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Fitch Affirms Sompo Japan Nipponkoa's IFS Rating at 'A+'/Negative
September 1, 2014 / 9:57 AM / 3 years ago

Fitch Affirms Sompo Japan Nipponkoa's IFS Rating at 'A+'/Negative

(The following statement was released by the rating agency) TOKYO/HONG KONG, September 01 (Fitch) Fitch Ratings has today affirmed Sompo Japan Nipponkoa Insurance Inc.'s (Sompo Japan Nipponkoa) Insurer Financial Strength (IFS) and Long-Term Issuer Default Rating (IDR) at 'A+'. The Outlook remains Negative. Fitch has simultaneously affirmed the insurer's USD1.4bn 60-year step-up callable subordinated notes at 'A-'. The rating actions follow Sompo Japan Insurance, Inc.'s (Sompo Japan; IFS: A+/Negative) acquisition of Nipponkoa Insurance Co., Ltd. (Nipponkoa), and the subsequent re-branding of Sompo Japan as Sompo Japan Nipponkoa on 1 September 2014. Sompo Japan's parent NKSJ Holdings, Inc. (NKSJ), Sompo Japan and Nipponkoa planned for the integration process after they announced the merger on 23 March 2012. NKSJ was renamed as Sompo Japan Nipponkoa Holdings Inc. on 1 September 2014. Sompo Japan was a core company of NKSJ Group, along with Nipponkoa and NKSJ Himawari Life Insurance, Inc. (NKSJ Himawari Life). NKSJ Himawari Life was renamed as Sompo Japan Nipponkoa Himawari Life Insurance, Inc. (Himawari Life) on 1 September 2014. KEY RATING DRIVERS The affirmation reflects Sompo Japan Nipponkoa's strong capitalisation and the sound credit fundamentals of Sompo Japan Nipponkoa Group (renamed from NKSJ Group on 1 September 2014). This is supported by various initiatives aimed at trimming costs and achieving economies of scale through this merged entity over the medium term. Sompo Japan Nipponkoa is now the largest core operating company in the Sompo Japan Nipponkoa Group, and it is also the largest single non-life insurer in Japan with net premiums written of JPY2,082bn in the financial year ended March 2014 (FYE14). Through the consolidation, Sompo Japan Nipponkoa expects to have significant cost savings of JPY56bn by FYE2016. Sompo Japan Nipponkoa expects to have savings on personnel costs of JPY28bn within the next few years by cutting 4,700 employees in FYE13-15. Savings on other administrative costs will reach JPY28bn within the next few years through more efficient IT investment and lower office rent. Sompo Japan Nipponkoa Group's overall credit fundamentals remain solid with its improving profitability in domestic non-life business. Its combined ratio (excluding no-loss no-profit businesses) improved to 97% in FYE14 compared with 104% a year earlier due to a continued increase in premiums at its motor insurance business. The group's growth in its profitable domestic life insurance business (value of policies in force grew by 5.6% in FYE14) and meaningful international expansion through the acquisition of UK-based insurance group Canopius also demonstrate positive developments in its credit profile. The group's no-loss, no-profit businesses refer to the compulsory auto liability insurance and household earthquake insurance products that it offers as an agent of the government. RATING SENSITIVITIES An upgrade is unlikely in the near future, given that Japan's Long-Term Local Currency Issuer Default Rating is 'A+' with a Negative Outlook. Conversely, if the rating on Japan were lowered, the ratings on the insurer are also likely to be lowered. Downgrade triggers include material erosion of capitalisation at Sompo Japan Nipponkoa Group, significant deterioration in the group's earnings, or a sharp increase in group's financial leverage. In particular, the rating may come under pressure if the group solvency margin ratio (SMR) consistently falls below 500% (783.1% at end-March 2014); Sompo Japan Nipponkoa's combined ratio worsens above 105% coupled with sharp deterioration in Himawari Life's performance over a sustained period, or Sompo Japan Nipponkoa Group's financial leverage rises above 28% (13% at end-March 2014). Contacts: Primary Analyst Teruki Morinaga Director +81 3 3288 2781 Fitch Rating Japan Limited Kojimachi Crystal City East Wing 3F 4-8 Kojimachi, Chiyoda-ku Tokyo 102-0083 Secondary Analyst Akane Nishizaki Associate Director +852 2263 9942 Committee Chairperson Jeffery Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013, are available on www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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