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Fitch Affirms Mitsui Sumitomo Insurance at 'A'; Outlook Negative
March 6, 2017 / 5:25 AM / 9 months ago

Fitch Affirms Mitsui Sumitomo Insurance at 'A'; Outlook Negative

(The following statement was released by the rating agency) HONG KONG, March 06 (Fitch) Fitch Ratings has affirmed Mitsui Sumitomo Insurance Company, Limited's (MSI) Insurer Financial Strength (IFS) Rating and Long-Term Issuer Default Rating (IDR) at 'A'. The Outlook is Negative. Fitch has also affirmed the company's USD1.3 billion subordinated notes due 15 March 2072 at 'A-'. KEY RATING DRIVERS MSI's IFS rating is currently capped by Japan's Long-Term Local-Currency IDR of 'A' with Negative Outlook and is one notch below its unadjusted IFS rating of 'A+'. Fitch does not allow MSI's rating to be above that of the sovereign, given its parent's, MS&AD Insurance Group (MS&AD Group), high level of government debt holdings (25% of invested assets as of end-September 2016), which is not counterbalanced by sizeable business diversification outside Japan. MSI's ratings reflect MS&AD Group's very strong business position in Japan, diversified underwriting that includes domestic life and overseas businesses, adequate capital buffer, moderate leverage and satisfactory operating performance. Fitch expects MS&AD Group to maintain adequate capital buffers partly through the faster reduction of strategic shareholdings. MS&AD Group's consolidated statutory solvency margin ratio (SMR) was 816% at end-September 2016, an improvement from 743% at end-March 2016 due to a reduction of investment and catastrophe risks. However, the group's SMR is particularly sensitive to stock-market performance due to a heavy investment in domestic equities. MS&AD Group's consolidated financial leverage is likely to remain low, despite the issuance of a total of JPY150 billion of subordinated debt in 2016 and 2017. MSI's combined ratio, excluding residential earthquake and compulsory automobile business insurance, improved to 88% at end-September 2016, from 95% at end-March 2015, driven by the completion of premium adjustments based on underwriting risks in the mainstay automobile and fire insurance business lines. MS&AD Group's overseas business portfolio was enhanced following the acquisition of Amlin plc in 2016. Fitch estimated that about 20% of premium income will be generated outside of Japan in the financial year ending March 2017 (FYE17). Fitch will monitor the sustainability of premium income and earnings contribution sourced from this business line. Based on Fitch's group rating methodology, MSI is considered a core company of MS&AD Group and is the largest operating entity within the group. RATING SENSITIVITIES Downgrade rating triggers include: - A downgrade of Japan's Long-Term Local-Currency IDR. - Significant weakening in MS&AD Group's capital, specifically a decline in the group's consolidated solvency margin ratio to below 500% for a prolonged period. - Rise in MS&AD Group's financial leverage ratio to above 28% (16% at FYE16) for a prolonged period. - Sustained deterioration in the combined ratio of MSI and Aioi Nissay Dowa Insurance Co. Ltd., another core non-life insurance subsidiary of MS&AD Group, to above 105% (both below 95% at 1HFYE17). Fitch may consider upgrading MSI's rating to above that of the sovereign by a maximum of one notch, if the following triggers are met: - sustained contribution from business outside Japan, specifically more than 20% of net premium income is sourced from abroad; coupled with - maintenance of MS&AD Group's consolidated solvency margin ratio above 700%. Contact: Primary Analyst Akane Nishizaki Associate Director +852 2263 9942 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Teruki Morinaga Director +81 3 3288 2781 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Summary of Financial Statement Adjustments - Adjusted equity: Contingency reserve, catastrophe reserve and price fluctuation reserve are regarded as core capital for Japanese insurers and treated as adjusted equity. - Non-linked technical provisions: Contingency reserve and catastrophe reserve are deducted from technical provisions. Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020074 Solicitation Status here Endorsement Policy 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 WEB SITE AT 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. 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