TEXT: Fitch Revises Tokio Marine & Nichido's Outlook to Stable

(The following was released by the rating agency)

TOKYO/HONG KONG, February 06 (Fitch) Fitch Ratings has revised Tokio Marine & Nichido Fire Insurance Co., Ltd.'s (TMNF) Outlook to Stable from Negative. The agency has affirmed the company's Insurer Financial Strength(IFS) rating at 'AA-'.

Fitch notes that Tokio Marine Group, of which TMNF is a core company, has growing international insurance businesses which are globally well diversified. Tokio Marine Group is acquiring Delphi Financial Group, Inc. (DFG), of which three insurance subsidiaries are rated IFS 'A-'/Rating Watch Positive. The acquisition should further enhance the group's global diversification by increasing overseas adjusted earnings to about 46% of the group's total, compared with the current 37%. Negative impact on Tokio Marine Group in terms of capital adequacy and leverage is likely to be limited.

"Today's rating action reflects the partial uncoupling of TMNF's rating from the Japanese sovereign rating due to its increasingly diversified global business portfolio. The acquisition of DFG shows that the group is in the steady process of transformation from a leading Japanese insurance group to a major global insurance conglomerate," says Teruki Morinaga, Director in Fitch's Asia Pacific Insurance Ratings team.

Fitch acknowledges that the IFS rating of TMNF, as a core company of the group, will remain at least to some extent influenced by Japan's creditworthiness (Long-term Local Currency Issuer Default Raring: 'AA-'/Negative) for the time being. This is mainly because more than 70% of Tokio Marine Group's revenues and assets are in Japan, although those from outside Japan are steadily increasing.

However, the agency notes that the group demonstrates strong levels of capital and liquidity and a robust franchise. Despite the adverse environment including a weak domestic equity market and many natural catastrophes in 2011, TMNF's and Tokio Marine Group's overall fundamentals have continued to remain strong. Therefore, should there be a downgrade in Japan's sovereign rating, Fitch expects to maintain some flexibility as to whether TMNF's rating could potentially be higher than the sovereign. Fitch's current rating criteria permit insurers to be rated up to two notches above a local currency sovereign rating under specific circumstances (see Insurance Rating Methodology, 22 September 2011 at www.fitchratings.com).

The profitability of Tokio Marine Group's domestic non-life insurance business has reached an inflection point owing to its efforts to achieve premium hikes and Fitch expects its profitability to improve in 2012. The group's profitable domestic life insurance business is expanding strongly towards achieving major player status, and sustaining the group's credit profile. The group's diversified international insurance business is also growing steadily, although it was hit by losses from catastrophes in 2011 including the Thai floods which will cost the group about JPY100bn.

The group's biggest weakness is its domestic equity holdings which represent about 12% of the group's assets as of end-September 2011. However, TMNF is continuously reducing its exposure to domestic equities under its strengthened enterprise risk management (ERM). The group's solid capitalisation and overall robust underwriting fundamentals have supported its capital adequacy in the face of unstable financial markets along with Japan's earthquake and tsunami in March 2011 and other recent natural disasters across the world.

TMNF's rating may be downgraded if there is a material erosion of capitalisation caused by a major natural disaster and/or financial crisis and an unexpected surge in the overall combined ratio over a sustained period. Fitch currently does not expect significant deterioration in its business profile and performance given the group's prudent management, sound capitalisation and risk reduction efforts.

TMNF's rating may be upgraded should Fitch determine that Tokio Marine Group is executing further global diversification successfully and its capital adequacy is strengthened further so that it can be sufficiently shielded from any material adverse consequences related to a possible sovereign downgrade.

TMNF was established in 2004 through a merger between Tokio Marine and Nichido Fire and has been the leader in Japan's non-life insurance industry.