakes, tsunamis and typhoons mainly from the
domestic region. Despite the adequate level of reinsurance coverage, the large
scale of natural disasters could have a negative impact on its capitalization.
Positive rating actions could arise if there is a material improvement in
Sompo Japan’s operating performance or risk-adjusted capitalization. Negative
rating actions could arise if there is an adverse impact to Sompo Japan’s
risk-adjusted capitalization due to a material deterioration in its operating
performance and/or large-scale occurrences of catastrophe events.
The affirmation of the ratings of NIPPONKOA reflects its robust
capitalization, strengthened market presence through the merger with Sompo
Japan and the improvement in its profitability. NIPPONKOA is expected to
maintain its strong risk-capitalization in the intermediate term on the back
of its reduction of strategic holding stock as one of the major initiatives
outlined by NKSJ Holdings Inc.
The integrated entity of NIPPONKOA and Sompo Japan is expected to own the
largest market share of about 27.5% in fiscal year 2011, compared to
NIPPONKOA’s market share of 9.1%. NIPPONKOA’s profitability is expected to
further improve, helped by recovery in auto underwriting results and an
increase in investment income partly generated by the realized capital gains
from sales of the strategic holding stock.
Offsetting factors include NIPPONKOA’s large exposure to catastrophe risks and
high exposure to stock market volatility. The investment leverage (investment
amount into stock excluding subsidiaries’ stock to adjusted capital and
surplus) remained high at about 90% at the end of March 2013, which could put
pressure on its capitalization under the sharp deterioration in stock market
conditions. Furthermore, the company is highly exposed to catastrophe risks
such as earthquakes, tsunamis and typhoons from the domestic region, which
could have a negative impact on its capitalization.
Positive rating actions could arise for NIPPONKOA if there is a material
improvement in its operating performance or risk-adjusted capitalization.
Negative rating actions could occur if there is an adverse impact to
NIPPONKOA’s risk-adjusted capitalization due to a material deterioration in
its operating performance and/or large-scale occurrences of catastrophe
The rating affirmations of NIPPONKOA China reflect its strong risk-adjusted
capitalization, improved operating performance as well as the support from its
parent company, NIPPONKOA, in areas of business development, operation and
NIPPONKOA China’s capital position has remained strong in spite of the buoyant
premium growth over the past three years. The company’s risk-adjusted
capitalization, as measured by BCAR, is expected to remain supportive for its
projected business growth in the medium term. In fiscal year 2012, the
company’s operating loss declined from CNY 5.8 million to CNY 3.7 million as a
result of higher interest income and a lower exchange rate loss.
NIPPONKOA China is scheduled to merge with Sompo Japan Insurance (China)
Company, Limited in 2014 after getting legal authorization for the
transaction. Until then, the two companies will continue to operate
While positive rating actions are unlikely in the near term, negative rating
actions may occur if NIPPONKOA China’s profitability deviates adversely from
its business plan or there is a material deterioration in its risk-adjusted
capitalization and/or operating performance.
The methodology used in determining these interactive ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M. Best’s
rating process and contains the different rating criteria employed in the
rating process. Best’s Credit Rating Methodology can be found at
Ratings are communicated to rated entities prior to publication, and unless
stated otherwise, the ratings were not amended subsequent to that
A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company. A.M. Best
Company is the world's oldest and most authoritative insurance rating and
information source. For more information, visit www.ambest.com.
Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
Associate Financial Analyst
Senior Financial Analyst
Senior Manager, Public Relations
+1-908-439-2200, ext. 5378
Assistant Vice President, Public Relations
+1-908-439-2200, ext. 5644
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