Ratings On Sompo Holdings# Core Subsidiaries Affirmed At #A+#; ERM Assessment Revised Upward To Outlooks Stable

Stocks and Financial Services Press Releases Thursday April 26, 2018 16:52
TOKYO--26 Apr--S&P Global Ratings

TOKYO (S&P Global Ratings) April 26, 2018--S&P Global Ratings today said it has affirmed its 'A+' financial strength and long-term issuer credit ratings on Sompo Japan Nipponkoa Insurance Inc. and Sompo Japan Nipponkoa Himawari Life Insurance Inc. We regard both Japan-based companies as core subsidiaries of Sompo Holdings Inc. We have also affirmed at 'A-' our rating on the U.S. dollar-denominated subordinated notes issued by Sompo Japan Nipponkoa Insurance. In addition, we have affirmed our ratings on two overseas operating subsidiaries of the group. The rating outlooks on the subsidiaries are stable (see list below).

Meanwhile, we revised upward our assessment of the Sompo Holdings group's enterprise risk management to strong from adequate with strong risk controls. We also revised upward our assessment of its strategic risk management to positive from neutral. We view favorably the group's continued use of return-on-risk metrics in evaluating various risk-taking initiatives, and its use of ERM analysis in making strategic decisions, such as product pricing and due diligence for mergers and acquisitions. Although the group established its current ERM framework relatively recently, we observe that it has used the framework to monitor the acceleration of its overseas growth strategy under Sompo International Holdings Ltd. In addition, we see sufficient evidence of effective strategic decision-making within its ERM framework.

We maintain the anchor and the group credit profile for the Sompo Holdings group at 'a+', reflecting our very strong assessment of its business risk profile and our strong assessment of its financial risk profile. We view that its capital adequacy will likely improve with gradual accumulation of retained earnings, although about half of its total adjusted capital will likely consist of soft capital.

The stable outlooks on the core operating subsidiaries of the Sompo Holdings group reflect our view that the group will be able to maintain its current credit profile over the next two years. We base this view on our assessment that the group has a very strong competitive position in Japan's property and casualty insurance market. We also believe it has growth potential in overseas insurance with Sompo International and in its domestic life business.

We may lower our ratings on the group's core subsidiaries if: we see persistent deterioration in the group's operating performance (measured by return on equity, return on revenue, and combined ratio) compared with its peers; the group's prospective capital adequacy deteriorates significantly below the 'A' level in our risk-based capital model; or we lower our long-term sovereign rating on Japan (A+/Positive/A-1).

We would only consider upgrading the core subsidiaries of the Sompo Holdings group if we raise the sovereign rating on Japan. This is because the group has a large business base in Japan and a significant volume of domestic investment assets. We may consider revising the outlook up to positive from stable if the group's business becomes more diversified and its prospective capital adequacy improves to a level close to the 'AA' level in our risk-based capital model.

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