Tokyo headquartered Mitsui Sumitomo Insurance (MSI), one of Japan's largest P&C insurance companies, enjoyed a market share by net premiums written of just under 1.4 times that of average-sized P&C insurers in Japan, based on nonconsolidated results for the fiscal year ended 31 March 2018 (FY2017), notes Moody's Investors Service.
In a 4 December update on its credit analysis of MSI, Moody's says that the company's strong market share is supported by its traditional sales agent distribution channels, which remain popular with Japanese customers. However, distribution through sales agents involves high costs. As a result, the expense ratio was higher, at 30.7%, in the first half of FY2018 than that of its global peers.
Moody's says that MSI's insurance financial strength rating (IFSR) of A1 reflects its very strong brand.
The company's capital adequacy, as measured by gross underwriting leverage, is also very strong. Its economic solvency ratio, at the MS&AD Insurance Group Holdings (MS&AD) level, remained high at 212% as of the end of September 2018, unchanged from three months earlier, despite large domestic wind and flood catastrophe losses.
MSI's exposure to domestic stocks compared with shareholders' equity, which Moody's regards as high-risk assets, remains high, even though it continues to sell them in the public market.
Furthermore, the company has considerable exposure to domestic gross natural catastrophe risk, although this factor is mitigated by the reinsurance arrangements it has in place. In addition, as MSI has expanded its business abroad, its overseas natural catastrophe risks have also increased.
Moody's cites MSI's credit strengths as:
- Very strong market position and brand as the third largest insurer in terms of net premiums in the Japanese property and casualty (P&C) market;
- Very strong capital adequacy, both at MSI and MS&AD;
- Low product risk with mainly short-tail lines of business.
However, MSI faces the following credit challenges:
- Large exposure to high-risk assets, mainly domestic equities;
- Significant exposure to gross natural catastrophe risk, although this factor is mitigated by reinsurance arrangements in place.
Moody's says that the rating outlook is stable, reflecting its view that MSI will maintain its very strong domestic market position and brand, and very strong capital adequacy over the next 12-18 months. Moody's also does not expect any further significant deterioration in the company's asset quality or accumulation of natural catastrophe exposures.