AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a+” (Excellent) of The Toa Reinsurance Company, Limited (Toa Re) (Japan) and its subsidiaries, The Toa Reinsurance Company of America (TRA) (Wilmington, Delaware, USA) and The Toa 21st Century Reinsurance Company, Ltd. (Switzerland). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Toa Re’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.

Toa Re’s balance sheet strength assessment reflects consolidated risk-adjusted capitalisation that is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as its high quality of capital. The company’s elevated reserve position from TRA’s reserve strengthening initiative remains the major offsetting factor to Toa Re’s balance sheet strength.

Toa Re net income has turned around since fiscal-year 2022 (FY2022). The company demonstrated notable performance improvements in FY2023 by reporting a net profit of JPY 15.6 billion, supported by higher investment returns. The company’s underwriting performance also improved in FY2023 due to the positive outcome from non-life portfolio rebalancing initiatives and the absence of COVID-19-related losses, which dragged FY2022 life/health underwriting outcome. An offsetting factor is persistent reserve strengthening from TRA in response to social inflation trends in North America in recent years. While the social inflation impact may continue to put TRA’s underwriting performance under pressure, AM Best expects TRA’s mitigation plan will enhance the subsidiary’s profitability over time.

Toa Re maintains its position as the sole domestic commercial reinsurer in Japan, holding a strong market position and a consistent market share in the non-life treaty segment in the domestic market. The company upholds a diversified underwriting portfolio, both in terms of product and geography. During FY2023, the company’s overseas portfolio contributed approximately 59% of its total net premium written (NPW). In terms of product mix, its life portfolio contributed approximately 34% of its total NPW, providing premium and risk diversification that enhances the overall stability of the company’s profitability.

Negative rating actions could occur if the improvements in underwriting performance from current measures prove to be unsustainable, leading to a resurgence of a negative operating performance trend. Negative rating actions also could occur if there is material deterioration in risk-adjusted capitalisation or absolute capital size caused by severe underwriting losses or further material adverse development in reserving practice. Positive rating actions could occur if the company demonstrates a consistent and sustainable enhancement in its operating performance exceeding industry average; however, the likelihood of such actions remains limited at this time.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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