S&P Global Ratings has lowered from ‘A+’ to ‘A’, its financial strength and long-term issuer credit ratings on Toa Reinsurance Co. and its two oversea subsidiaries, US-based Toa Reinsurance Co. of America and Switzerland-based Toa 21st Century Reinsurance Co. Ltd. The outlooks on the ratings remain stable.
S&P said that the downgrades reflect the firms view that the Toa Reinsurance group’s operating performance has been deteriorating because of large insurance claims related to global natural disasters and COVID-19, and is unlikely to recover quickly.
The ratings firm highlighted how the groups combined ratio has exceeded 100% for four consecutive years. In addition to this, the group also reported an about ¥5 billion net loss in fiscal 2022’s first half (Sept. 30, 2022), which S&P noted was worse than expected.
Additionally, S&P noted that how the group has moved to mitigate damage to its finances. Fan example of this is how it has reduced and been more selective about underwritings in certain areas, increased pricing, improved underwriting conditions, and cut costs.
However, S&P added that financial results show these measures have not been completely successful, and a record of a sustainable recovery is still lacking.
S&P said: “We expect the group to maintain high capital adequacy commensurate with ‘AAA’. Its capital base deteriorated as a result of a net loss and a reduction in catastrophe reserves, which we see as having equity content. However, we forecast that the group will continue to maintain its capital at the ‘AAA’ confidence level in our capital model.”
Furthermore, given the firms numerical targets for capital levels in its midterm strategic plan, S&P noted it believes that the firm will take “necessary measures” to maintain ‘AAA’ capitalization.
Meanwhile, S&P said that its Stable outlooks on the Toa Reinsurance group’s core operating companies reflect their view that the group will likely maintain its business base in domestic and oversea markets, and its high level of capital.
S&P concluded by stating that it would consider downgrading the ratings on the three entities in the next two years if the group’s capital level deteriorates further because of worsening operating performance or financial markets and if the group does not act immediately to improve its capital level.
However, S&P also added that it would consider upgrading the ratings if in the next two years they came to believe that the group’s competitive position has strengthened.
