RPT-Fitch affirms Mitsui Sumitomo Insurance at 'A+'; outlook stable

Thu Mar 20, 2014 4:13am EDT

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March 20 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Japan-based Mitsui Sumitomo Insurance Company, Limited's (MSI) Insurer Financial Strength (IFS) Rating and its Long-Term Issuer Default Rating (IDR) at 'A+'. The Outlook is Stable. Fitch has also affirmed the company's USD1.3bn 7% subordinated notes due 15 March 2072 at 'A-'.

MSI is a core company of MS&AD Insurance Group (MS&AD Group), along with Aioi Nissay Dowa Insurance Co., Ltd and Mitsui Sumitomo Aioi Life Insurance Company, Limited.

KEY RATING DRIVERS

The affirmation reflects the on-going recovery in MSI's domestic non-life business, MS&AD Group's strong business position and adequate capitalisation, and MSI's low leverage. These strengths are offset by its large investment exposure to domestic equities as well as significant catastrophe exposures, which are the source of volatility in operating performance and capital adequacy.

MSI's combined ratio (excluding compulsory auto liability insurance and residential earthquake insurance) improved in the first half of the financial year ending March 2014 (FY14) to 93.7% from 103.0% a year earlier, underpinned by premium growth in its core automobile business lines and lower catastrophe losses incurred.

Fitch expects MSI and MS&AD Group to maintain adequate capital buffers through a reduction of investment risks. The group's consolidated solvency margin ratio (SMR) was 767.1% at end-September 2013, slightly better than 738.8% at FYE13 due to an increase in unrealised gain on securities. MS&AD Group has been reducing its exposures to domestic equities on a book value basis, but equities still accounted for 21% of the group's total invested assets at end-September 2013.

RATING SENSITIVITIES

An upgrade is unlikely in the near term as MSI's ratings are at Japan's Local-Currency IDR of 'A+', which is on Negative Outlook.

Key rating triggers for a downgrade include significant deterioration in capital, specifically a decline in MS&AD Group's consolidated SMR to below 500% or in Fitch's internal capitalisation measures on a sustained basis. In addition, the ratings may come under pressure should MSI's financial leverage rise above 28% (14.2% at the end-September 2013).

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