Best Affirms NIPPONKOA Insurance Company (Asia) Limited’s Ratings

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Hong Kong-based NIPPONKOA Insurance Company (Asia) Limited, both with stable outlooks.

The ratings reflect the company’s “excellent risk-adjusted capitalization, stable underwriting performance and the ongoing support from the parent company, NIPPONKOA Insurance Company Limited (NIPPONKOA Insurance), in the areas of business generation, operations and reinsurance,” Best explained.

“Parental support contributes essentially to NIPPONKOA Asia’s niche position as a Hong Kong-based fronting agent that captures insurance businesses from Japanese clients within selected Asian markets. Japanese-related business consistently accounted for over 90 percent of the company’s total gross premium written over the past years.”

The report added: “NIPPONKOA Asia’s strong level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, is well sustained by its consistently favorable operating performance and conservative investment portfolio. High retention of positive operating earnings had moderately strengthened the company’s capital position in 2010. Given the company’s continued low level of net premium leverage (0.22 times for 2010), A.M. Best believes the company’s prospective risk-adjusted capitalization should remain solid to support its underwriting and investment risks over the medium term.

“NIPPONKOA Asia underwrites a sound portfolio that is comprised of both direct and inward reinsurance business, as evidenced by its average loss ratio of 38.1 percent over the past five years. While the transfer of China and Philippines-related inward reinsurance business to its sister companies was completed in 2011, it is expected that the company will maintain a steady combined ratio at below 90 percent as premium volume stabilizes over the next two years.”

As partial offsetting factors Best cited “the challenge for the company to emanate quality new business in the highly competitive markets. During the first eight months in 2011, NIPPONKOA Asia registered premium growth that was primarily driven by new employees’ compensation business written in Hong Kong.”

Best also said it “believes the prevailing soft market conditions pose a challenge in maintaining revenue growth and profitability levels for this designated segment.”

Source: A.M. Best