HONG KONG, May 30 (Bernama-BUSINESS WIRE) -- A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa” of Mitsui Sumitomo Insurance Company, Limited (MSI) and Aioi Nissay Dowa Insurance Company Limited (ADI) (both domiciled in Japan). A.M. Best also has affirmed the FSR of A- (Excellent) and the ICR of “a-” of ADI’s subsidiary, Aioi Nissay Dowa Insurance (China) Company Limited (ADIC) (China). The outlook for each rating is stable.

Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and the ICRs of “aa” of Mitsui Sumitomo Insurance Company of America (MSIA), Mitsui Sumitomo Insurance USA Inc. (MSU) and Aioi Nissay Dowa Insurance Company of America (ADIA). The outlook for each of these ratings is stable. All of these companies are domiciled in New York, NY and are direct subsidiaries of MSIG Holdings, Inc. The aforementioned companies are ultimately owned by MS&AD Insurance Group Holdings, Inc. (MS&AD), one of the major insurance group companies based in Japan.

The ratings of MSI and ADI reflect their strong risk-adjusted capitalization, improving trend in underwriting results and well-established market presence.

As the main operating subsidiaries of MS&AD, MSI and ADI provide material contribution in terms of revenue and earnings. MSI plays a key role in the group’s non-life insurance business through offering comprehensive insurance coverage and leading expansion efforts, including mergers and acquisitions in overseas markets. ADI benefits from its access to a unique client base through its strong business relationships with Toyota Motor Corporation (Toyota) and Nippon Life Insurance Company (Nissay), both major shareholders of MS&AD. MSI and ADI are strategically important to MS&AD’s re-organization and contribute to the group’s financial soundness while synergy is expected from the gradual centralization of business functions.

MSI’s risk-adjusted capitalization continued to support the company’s rating level despite the impact of the sizeable goodwill from the acquisition of Amlin AG, which was partly mitigated by the issuance of subordinated debt. MSI’s financial leverage remains within A.M. Best’s guidelines to support the current ratings. ADI’s risk-adjusted capitalization improved over the past year primarily due to strong growth in adjusted capital and surplus when compared with the increase in underwriting risks. Both companies also reported improved operating performance due to more favorable underwriting results, specifically in the voluntary auto business, which accounts for more than half of total premium.

Offsetting rating factors include MSI and ADI’s relatively high level of equity investments to capital, which may lead to potential volatility in their capitalization due to market fluctuations. Moreover, MSI and ADI have high exposure to catastrophe risks, including earthquake and windstorms, mainly originating from their Japan domestic business.

Downward rating pressure on MSI and ADI’s ratings could result from a material decline in risk-adjusted capitalization due to significant deterioration in underwriting profitability or investment performance. Potential large-scale catastrophe events could also put downward pressure on the ratings if capital levels are significantly affected.

The ratings of ADIC reflect its adequate risk-adjusted capitalization primarily driven by prudent capital management. Also, A.M. Best acknowledges the implicit and explicit support that ADIC receives from its parent company, ADI. ADIC receives a wide range of support from its parent to grow business in China. In particular, the strong relationship between ADI and Toyota contributed to the establishment of an auto reinsurance business in ADIC.

ADIC’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remains adequate to support the current ratings mainly due to the substantial increase in capital. ADI twice injected capital into ADIC in 2015 to support the rapid growth of premium income and the sizeable losses caused by the Tianjin Port explosions in August 2015.

Partially offsetting factors for ADIC are the volatility in its operating performance over the past five years and the concentration in product mix and distribution. Although the larger premiums from personal auto lines reinsurance help lower the expense ratio and generate more stable underwriting results, the high reliance on this line of business could make the company vulnerable to the intensifying competition in China’s auto insurance market going forward.
While positive rating actions for ADIC are not likely in the near term, negative rating actions could occur if there is material deterioration in the company’s risk-adjusted capitalization due to a faster-than-forecast premium growth or an adverse deviation from the forecast underwriting performance.

The ratings of MSIA, MSU and ADIA reflect their strong risk-adjusted capitalization, strategic roles and importance as U.S. domestic insurers within MS&AD, the benefit of the explicit support provided by internal reinsurance through MSI and implied operational support from MS&AD. Effective Jan. 1, 2015, the three U.S. companies began operating under a pooling agreement. Most insureds of the U.S.-based subsidiaries are MS&AD clients that have operations in the United States. These factors further strengthen the relationship among these entities, and vertically through the organization.

Given the extent of implied and explicit support embedded in these ratings, any upward or downward movement on the ratings of MSI and ADI would likely influence the ratings of MSIA, MSU and ADIA. Any material changes to the financial condition of MS&AD or its commitment in the United States also could cause these ratings to move. In addition, if MSIA, MSU and ADIA’s capitalization or operating performance falls markedly short of A.M. Best’s expectations, negative rating actions could ensue.

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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