August 25, 2014 / 7:02 AM / in 3 years

Fitch Affirms Mitsui Sumitomo Insurance at 'A+'; Outlook Negative

(The following statement was released by the rating agency) HONG KONG/TOKYO, August 25 (Fitch) Fitch Ratings has affirmed 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 Negative. Fitch has also affirmed the company's USD1.3bn 7% subordinated notes due 15 March 2072 at 'A-'. Based on Fitch's group rating methodology, MSI is considered 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 company's ratings reflect on-going improvement in MSI's non-life insurance underwriting, which benefitted from an upward adjustment in the premiums for its mainstay automobile business lines. MS&AD Group's strong business position, diversified underwriting including domestic life business and overseas business, and adequate capitalisation also underpin MSI's ratings. MSI's loss ratio (earned to incurred basis, excluding compulsory automobile liability insurance and residential earthquake insurance) improved to 65.3% at the end of the financial year to March 2014 (FYE14) from 67.8% from a year earlier despite heavy snowfall in February 2014. The ratings also take into account volatility in MSI and MS&AD Group's capital adequacy and operating results due to a large proportion of investments in domestic equities and significant catastrophe exposures. Domestic equities accounted for 20.0% of MS&AD Group's and 32.3% of MSI's invested assets as of FYE14, despite on-going reduction. The Negative Outlook implies MSI's ratings are capped by Japan's Long-Term Local-Currency IDR, which is 'A+' with Negative Outlook, given the insurer's high level of government debt holdings (more than 20% of invested assets at 31 March 2014) and relatively small earnings contribution from overseas (less than 20% in terms of net premiums). RATING SENSITIVITIES With MSI currently rated at the same level as Japan's Long-Term Local-Currency IDR, an upgrade is unlikely in the near future. Conversely, if the rating on Japan were lowered, the ratings on the insurer are also likely to be lowered. Key rating triggers for a downgrade include significant deterioration in capital, specifically a decline in MS&AD Group's consolidated SMR to below 500% (772.5% at end March 2014) 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% (14.8% at FYE14). Contact: Primary Analyst Akane Nishizaki Associate Director +852 2263 9942 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Teruki Morinaga Director +81 3 3288 2781 Committee Chairperson Chris Waterman Managing Director + 44 20 3530 1168 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable criteria, 'Insurance Rating Methodology'', dated 13 November 2013, are available at Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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