Mitsui Sumitomo Insurance Company’s (MSI) operating performance has remained strong, supported by the company’s consistent trend of steadily growing premium income in the past, notes AM Best.
Over the past five fiscal years (fiscal years 2016-2020), the company’s underwriting performance in its domestic insurance business also remained strong with an average combined ratio of 93.9%. However, the company’s overseas business continued to be affected negatively by the loss-making MS Amlin AG in fiscal year 2021, although it has been showing some improvements lately.
AM Best has affirmed MSI’s Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating of “aa” (Superior). Concurrently, the agency has affirmed:
the FSR of A+ (Superior) and the Long-Term ICRs of “aa” (Superior) of MSI’s US operating companies, which are domiciled in New York: Mitsui Sumitomo Insurance Company of America (MSIA), Mitsui Sumitomo Insurance USA (MSU) and MSIG Specialty Insurance USA (MSIGS)
the FSR of A+ (Superior) and the Long-Term ICR of “aa” (Superior) of Aioi Nissay Dowa Insurance Company (ADI) (Japan).
the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Aioi Nissay Dowa Insurance (China) Company (ADIC).
The outlook for all of the aforementioned credit ratings is ‘Stable’. These companies are owned ultimately by MS&AD Insurance Group Holdings (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 have been extended to MSIA, MSU and MSIGS, as these companies continue to hold a strategically important role to the organisation, as US domestic insurers. The US 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’s sizeable stock investment continues to expose it to considerable equity risk although it appears to have a significant amount of available capital to absorb such risk. The rating also reflects 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 it good access to capital and debt markets.
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 the highly consolidated domestic non-life insurance segment in Japan, in terms of net premium written. The company also has a sizeable overseas insurance business that contributes approximately 30% of its consolidated net premium income, and it is looking to scale up its overseas operations to diversify its sources of profit.
The ‘Stable’ outlooks for MSI reflect AM Best’s expectation that the company will maintain its overall balance sheet assessment, supported by risk-adjusted capitalisation at the strongest level, while ongoing strategic initiatives will help maintain its strong operating performance and favourable business profile over the intermediate term.
Aioi Nissay Dowa Insurance (ADI) [Japan]
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 equity risk potentially from its stock investments, although it appears to have a significant amount of available capital to absorb such risk.
ADI’s operating performance has been strong and consistent, supported by steady premium growth and a strong underwriting performance in its domestic business with an average combined ratio of approximately 95% over the past five fiscal years (fiscal years 2016-2020). The company’s overseas business remained profitable in recent years although its size and profit contribution were relatively small.
Over the long term, AM Best expects that ADI’s consistent top-line growth 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 one of the major insurers 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 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 a major contributor of overseas business profit and a key component of ADI’s business expansion in China.
ADI China (ADIC)
ADIC’s risk-adjusted capitalisation is assessed as very strong, as measured by BCAR, supplemented by moderate underwriting leverage, conservative investment asset allocation and modest reinsurance leverage. Operating performance also has been consistently profitable, with a five-year operating ratio of 96.5% and five-year return on equity of 5.9% (2017-2021).
ADIC focuses on personal lines business in China, primarily motor insurance, which is of a high-frequency, low-severity nature. For the fiscal year ended 31 March 2021, the company reported a significant contraction in pre-tax operating income year over year, following the implementation of the comprehensive motor insurance reform in September 2020.
Over the near term, ADIC’s top-line performance may be affected by a number of challenges externally, such as the potential economic slowdown and sluggish new car sales in China. Nevertheless, in response to these challenges, the company will continue to explore more collaborative opportunities with its current and prospective business partners to restore top-line growth, while strengthening underwriting and implementing adequate control activity measures to ensure its combined ratio can revert to a level closer to its long-term average over the intermediate term.