AM Best has upheld the Financial Strength Rating (FSR) at A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) at aa- (Superior) for Sompo Japan Insurance and its affiliated companies. The ratings also maintain a stable outlook.
Simultaneously, AM Best has reconfirmed the Long-Term ICR at "a-" (Excellent) for Sompo International and affirmed the Long-Term Issue Credit Rating (Long-Term IR) at "a-" (Excellent) for $335 million 7% senior unsecured notes due by 2034 (guaranteed by SIH). The outlooks for these ratings remain stable.
Despite recent scandals involving Bigmotor, the disgraced used car dealer, the ratings for Sompo Japan underscore its robust balance sheet strength which was evaluated as strongest by AM Best. Its strong operational performance, favourable business profile, and effective enterprise risk management (ERM) were also cited by the credit agency.
The firm’s balance sheet strength assessment underscores the company’s highest level of risk-adjusted capitalization, gauged by Best’s Capital Adequacy Ratio (BCAR). The financial leverage of the company remains cautious, with adjusted debt leverage ratios below 25%. However, this is relatively high compared to its domestic non-life peers in Japan.
Sompo Japan has consistently demonstrated a strong operating performance, supported primarily by its sustained growth in premium income and a five-year average return-on-equity ratio of 7.3% (fiscal year 2018 – 2022) on a consolidated basis, as calculated by AM Best. Despite a rise in the firm’s combined ratio for its domestic business in fiscal year 2022 primarily due to natural catastrophe events, AM Best anticipates a positive impact on the prospective underwriting performance of domestic business through various underwriting initiatives. These include shortening policy duration and implementing rate increases in its fire line.
The group’s international line, managed by Sompo International, has displayed strong momentum in both net premiums written (NPW) and adjusted profit in fiscal year 2022. This growth is attributed to positive premium trends and robust investment income. AM Best expects the overseas business to continue supporting the firm’s consolidated results in the upcoming years, driven by the improved rate environment in overseas markets and the strong US dollar against the Japanese Yen, expected to persist in the medium term.
The company maintains a leading market position, capturing approximately a one-quarter share of Japan’s highly consolidated non-life insurance segment, in terms of NPW. Additionally, the company boasts a burgeoning portfolio of overseas insurance business, accounting for 38% of its NPW and 74% of its adjusted profits in fiscal year 2022.
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