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
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.
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