Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and the Long-Term 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 of these ratings is stable. All of these companies are domiciled in New York, NY and are direct subsidiaries of MSIG Holdings (Americas), Inc. The aforementioned companies are owned ultimately by MS&AD Insurance Group Holdings, Inc. (MS&AD), a major insurance group based in Japan.

The ratings of MSI reflect its strong risk-adjusted capitalization, profitable underwriting results and well-established market presence in Japan’s non-life insurance market. MSI is the main operating subsidiary of MS&AD. The company is a significant contributor to the group’s revenue and earnings, and has a strategic role in the group’s overseas expansion initiatives. In fiscal year 2016, MSI’s risk-adjusted capitalization remained strong, while financial leverage also remained favorable. The company has reported profitable and improving operating performance since fiscal year 2012, mainly driven by a consistent decline in the company’s combined ratio over these years.

Offsetting rating factors are MSI’s high exposure to catastrophe risks in Japan’s domestic market and its high level of equity investments, which could bring volatility to the company’s capital and surplus. The company has been addressing these factors by gradually reducing its equity investments, enhancing its reinsurance program and geographically diversifying its risks through overseas expansion.

The ratings of ADI reflect its strong risk-adjusted capitalization, positive trend in operating results and strategic importance to its parent company, MS&AD. ADI’s risk-adjusted capitalization remained strong in fiscal year 2016. The company’s operating performance has improved since fiscal year 2013, driven by the recovery in underwriting performance. ADI is one of MS&AD’s major operating subsidiaries. The company maintains strong business relationships with the group’s major shareholders, the Toyota Motor Corporation and Nippon Life Insurance Company. Furthermore, ADI’s operations, from corporate functions to product development, increasingly are integrated into MS&AD.

Offsetting rating factors include ADI’s high level of equity investments, which could add volatility to the company’s capital and surplus levels, and business concentration in its declining domestic market, which also is highly prone to natural catastrophes.

While positive rating actions are unlikely, negative rating actions on MSI and ADI’s ratings could occur if there is material decline in risk-adjusted capitalization due to significant deterioration in operating profitability. Negative rating actions also could occur in the event of a large-scale catastrophe event that significantly impacts capitalization.

The ratings of ADIC reflect its adequate risk-adjusted capitalization and the wide range of support it receives from its parent, ADI, which is wholly owned by MS&AD. The capital and surplus more than tripled to RMB 449 million (USD 65 million) in 2016 from RMB 133 million (USD 19 million) in 2014, mainly due to a capital injection made by ADI in 2015. The capital injection was intended to support premium growth in ADIC’s core business, auto inward reinsurance business, and also to offset losses from the 2015 Tianjin explosions. The underwriting profit in 2016 contributed to the growth in capital and surplus.

ADIC reported positive results in 2016 attributed to its underwriting profit, compared with net losses over the past five years. The company increased writing its auto inward reinsurance business since 2014, which resulted in a stabilizing performance.

The strong business relationship between ADI and Toyota Motor Corporation has helped establish ADIC’s auto inward reinsurance business. ADIC has a strong partnership with its cedants (primarily Ping An Property & Casualty Insurance Company of China, Ltd., the second-largest property/casualty insurer in China), which A.M. Best expects to lock in a stable stream of income for the company in the medium to long term.

Offsetting rating factors include the company’s historical volatile results caused by large losses in its commercial lines over the past five years and the company’s relatively high expense ratio due to the commission fees of its auto inward reinsurance business.

While positive rating actions are not likely, negative rating actions could occur if there is material deterioration in the company’s risk-adjusted capitalization due to adverse underwriting performance.

The ratings of MSI have been extended to MSIA, MSU and ADIA, as these hold a strategic role within the organization as U.S. domestic insurers and receive the benefit of explicit support provided through internal reinsurance. The ratings also reflect their strong risk-adjusted capitalization and additional implicit support provided by the parent. Effective Jan. 1, 2015, MSIA, MSU and ADIA operate under a pooling agreement. This further strengthens the relationship among the U.S.-based 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 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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