Fitch Ratings has revised the outlook on Mitsui Sumitomo Insurance Company’s Insurer Financial Strength (IFS) Rating and Issuer Default Rating (IDR) to negative from stable.
Fitch has affirmed MSI’s IFS Rating at ‘A+’ (Strong) and its IDR at ‘A’. Fitch has also affirmed the rating on MSI’s US dollar subordinated debt at ‘A-‘.
The rating actions are based on Fitch’s current assessment of the impact of the coronavirus pandemic, including its economic impact, under a set of rating assumptions used by Fitch to develop pro forma financial metrics for MSI that Fitch compared with both rating guidelines defined in our criteria and previously established rating sensitivities for MSI.
The Negative Outlook on MSI reflects increased pressure on the insurer’s capitalisation from volatility in stock-market performance, a persistently low interest rate environment and uncertainty and increased risks to earnings in the near term as a result of the coronavirus pandemic.
The affirmation of MSI’s ratings reflects parent MS&AD Insurance Group’s (MS&AD Group) ‘Favourable’ business profile, underpinned by a leading market share in the non-life market in Japan, and a well-diversified business portfolio, in addition to its financial performance and capitalisation, which are in line with our expectations for its rating range.
MS&AD Group’s capital adequacy under the assumptions will be pressured due to its heavy exposure to strategic shareholdings and interest-rate risks stemming from its life insurance business. MSI’s pro forma score, measured by the Fitch Prism Model Score, would have declined to the ‘Adequate’ category from ‘Strong’ based on its results for the financial year ended March 2019.
This was influenced by MSI’s high exposure to equity investments, including strategic shareholdings, with domestic equities accounting for 28% of invested assets at end-2019, and shares in affiliates accounting for more than 20%, which would have been offset at the consolidated level.
The pro forma decline in the statutory solvency-margin ratio remained in line with Fitch’s previously established rating sensitivities.
The group maintained a high consolidated statutory solvency-margin ratio of 833% at end-2019. Its pro forma financial-leverage ratio under the pandemic assumptions will rise from 22% at FYE19 but will remain within Fitch’s rating sensitivity.
Fitch estimates MS&AD Group’s risky-asset ratio on a consolidated level was 82% at 1HFYE20, which is slightly higher than our financial-ratio guideline for its rating category.
Potential losses arising from claims relating to the coronavirus from MSI’s overseas subsidiary, in addition to an increase in reinsurance costs following two consecutive years of weather-related losses, will have a moderate impact on our assessment of earnings. MSI estimated the combined ratio was around 96% in FYE20.
