Reuters logo
Fitch Affirms Sompo Japan Nipponkoa at 'A'; Outlook Stable
October 27, 2017 / 6:57 AM / a month ago

Fitch Affirms Sompo Japan Nipponkoa at 'A'; Outlook Stable

(The following statement was released by the rating agency) TOKYO/HONG KONG, October 27 (Fitch) Fitch Ratings has affirmed Sompo Japan Nipponkoa Insurance Inc.'s (Sompo Japan Nipponkoa) Insurer Financial Strength (IFS) Rating at 'A' (Strong) and its Long-Term Issuer Default Rating (IDR) at 'A'. The Outlook is Stable. Fitch has simultaneously affirmed the insurer's USD1.4 billion step-up callable subordinated notes due 2073 at 'A-'. KEY RATING DRIVERS The rating action reflects Sompo Japan Nipponkoa's strong market position in the Japanese non-life insurance market and its strong capitalisation. These strengths are counterbalanced by the company's large holdings of domestic equities. Sompo Japan Nipponkoa had a 26% share of the domestic non-life insurance market by net premiums written in the financial year ended March 2017 (FYE17), and Fitch assesses its solvency as strong. The company also reported robust regulatory solvency measures. Sompo Japan Nipponkoa has maintained its healthy underwriting profitability during the recent three years, due mainly to a sustained increase in the motor insurance premium rate. Fitch expects the company to maintain its current profitability over the near future. Sompo Japan Nipponkoa's largest underwriting risk stems from its catastrophe insurance, and the company has tried to improve its risk management by using both its reinsurance programme with strongly rated reinsurers and alternative risk transfer, such as catastrophe bonds. Exposure to domestic equity holdings remains a weakness, although the company is trimming its investments in high-risk assets. The equity holdings decreased by about JPY104 billion (7% of the holdings as of end-March 2016) in FYE17 as a result of the company's continued reduction efforts, and management's goal is to continue to reduce the weight of these investments in its balance sheet. Fitch expects the international insurance businesses of Sompo Holdings, Inc. (SOMPO), Sompo Japan Nipponkoa's parent, to steadily expand, due partly to the contribution from US-based Endurance Specialty Holdings Ltd. (Endurance), currently known as Sompo International (SI), that was acquired by Sompo Japan Nipponkoa. SI will continue to help SOMPO diversify its risk profile and raise overseas earnings as a share of the Japanese group's revenue. SOMPO decided to sell its UK-based subsidiary Sompo Canopius (Canopius) in September 2017 for around JPY105 billion to consolidate its core international insurance businesses as there were overlaps between SI and Canopius' business coverage. SOMPO's consolidated solvency margin ratio declined to 749% at end-March 2017 from 851% a year earlier, partly due to its acquisition of Endurance, but we expect the ratio to improve after the sale of Canopius. SOMPO's presence in the US has increased through SI and as a result, it is likely to incur losses from a series of US hurricanes in 2017, including Hurricanes Harvey, Irma and Maria, and major earthquakes in Mexico in 2017. The company has announced an estimated loss of around JPY70 billion from these events. Fitch expects the losses to be absorbed into the group's annual earnings (adjusted consolidated profit in FYE17: JPY183 billion). Sompo Japan Nipponkoa's unconstrained IFS Rating is 'A+' but the company's final ratings are constrained by Japan's Long-Term Local-Currency IDR of 'A' with a Stable Outlook. Consequently, Fitch applies compressed notching between the IFS Rating and IDR and subordinated debt rating. RATING SENSITIVITIES The IFS Rating on Sompo Japan Nipponkoa may be upgraded if SOMPO achieves sustainable international business diversification, specifically more than 20% of net premium income is sourced from abroad. The following could lead to a downgrade of Sompo Japan Nipponkoa. -Major erosion of capitalisation at SOMPO and deterioration in its adjusted earnings -If SOMPO's consolidated group solvency margin ratio declines to below 500% for a prolonged period. -If Sompo Japan Nipponkoa's financial leverage were to rise above 28% (15% at end-March 2017), or the combined ratio worsens to above 105% (94% in FYE17) on a sustained basis. Contacts: Primary Analyst Teruki Morinaga Director +81 3 3288 2781 Fitch Ratings Japan Limited Kojimachi Crystal City East Wing 3F 4-8 Kojimachi, Chiyoda-ku Tokyo 102-0083 Secondary Analyst Akane Nishizaki Associate Director +852 2263 9942 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below