S&P Affirms 'A+' Rating on Sompo Japan Ins. Co. Asia.

Business Editors

SINGAPORE--(BUSINESS WIRE)--Standard & Poor's

Jan 10, 2003--Standard & Poor's Ratings Services today affirmed its 'A+' insurer financial strength rating on Sompo Japan Insurance Co. (Asia) Pte. Ltd. (Sompo Japan Asia).

The rating reflects Sompo

Japan Asia's strategic importance to its parent, Sompo Japan Insurance Inc. (Sompo Japan; AA-/Negative/--), as well as explicit support from Sompo Japan in the form of a net worth maintenance agreement. The company's standalone operating performance has been volatile, namely in its Offshore Insurance Fund (OIF) business. Moreover, the company's higher-than-average expense ratio, coupled with the hardening of reinsurance rates, is expected to remain a drag on underwriting results.

"Sompo Japan Asia is highly integrated with Sompo Japan, servicing local operations of parent group clients and providing underwriting control and reinsurance support to other Sompo Japan subsidiaries in South and Southeast Asia," said Nancy Koh, credit analyst at Standard & Poor's Financial Institutions ratings. "Although small in absolute terms, Sompo Japan Asia has a strong share of Japanese company business in Singapore, and displays good growth of non-Singapore business, with only little participation in poorly performing segments," she added.

The company also has a conservative investment policy, with more than four-fifths of its investments in cash and fixed deposits, and a well-structured balance sheet. Reserving is healthy and above the domestic industry average.

Nevertheless, Sompo Japan Asia's operating performance has in the past three years been on a weakening trend, with the combined ratio worsening to almost 113% in 2001. This is expected to remain challenging in the short-term because of continuing volatility in its OIF business. While the company has been able to adjust premium rates (in light of hardening reinsurance rates) for its OIF business, the effect may be muted by the expected rise in claims losses, undermined by the uncertain economic conditions in some of its overseas markets. Also, the company's ability to re-price premium rates for its Singapore Insurance Fund (SIF) business has been inhibited by keen competition from rivals. Therefore, while volume at its SIF business will remain the main driving force for growth, benefits could be partially offset by the increase in reinsurance costs.

Copyright 2003, Standard & Poor's Ratings Services