S&P Global Ratings has announced that it has revised to negative from stable, its outlook on the financial strength rating and long-term issuer credit rating of Toa Reinsurance Co.
The ratings agency also said that it took the same outlook actions on two overseas subsidiaries – US-based Toa Reinsurance Co. of America and Switzerland-based Toa 21st Century Reinsurance Co. Ltd.
S&P also affirmed its ‘A +’ financial strength and long-term issuer credit ratings on the companies.
S&P noted that they revised down the outlooks to reflect their expectation that the ongoing deteriorating performance of the Toa Reinsurance Group will likely continue, mostly driven by Toa Reinsurance Group’s combined ratio exceeding 100% for four consecutive years.
However, S&P added that this was driven by several different factors, such as the natural catastrophes in Japan & overseas, as well large losses in Japan from events other than natural catastrophes, COVID-19 impacting the life reinsurance business, and additional reserving at the US-based non-life reinsurance business because of social inflation.
S&P Global Ratings said: “The group has taken measures to mitigate pressure from the above factors. For example, it has reduced and been more selective about underwritings in certain areas, improved underwriting conditions, and cut costs. However, financial results show these measures have not been a complete success.”
Furthermore, the ratings agency added that it expects the group high capital adequacy will remain a strength, despite the continued decline in performance.
“Our base-case scenario assumes that the group’s capital remains strong and that the group will continue to secure levels of capital at the ‘AAA’ category level over the next one to two years.
“Furthermore, given the group’s numerical targets for capital levels in its medium-term strategic plan, we believe the group will act to maintain ‘AAA’ capitalization even if risks emerge. Therefore, we forecast our assessment of the group’s capital adequacy as excellent will remain unchanged.”
In addition, the negative outlooks on Toa Reinsurance Group’s core operating companies reflect S&P’s view that the groups continued deterioration in performance could lead to them to revise down its assessment of its competitive position.
S&P stated that if it believes that the group’s operating performance is unlikely to improve, then it would consider revising down the group’s competitive positions. They also noted that they would consider downgrades if, contrary to its expectations, the group’s capital adequacy based on S&P’s capital model declines.
Lastly, the ratings agency said that it would consider revising up to stable its outlooks on the three companies if, within the next two years the group’s turnaround efforts pay off, which would be seen in factors such as a combined ratio that is below 100%, and likely looks to remain there.
