Toa Re maintains rating from AM Best amid improved net income

AM Best has affirmed the financial strength rating of A (Excellent) and the Long-term issuer credit rating of “a+” (Excellent) for The Toa Reinsurance Company, Limited (Toa Re) in Japan.

The credit rating also extends to its subsidiaries, The Toa Reinsurance Company of America (TRA) based in Wilmington, Delaware, and The Toa 21st Century Reinsurance Company, Ltd. in Switzerland. The outlook for these ratings is stable.

AM Best’s assessment of Toa Re’s balance sheet strength is based on its consolidated risk-adjusted capitalization, which is at the strongest level. However, the balance sheet strength is moderated by the elevated reserve position stemming from TRA’s reserve strengthening initiative.

Toa Re’s net income has improved since fiscal year 2022. In fiscal year 2023, the company reported a net profit of JPY 15.6 billion, driven by higher investment returns. The company’s underwriting performance also showed improvement in 2023, attributed to positive outcomes from non-life portfolio rebalancing initiatives and the absence of COVID-19-related losses that impacted life and health underwriting results in 2022.

However, ongoing reserve strengthening at TRA, in response to social inflation trends in North America, remains a challenge. AM Best expects that TRA’s mitigation efforts will gradually enhance its profitability.

According to AM Best, Toa Re holds a unique position as the only domestic commercial reinsurer in Japan, maintaining a strong presence in the non-life treaty segment of the domestic market. The company’s underwriting portfolio is diversified by both product and geography.

In fiscal year 2023, the overseas portfolio accounted for approximately 59% of Toa Re’s total net premium written (NPW), while the life insurance portfolio contributed about 34% of total NPW, providing diversification that supports the stability of the company’s profitability.

AM Best indicated that negative rating actions could occur if improvements in underwriting performance are not sustained, leading to a return of negative operating performance trends.

Additionally, a material deterioration in risk-adjusted capitalization or absolute capital size, due to severe underwriting losses or further adverse reserve developments, could also lead to negative rating actions. Conversely, positive rating actions could be considered if the company demonstrates consistent and sustainable operating performance that exceeds industry averages, although such actions are considered unlikely at this time.

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