Ratings On Toa Reinsurance Group#s Core Companies Affirmed At #A+#; ERM Assessment Revised Outlooks Remain Stable

Stocks and Financial Services Press Releases Thursday June 28, 2018 11:43
TOKYO--29 Jun--S&P Global Ratings

TOKYO (S&P Global Ratings) June 28, 2018--S&P Global Ratings today said it has affirmed its 'A+' financial strength and long-term issuer credit ratings on Toa Reinsurance Co. (TRJ) and Toa Reinsurance Co. of America (TRA). The outlooks are stable. We regard both companies as core operating companies of the Toa Re group.

We base today's rating actions on our upward revision of our assessment of the Toa Re group's enterprise risk management to adequate with strong risk controls. The revision reflects our view that the group has continued to improve its risk controls for catastrophe risk, which we view favorably. The group has established extensive catastrophe risk tolerances that reduce catastrophe exposures. It has also enhanced models and stress tests for the past several years after posting significant losses from Thailand's floods in 2011. We view the group's earnings volatility and loss experience as improving, which shows that the catastrophe risk controls have worked effectively. We also think that the group has strong risk controls on its major risk exposures, including investment and underwriting risks.

While the group has tightened risk controls, we view that it still faces catastrophe, life insurance, and equity market risks that could make its capital and earnings more volatile. We also believe the group would likely take on additional new risk exposures, as it continues its overseas expansion strategy. For example, it established a special purpose arrangement within Lloyd's market with Barbican Insurance Group to underwrite new business in 2018. In addition, the group plans to make its Swiss-based subsidiary, The Toa 21st Century Reinsurance Company, underwrite third-party business. We think further diversification along geographic and business lines would strengthen the group's market position, which is underpinned by strong relationships with Japanese customers. However, we view that the Toa Re group's level of diversification remains weaker than that of major global reinsurers.

The rating outlooks on the core operating companies of the Toa Re group are stable. In our view, the group will likely maintain its very strong competitive position, supported by TRJ's established position in Japan's reinsurance market and the group's diversification strategy. We also hold the view that the Toa Re group will likely maintain extremely strong capital by accumulating contingency reserves and using strong risk controls on catastrophe and market risks.

We may lower our ratings on TRJ and TRA within the next 24 months if we see the group's competitive position weaken on deteriorating operating performance and underperform our base-case assumptions consistently and materially. We may also consider a downgrade if, contrary to our expectations, the Toa Re group's prospective capital adequacy falls below the 'AA' confidence level in our risk-based capital model because of large insurance losses and the group fails to undertake capital-strengthening measures in the short term.

We believe an upgrade over the next 12 to 24 months is unlikely. In terms of business diversification and market competitiveness, the group remains weaker than overseas reinsurers rated higher than TRJ and TRA. In addition, we hold the view that our ratings on TRJ and TRA would not exceed our sovereign ratings on Japan, considering that Japanese customer bases support their business positions.


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