A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and the issuer credit rating of “a+” of Nipponkoa Insurance Company Ltd. (Nipponkoa) (Japan). The outlook for both ratings is stable.

The ratings reflect Nipponkoa’s strong risk-adjusted capitalization, improvement in underwriting results and reduction in equity holdings.

Although the company’s risk-adjusted capitalization has declined for two consecutive years (fiscal years 2007 and 2008), A.M. Best is of the opinion that it is strong enough to support the current ratings. And as Nipponkoa is taking measures to reduce its asset risks, risk-adjusted capitalization is expected to improve in fiscal year 2009. The company plans to dispose of “relationship” stock holdings amounting to JPY 20 billion (book value basis) in fiscal year 2009.

Due to lack of major natural catastrophes over the last two years and the company’s efforts to focus on underwriting, the loss ratio (on a net claims incurred/net premium earned basis and excluding compulsory automobile liability insurance and earthquake insurance) improved to 61.3% in fiscal year 2008 from 68.4% in fiscal year 2006. With the planned business integration with Sompo Japan toward the end of fiscal year 2009, A.M. Best believes that Nipponkoa will generate significant cost reductions in the medium term.

Partially offsetting these positive rating factors are the company’s weakened market competitiveness and the high expense ratio compared to its peers.
Over the past five years, Nipponkoa’s market competitiveness was challenged by a decline in market share and stagnant premium growth in the domestic non-life market. Although the company made clear that it will not chase volume in the expense of profitability, the base in which the company can generate profit has decreased. Nipponkoa’s gross premium written declined to JPY 756 billion in fiscal year 2008 from JPY 861 billion in fiscal year 2003.

While Nipponkoa has successfully reduced the absolute size of its total underwriting expense and commissions, the high expense ratio relative to its peers has been maintained. It is essential for Nipponkoa to streamline its business processes and improve operational efficiencies to stay competitive in the market.

Analyst(s)
Moungmo Lee
+852-2827-3402
moungmo.lee…

Austin Sanghoon Oh
+852-2827-3404
sang.oh@amb…

Public Relations
Jim Peavy
(908) 439-2200, ext. 5644
james.peavy…

Rachelle Morrow
(908) 439-2200, ext. 5378
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