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The ratings reflect NIPPONKOA Asia's favorable operating performance, strong risk-adjusted capitalization and sound liquidity. Additionally, A.M. Best acknowledges the company's profile as a subsidiary of NIPPONKOA Insurance Co., Ltd (NIPPONKOA Insurance), having parental support through its distribution network and long-term business relationships with its Japanese client base in the East Asia regions. NIPPONKOA Asia has a strong risk-adjusted capitalization supported by consistent profitability and conservative underwriting leverage. The company's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), is likely to remain solid, as a result of a high level of earnings retention and its projected premium growth over the next two years. Going forward, A.M. Best believes the company's comprehensive reinsurance program will also continue to support stable results. The company's operating performance has been favorable, with a return on equity (ROE) of 12.4% in 2007. Profits after tax were HKD 32 million (USD 4 million) for the year, mainly driven by underwriting income along with a combined ratio of 73.1% (78.6% in 2006). Nonetheless, underwriting profitability is expected to be weakened in 2008 and 2009 due to the anticipated reduction in premium volume. A.M. Best believes the company's combined ratio will remain at a manageable level of 83%-85% (84.9% as of September 2008) through the period. NIPPONKOA Asia's financial performance has been enhanced by its conservative investment strategy with excellent liquidity. Bonds, cash and short-term bank deposits represented 84% of its total assets in 2007. Additionally, the company has no exposure to the equities market. Despite the turbulence in the financial markets, the company is expected to generate stable, albeit lower investment returns in the near term. A partially offsetting rating factor is potential downward pressure on NIPPONKOA Asia's business growth. The company registered a negative growth of 25.5% in gross premiums written in 2007, which was fully reflective of a few major Japanese clients of NIPPONKOA Insurance who started issuing worldwide marine policies in Japan. Moreover, the company's China fronting business will be transferred to its start-up affiliated company in China from 2009. Prospectively, A.M. Best views that the company will be challenged in strengthening its premium volume under the current competitive market environment. For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com. SOURCE: A.M. Best Co. A.M. Best Co. Analysts Stella Ng, +852-2827-3407 stella.ng@ambest.com Terrence Wong, +852-2827-3403 terrence.wong@ambest.com or Public Relations Jim Peavy, +(1) 908-439-2200, ext. 5644 james.peavy@ambest.com Rachelle Morrow, +(1) 908-439-2200, ext. 5378 rachelle.morrow@ambest.com For full details for NPPKF click here.
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