Best Affirms Aioi Nissay Dowa ‘A’ Ratings; Outlook Stable

A.M. Best Co. has affirmed the financial strength rating of ‘A ‘(Excellent) and issuer credit rating of “a+” of Japan’s Aioi Nissay Dowa Insurance Company Limited, both with stable outlooks.

The ratings reflect Aioi Nissay Dowa’s strong risk-adjusted capital position and its improved business profile.

Best noted that Aioi Insurance Co., Ltd. merged with Nissay Dowa General Insurance Company Ltd. on October 1, 2010, and subsequently, changed its name to Aioi Nissay Dowa Insurance Company Limited. “The stronger risk-adjusted capitalization of Nissay Dowa had a positive impact on the new company’s risk-adjusted capitalization.

“In terms of local solvency margin ratio, Aioi Nissay Dowa is expected to improve around 50 percentage points compared to Aioi in fiscal-year 2009. In addition, Aioi Nissay Dowa adopted a new risk management model, which provides more conservative and sophisticated risk measurements based on the concepts of Solvency II and International Financial Reporting Standards. This will help Aioi Nissay Dowa to maintain its strong risk-adjusted capitalization.”

Best added that due to Aioi’s merger with Nissay Dowa, which was a non-life insurance subsidiary of Nippon Life Insurance Company, “Aioi Nissay Dowa expects top-line growth through further cultivation of its whole sale market in Japan by leveraging Nippon Life’s sales channels.

“This initiative will improve Aioi Nissay Dowa’s business profile as well. In addition, as a major subsidiary of MS&AD Insurance Group Holdings, Inc., which is the largest non-life insurance holding company in terms of premium income in Japan, Aioi Nissay Dowa will enjoy a better business profile in terms of brand name, product development, etc.”

As offsetting factors Best cited the “pressure on Aioi Nissay Dowa’s underwriting profitability and the slowing down of risk reduction. Aioi Nissay Dowa’s loss ratio, especially in the motor business, which comprises the largest shares in the company’s business portfolio, is expected to experience deterioration in the coming year, due to Nissay Dowa’s higher loss ratio of motor business.

“The adverse impact will be diluted gradually, as the two companies, Aioi and Nissay Dowa unified the products and the loss adjustment functions prior to the merger. The increased cost burden due to the merger as well as the business integration is another factor, which will deteriorate Aioi Nissay Dowa’s underwriting profit in the short term.”

In addition Best pointed out that Aioi Nissay Dowa “maintains a low level of domestic stock exposure compared to its peers; however, the recent volatility in the Japanese stock market may cause short-term fluctuation in the company’s capitalization. Although Aioi Nissay Dowa is aware of the importance and necessity of risk reduction, its top priority in the short term is to settle down the merger and business integration.”

Source: A.M. Best