HONG KONG, Sept 3 – 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. (TRE) (Switzerland). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Toa Re’s balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Toa Re’s strongest balance sheet strength is underpinned by risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), attributed to conservative risk management in its underwriting and investment strategies. Despite an active natural catastrophe year in 2018, Toa Re’s capitalization and catastrophe reserves positions were not impacted materially by these events, due to its conservative catastrophe risk management and prudent reinsurance strategy. In addition, AM Best believes the company benefits from the financial flexibility of being owned by large financial institutions and primary insurers in Japan.
The company reported an ordinary loss of JPY 7.4 billion (USD 66.7 million) in fiscal year 2018, a decline from the prior year’s ordinary profit of JPY 9.9 billion (USD 93.2 million). The performance deterioration was due to a combination of multiple natural catastrophe losses in Japan and TRA’s one-off reserve strengthening exercise in 2018. AM Best expects the company’s performance to return to a profitable level in the absence of major catastrophe losses exceeding its budget.
The company has tightened controls on its catastrophe risk exposure and diversified its underwriting risks by expanding into the life and health reinsurance segments and in overseas markets. Approximately one-fifth of its business, in terms of net premium written, is generated by overseas subsidiaries. The activation of TRE in 2018 as Toa Re’s major European underwriting platform allowed Toa Re to further expand its footprint in European markets. Offsetting rating factors in its business profile include weak growth in Japan’s insurance market and abundant capacity in the global reinsurance market, which could potentially pressure the company’s growth and profitability.
Negative rating actions could occur if there is a substantial decline in risk-adjusted capitalization resulting from significant underwriting losses or adverse movements in the financial markets, or if the company exhibits a continuous deteriorating trend in its operating profitability.
