A.M. Best Affirms Ratings of Certain Asia-Pacific and U.S. Subsidiaries of NKSJ Holdings Inc.

  A.M. Best Affirms Ratings of Certain Asia-Pacific and U.S. Subsidiaries of
  NKSJ Holdings Inc.

Business Wire

HONG KONG -- July 11, 2014

A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior)
and the issuer credit ratings (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) (China).
Additionally, A.M. Best has affirmed the FSR of A+ (Superior) and the ICRs of
“aa-” of Sompo Japan Insurance Company of America (SJA) and its wholly owned,
reinsured subsidiary, Sompo Japan Fire and Marine Insurance Company of America
(SJFM), collectively known as Sompo Japan US Group (both domiciled in New
York, NY). The outlook for all ratings is stable.

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 Sompo Japan Nipponkoa Insurance Inc. (Sompo Japan Nipponkoa) in
September 2014. The integrated entity is expected to be ranked as the largest
non-life insurer in Japan in terms of premiums written. Sompo Japan Nipponkoa
is also expected to benefit from the recent acquisition of Canopius Group
Limited, which enhanced its business profile in overseas markets and further
diversified operations. Sompo Japan and NIPPONKOA reported improvement in
their risk-adjusted capitalization year over year due to the increase in
available capital.

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 companies’ 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 companies’ 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 March 2014. Additionally, Sompo Japan and NIPPONKOA
are highly exposed to catastrophe risks such as earthquakes, tsunamis and
typhoons. In addition, the recent acquisition of Canopius Group Limited is
expected to increase the catastrophe exposure to Sompo Japan, as well as the
integrated entity. Although the reinsurance coverage is considered adequate,
large-scale natural disasters could have a negative impact on capitalization.

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 company’s risk-adjusted capitalization, as measured by Best’s 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 Sompo Japan Nipponkoa Insurance
(China) Co., Ltd. in 2015, subject to legal authorization for the transaction.
The post-merger entity is considered to be of strategic importance to NKSJ
Holdings Inc., and continued parental support is expected over the long term.

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 company’s
risk-adjusted capitalization or operating performance.

The ratings of SJA and SJFM are based on Sompo Japan US Group’s 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 group’s operations in the United States.

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 A.M. Best's expectations, negative rating actions to
SJA and SJFM could ensue.

The methodology used in determining these 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

This rating announcement has been issued by A.M. Best Asia-Pacific Limited,
which 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 © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.



A.M. Best
Seewon Oh, +852-2827-3404
Senior Financial Analyst
Richelle Bryan, +1-908-439-2200, ext. 5344
Financial Analyst
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
Jim Peavy, +1-908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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