AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of “aa-” of Tokio Marine Pacific Insurance Limited (TMPI) (Guam). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect TMPI’s balance sheet strength, which AM Best categorises as very strong, as well as its strong 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).
TMPI’s risk-adjusted capitalisation remains at the strongest level in 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). The balance sheet strength assessment also is underpinned by the company’s high quality assets and a conservative investment strategy. Its net underwriting leverage remains relatively high; however, the group accident and health (A&H) business, which accounts for more than 90% of TMPI’s underwriting portfolio, is considered to have low potential for volatility in general.
Notwithstanding a historical track record of positive and stable operating performance supported by the limited volatility and low expense structure of the group A&H line, TMPI reported a large net loss in 2019, mainly driven by the deteriorated profitability in its key business account, the Guam government’s health plan (GovGuam). Although the GovGuam account was not renewed for the 2020/2021 term, the continued negative rating outlooks reflect persistent pressure on TMPI’s operating performance assessment, as its premium base will remain at a significantly lower level following the plan’s non-renewal, which will subject its bottom line to greater vulnerability in large claim cases. In addition, the company faces an increasing expense burden from regulatory A&H industry fee payments in 2020 and tax obligations following the expiry of its corporate tax exemption in April 2019. Various initiatives to secure underwriting stability and regain its top line are underway, such as a rate hike for commercial A&H accounts and expanding its share of non-GovGuam A&H accounts, as well as more prudent underwriting in the property/casualty segment.
Its underwriting margin turned favourable in the first half of 2020 mainly because of the exclusion of the unprofitable GovGuam plan, and reduced medical and auto claims amid the COVID-19 pandemic. Nonetheless, AM Best believes that further monitoring is necessary to ensure the sustainability of TMPI’s strong operating performance to support its current operating performance assessment. In addition, AM Best also notes the execution risk over the company’s growth plan to restore its premium base without increasing potential bottom-line volatility.
TMPI is a wholly owned subsidiary of TMNF and its ultimate parent, Tokio Marine Holdings, Inc., is one of the largest Japanese non-life insurance groups. The company has a strong presence in the non-life market in Guam, mainly supported by its dominant position in the A&H segment. Although its market share declined materially following the non-renewal of the GovGuam plan, AM Best views that its presence in its domestic market remains solid, given the large volume of business from commercial A&H accounts.
Negative rating actions could occur if TMPI’s bottom line remains thin and volatile to a level that no longer demonstrates a positive distinction from its industry peers. Negative rating actions also may arise if support from TMNF is reduced to an extent that no longer supports the current level of enhancement.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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