Mitsui Sumitomo Insurance (MSI) and its parent MS&AD Insurance Group Holdings (MS&AD Group) are expected to maintain strong non-life underwriting results, which will be supported by improvement in pricing and reduction in pandemic-related losses in 2022, assuming losses from natural disasters remain at the historical average, says Fitch Ratings.
MSI’s subsidiary, MS Amlin, suffered from pandemic-related losses through business interruption policies in the financial year ended 31 March 2021 (FYE21) and incurred losses from natural catastrophes, including a hurricane in the US and floods in Europe in FYE22, but Fitch believes the impact on MSI and MS&AD Group would be manageable.
MSI’s combined ratio, excluding compulsory auto liability insurance and residential earthquake insurance, on an earned-to-incurred basis of 95% at FYE21 was similar to the 96% at FYE20.
MS&AD Group’s financial-leverage ratio decreased to 20% by FYE21, from 23% at FYE20. The fixed-charge coverage ratio improved and is likely to remain in line with Fitch’s financial ratio guidelines, supported by strong operating performance.
Fitch has affirmed MSI’s Insurer Financial Strength (IFS) Rating at ‘A+’ (Strong) and Long-Term Issuer Default Rating (IDR) at ‘A’. The outlook is ‘Stable’.
The affirmation of MSI’s ratings reflects MS&AD Group’s ‘Favourable’ company profile, supported by its leadership of Japan’s non-life insurance market, and a well-diversified business portfolio. It also reflects the group’s financial performance and capitalization, which are in line with our expectations for its rating range.
Fitch ranks MS&AD Group’s company profile as ‘Favourable’ as a result of a ‘Favourable’ business profile and ‘Moderate/Favourable’ corporate governance profile, compared with that of all other Japan-based non-life insurance companies.
MS&AD Group has the largest market share in Japan’s non-life insurance industry, with 33% of net premiums written in FYE21, supported by its leading business franchise.
Fitch expects MSI and MS&AD Group to maintain strong capital buffers. However, the group’s capital adequacy is sensitive to stock market performance due to high exposure to domestic equities, which made up 12% of MS&AD Group’s total assets in FYE21.
The group’s economic value-based capital adequacy is also affected by interest rate risks from its domestic life business. MS&AD Group’s economic solvency ratio improved to 254% by end-December 2021, from 235% at end-March 2021, due partly to favorable market conditions. The consolidated solvency-margin ratio of 914% at end-December 2021 was similar to the 916% at end-March 2021. MSI’s capitalization, measured by the Fitch Prism Model score, was ‘Strong’ at end-March 2021.