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A.M. Best Asia-Pacific Limited has assigned a financial strength rating of A (Excellent) and an issuer credit rating of “a” to AIU Insurance Company, Ltd. (AIU) (Japan). The outlook assigned to both ratings is stable.
The ratings reflect the support AIU receives from its parent company, AIG Japan Holdings, ultimately owned by American International Group, Inc. (AIG) (New York), its distinctive presence in the Japanese market as a significant provider of accident and health insurance (A&H) and the expected improvement in its profitability.
AIU obtained its insurance license October 26, 2012. The company starts business on April 1, 2013, as a result of transferring the Japan branch business of AIU Insurance Company (New York, NY) to AIU on that date. Currently, AIU is a wholly owned subsidiary of AIG Japan Holdings.
AIU is a core subsidiary of AIG’s Japan P&C group, due to its material contribution to the group in terms of net premium income and its structure and strategic approach, which is in line with the AIG Japan P&C organization. AIU has a long standing presence in the Japanese market by providing A&H personal lines and commercial products that are expected to continue to report robust growth going forward, owing to the rising demand of the aging population. AIU’s underwriting results are expected to improve in the mid term, driven by its efforts to better control its loss ratio, reduce its expense ratio and restructure its reinsurance arrangement.
Offsetting rating factors include AIU’s historically weak profitability, high volatility in its operating ratio and deterioration in its risk-adjusted capitalization in the past two years. In the past five years, partly due to the small base of net premium income, AIU has reported a high expense ratio level. Although the company continues cost-saving activities in its overall functions, A.M. Best expects it will take some time to see improvement in AIU’s expense ratio due to the large amount of its investment in group-based initiatives including its operating system in the mid term. AIU’s risk-adjusted capitalization has deteriorated in the past two years as a result of deterioration in its profitability, which was caused by large claims from the natural disasters of the Japan earthquake in March 2011. The company plans to increase its premium retention in order to improve underwriting results. Capitalization is expected to further decline in fiscal year 2013 before it starts to improve its profitability.
Factors that may lead to negative rating actions include a material decline in AIU’s risk-adjusted capital. Additionally, factors affecting other subsidiaries within the wider AIG group could place upward or downward pressure on the ratings of AIU.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding Universal BCAR”; “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies”; “Evaluating Country Risk”; and “Catastrophe Analysis in A.M. Best Ratings.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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