Ratings agency A.M. Best has maintained its positive ratings for Tokyo-based insurance giant Sompo Japan Nipponkoa quoting its balance sheet strength, which the agency categorizes as strongest, as well as the firm’s “strong” operating performance.
Sompo Japan saw its financial strength rating affirmed at ‘A+’ or ‘superior’, and its long-term issuer credit rating (ICR) at ‘aa-’. AM Best said the outlook for these ratings is stable. The ratings agency also assigned a long-term ICR of “a” to Sompo International Holdings, a newly formed intermediate holding company.
“[Sompo Japan] continues to maintain a strong competitive position, demonstrating stable business trends as a leading non-life insurer in Japan. In addition, the company has a growing book of overseas insurance business, which now accounts for more than 25% of its premium revenue,” A.M. Best said. However, it also warned the insurer’s execution of its global merger & acquisition (M&A) strategy is a “major risk factor” in its business profile assessment.
In addition, the ratings firm also saw the insurer’s operating performance deteriorate in the fiscal year ending March 31, driven by a number of one-off factors, including natural catastrophes. However, A.M. Best expects that the firm’s underwriting and operating performance will revert back to a strong level.
Looking ahead, A.M. Best said downgrades can occur if there is material deterioration in the insurer’s risk-adjusted capitalization due to a significant decline in operating performance.
“Potential large-scale catastrophe events or a failure to execute its M&A strategy also could cause downward ratings pressure if SJNK’s [Sompo Japan’s] financial condition is adversely affected,” it said.
