HONG KONG–(BUSINESS WIRE)–AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of “aa-” (Superior) of Tokio Marine Pacific Insurance Limited (TMPI) (Guam).
The ratings reflect TMPI’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also acknowledge the wide range of implicit and explicit support that TMPI receives from its parent, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF).
The revised outlooks mainly reflect the company’s various initiatives to stabilise its credit fundamentals in recent years, which include capital accumulation, a rate increase exercise for commercial accident & health (A&H) accounts, pursuit of a more diversified A&H portfolio, as well as stricter underwriting and pricing discipline in both the A&H and property & casualty segments.
TMPI has a historical track record of positive and stable operating performance, although AM Best expects its underwriting margin to remain relatively thin due to the company’s A&H focus and market competition. TMPI reported favourable performance in 2020 and the first half of 2021, mainly due to decreased medical claims frequency amid the COVID-19 pandemic. However, AM Best notes that TMPI’s bottom-line remains subject to external factors over the coming years, such as a potential medical claims rebound after the pandemic, pressured investment earnings amid a low interest rate environment and additional tax obligations.
The risk-adjusted capitalisation of TMPI is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Its absolute capital base remains larger than its domestic peers in Guam, on the back of solid growth of its capital and surplus over the past 10 years, driven by earnings retention. The balance sheet is also underpinned by its highly conservative investment strategy and low reinsurance dependency.
TMPI is a wholly owned subsidiary of TMNF and its ultimate parent, Tokio Marine Holdings, Inc., is one of Japan’s largest non-life insurance groups. The company has a strong presence in Guam’s non-life industry, mainly supported by its dominant position in the A&H segment. Despite a material drop in premium income following the non-renewal of the GovGuam account in 2020 and 2021, the company’s premium base remained supported by a large volume of business from its commercial A&H accounts and federal employee health plan, which the company has grown steadily over the past years for business diversification.
Negative rating actions could occur if TMPI’s risk-adjusted capitalisation declines significantly or if there is a material decline in the company’s A&H business volume or market share to a level that no longer supports the current business profile assessment. Negative rating actions may also arise if support from TMNF is reduced to an extent that no longer supports the current level of enhancement.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
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