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Fitch Affirms Tokio Marine & Nichido at IFS 'A+'; Outlook Negative
April 3, 2017 / 8:15 AM / 8 months ago

Fitch Affirms Tokio Marine & Nichido at IFS 'A+'; Outlook Negative

(The following statement was released by the rating agency) TOKYO/HONG KONG, April 03 (Fitch) Fitch Ratings has affirmed Japan-based Tokio Marine & Nichido Fire Insurance Co., Ltd.'s (TMNF) Insurer Financial Strength (IFS) rating at 'A+'. The Outlook is Negative. TMNF is a core company of the consolidated Tokio Marine Holdings, Inc. (TMHD). KEY RATING DRIVERS The IFS rating reflects Fitch's expectation that TMHD will maintain its solid capitalisation and robust franchise. TMHD's financial metrics have remained strong; its consolidated statutory solvency margin ratio (SMR) has improved further to 949% by end-December 2016 from 791% at end-March 2016. TMNF's net leverage remained low at 2x, unchanged from end-March 2016. TMHD is steadily strengthening its overseas insurance underwriting operations, and its overseas insurance premiums and business unit profits will be about 35% and 28%, respectively, of TMHD's total in the financial year ending 31 March 2017 (FYE17), according to TMHD's estimate. The absolute majority of TMHD's international insurance businesses are derived from the US, including HCC Insurance Holdings, Inc. (HCC; its core insurance operating companies' IFS Ratings AA-/Negative), Philadelphia Consolidated Holding Corp. and Delphi Financial Group, Inc. TMHD estimates its insurance premiums and business unit profits from the US markets at about 62% and 82%, respectively, of TMHD's international total in FYE17. Fitch assesses TMNF's unadjusted IFS rating at 'AA-', but the adjusted IFS rating is constrained by Japan's sovereign rating. Fitch allows the company's rating to be above that of the sovereign by up to one notch, because TMHD's substantial international diversification counterbalances its large holdings of Japanese government debt (about 35% of TMHD's assets at end-September 2016). Japan's Long-Term Local-Currency Issuer Default Rating is 'A', with a Negative Outlook. TMHD's biggest weakness is its domestic equity holdings, which formed about 10% of its assets at end-September 2016. However, TMNF plans to reduce its domestic equity investments by more than JPY100bn (about 4% of the holdings) in FYE17. TMNF is likely to maintain healthy profitability in FYE17 as the company plans to hold premium rates steady. TMNF's earned incurred basis 'combined ratio' (private insurance) improved to 90% in April to December in 2016 from 94% a year earlier, partly because it continued to rather raise premium rates at its motor insurance business. Furthermore, TMHD's domestic life insurance business is expanding strongly, with the annual premium in force of the profitable third (health) sector increasing by 8% in April to December 2016, and this should help support the TMHD's credit profile. RATING SENSITIVITIES An upgrade is unlikely in the near future, given that the rating is constrained by Japan's Long-Term Local-Currency IDR of 'A'/Negative. Conversely, the ratings on the insurer are also likely to be lowered if the rating on Japan were lowered. Rating triggers for a downgrade would include a significant erosion of capitalisation caused by a major natural disaster and/or financial crisis; TMHD's consolidated SMR declining below 600%; a deterioration in TMNF's net leverage to above 4x; or an unexpected surge in the combined ratio of the TMHD's core non-life operations above 100%, over a sustained period. Contact: Primary Analyst Teruki Morinaga Director +81 3 3288 2781 Fitch Ratings 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 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. - Technical reserves: Contingency reserve and catastrophe reserve are deducted from technical reserves. Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. 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