A.M. Best Affirms Ratings of Mitsui Sumitomo Insurance Company Limited and Its U.S. Subsidiaries

The ratings reflect MSI's superior risk-adjusted capitalization, consistent underwriting performance and efficient distribution channels. The ratings also reflect the company's growing overseas and life business operations.

MSI has maintained a strong capital position over the past five years. Although the company's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), deteriorated in fiscal years 2007 and 2008, A.M. Best is of the opinion that the current capitalization is still supportive of the current rating level. The decline in capitalization was attributed mainly to the fall of the Japanese stock index, resulting in a decline in unrealized capital gains for MSI. The local solvency ratio also showed a similar declining trend from 1,142% in fiscal year 2006 to 693% as of March 31, 2009.

A.M. Best expects that MSI's risk-based capitalization gradually will improve for the next three years. As the equity risk that was creating volatility in capitalization has reduced substantially over the last two years, volatility in risk-based capitalization is expected to be low as well. Equity composition out of the invested assets dropped to 25% in fiscal year 2008, compared to 41% in fiscal year 2006. Moreover, MSI has announced that it will reduce risky assets with an improvement in risk management in fiscal year 2009.

MSI has achieved a stable underwriting performance over the past five years (with the exception of fiscal year 2004) with extraordinary natural disaster claims payments. The loss ratio (incurred/earned basis) has improved over the last two years, but the expense ratio has increased. The size of the Japanese non-life market is decreasing, and this adds pressure for the companies to maintain or improve the current expense ratio.

MSI is aggressive in expanding its overseas operations, especially in the Asian market. The company has one of the largest overseas networks among the Japanese non-life insurance companies. In fiscal year 2008, MSI's overseas net premiums written were JPY 233 billion (USD 2.4 billion). The overseas business will continue to grow in absolute volume as well as constitute a higher portion of the consolidated revenue of MSI going forward. The company aims to increase the overseas portion to around 18% by fiscal year 2010.

Partially offsetting these positive rating factors are the stagnant Japanese non-life market and the unfavorable investment market. Net premiums written of motor, fire and marine will continue to decline due to low car sales and a decrease in house construction.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

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. 
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Sanghoon Oh, +852-2827-3413 
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Moungmo Lee, +852-2827-3403 
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Rachelle Morrow, +(1) 908 439 2200, ext. 5378 
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