Best Affirms Fuji Fire & Marine ‘B++’ Ratings; Outlook Revised to Stable

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B++’ (Good) and the issuer credit rating (ICR) of “bbb+” of Japan’s Fuji Fire & Marine Insurance Company, Limited, and has revised its outlook on the ratings from negative to stable.

The ratings reflect the company’s “enhanced capital position and stability in underwriting performance,” Best explained. “Fuji Fire completed the private placement of new shares to Chartis Group on March 31, 2010 and became a member.

“Chartis Group now has a 55 percent ownership of Fuji Fire. As a result of this transaction, Fuji Fire’s net assets increased by approximately JPY 13.5 billion [$148 million]. In addition, as the domestic stock market recovered, the company’s net assets also increased due to valuation gains from securities. The company’s local solvency margin ratio is expected to stand above 600 percent in fiscal year 2009, which is nearly 100 percentage points higher than the previous year.”

Best also noted that even though Fuji Fire “aggressively reduced its expenses, the overall combined ratio remained at around 101 percent in fiscal year 2009 due to deterioration in the loss ratio. However, the company’s loss ratio deteriorated mainly due to the revision of the premium rates of compulsory automobile liability insurance. In fiscal year 2009, the company reduced its expenses by approximately JPY 8 billion [$88.18 million], and the expense ratio stood at around 36 percent, which is approximately two percentage points lower than the previous year.

“The loss ratio deteriorated by approximately two percentage points in fiscal year 2009. However, as Fuji Fire makes efforts to stabilize its loss ratio, such as revising its underwriting guidelines and promoting top-line growth, the loss ratio is expected to improve gradually in the midterm.’

As an offsetting factor Best cited “the company’s volatile capitalization. As the investment market recovered, Fuji Fire’s deferred tax assets declined significantly. However, the company’s capitalization still relies heavily on deferred tax assets. Since these assets are highly influenced by taxable income, which has been impacted by the financial market situation in recent years, the company’s capital base is exposed to potential volatility in the future.”

Source: A.M. Best