Best Affirms ‘A’ Ratings of NIPPONKOA Insurance Company

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

“The ratings reflect Nipponkoa’s strong capitalization and strengthening of its business profile,” said Best.

The company’s capitalization “has remained at a strong level, which has supported Nipponkoa’s current ratings over the past five years. The company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, improved in fiscal year 2009, as the investment market recovered from financial crisis.

“The introduction of a new risk management scheme after the business integration with Sompo Japan Insurance Inc. (Sompo Japan) and Nipponkoa’s risk reduction plan, which includes disposal of domestic equity exposures amounting to JPY 100 billion [$1.195 billion] (market value basis) over three years, will lower the volatility in the company’s capitalization.”

Best also explained that as “a member of NKSJ Holdings, Inc., Nipponkoa is expected to enjoy larger economy of scale in terms of system investment, product distribution, overseas business expansion and so forth. Through the enhancement of economy of scale, the company will allocate surplus resources to the business areas with positive growth.

As an offsetting factor Best cited “Nipponkoa’s weak underwriting performance. Over the past five years, with the exception of fiscal year 2008, Nipponkoa’s underwriting performance, as measured by its combined ratio, has remained high.

“The decline in Nipponkoa’s top-line growth has resulted in a high expense ratio; however, the business integration with Sompo Japan will gradually improve Nipponkoa’s expense ratio. In addition, with the improvement in the company’s top-line growth, its underwriting performance also is expected to improve.

Source: A.M. Best