HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a+” of The Toa Reinsurance Company, Limited (Toa Re) (Japan) and its subsidiaries, The Toa Reinsurance Company of America (TRA) (headquartered in Morristown, NJ) and The Toa 21st Century Reinsurance Company, Ltd. (Switzerland). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Toa Re’s balance sheet strength, which AM Best categorises as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The balance sheet strength assessment reflects Toa Re’s strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The company has high financial flexibility provided by its shareholders, of which the majority are major Japanese finance institutions and leading insurers. The expected dividend for shareholders is low, compared with its peers, and this has allowed the company to accumulate capital from profit retention over the past years. Despite the negative impact from underwriting losses in prior years, which were incurred from domestic natural catastrophe events, and the continued reserve strengthening of TRA, AM Best considers the company’s risk-adjusted capitalisation to be sufficient to cushion against these increased risks. The balance sheet strength assessment also factors in Toa Re’s high quality of capital and low underwriting leverage compared with its global peers.
Toa Re reported a break-even ordinary profit in fiscal-year 2019, an improvement from the prior year’s ordinary loss of JPY 7.4 billion (USD 66.7 million). The company continued to experience growth in its premium revenue during fiscal-year 2019, with reported net premiums written increasing by 9% to JPY 270 billion. On a consolidated basis, underwriting performance improved slightly compared with the previous year, mainly as a result of lower combined ratio from Toa Re’s overseas subsidiaries. However, the company’s overall combined ratio in fiscal-year 2019 was still over 100%, mainly due to the higher frequency of natural catastrophes in Japan.
Toa Re remains the sole domestic commercial reinsurance company in Japan, with a strong local market presence and a stable share of the non-life segment. Over the years, the company has put effort into diversifying geographic and product distributions. In fiscal-year 2019, the premium contributions from Toa Re’s two major overseas subsidiaries increased by 16% and accounted for approximately a quarter of the total net premium income, while the life business helped to stabilise profits and accounted for approximately one-third of Toa Re’s overall book of business.
The stable outlooks reflect AM Best’s expectation that Toa Re’s risk-adjusted capitalisation and the absolute capital size will not deteriorate materially over the medium term.
Negative rating actions could occur if the risk-adjusted capitalisation or the company’s absolute capital size continues to decrease as a result of significant underwriting losses, further adverse development in reserves or severe deterioration in the financial market. Negative rating actions could occur if the company exhibits a continuous deteriorating trend in its operating profitability. Negative rating actions also could occur if the level of financial flexibility from shareholders’ support decrease significantly.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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