3 September 2018Analysis

AM Best assigns rating to Swiss reinsurance captive

Ratings agency AM Best has assigned a financial strength rating of A (Excellent) to The Toa 21st Century Reinsurance Company (TTFC), the Switzerland based reinsurance subsidiary of Japan-based reinsurer The Toa Reinsurance Company (Toa Re) that mainly assumed captive business from its parent.

AM Best has also affirmed the FSR of A (Excellent) of Toa Re, along with The Toa Reinsurance Company of America (TRA), which is based in Morristown, New Jersey. The outlooks of TTFC's ratings and Toa Re and TRA's ratings are stable.

TTFC is a newly added member of Toa Re, of which TRA is the other member.

Toa Re’s balance sheet strength is assessed at the strongest level, which AM Best said is owed to its conservative risk management in its underwriting and investment strategies. Toa Re’s risk-adjusted capitalisation has improved significantly in the past five years from stable and positive operating results. Despite a series of catastrophe events in North America, the company maintained profitable underwriting results in fiscal year 2017. Offsetting rating factors include limited growth opportunities in Japan’s domestic reinsurance market and intense competition in the global reinsurance market, owing to abundant capacity.

AM Best noted that negative rating actions could occur if there is a substantial decline in risk-adjusted capitalisation resulting from significant underwriting losses, or adverse movements in the financial markets.

Toa Re announced in May 2018 that TTFC will underwrite third-party business under the brand name of Toa Re Europe. The company will strengthen its experienced underwriting team by adding other reinsurance professionals locally to TTFC and will serve as the group’s major European underwriting platform. In addition, the Toa Re will gradually transfer part of its existing European book of business to TTFC.

The addition of TTFC to the Toa Re’s rating unit reflects its strategic importance to Toa Re’s growth and geographic diversification strategy, said AM Best. Toa Re provides various explicit and implicit support, such as business transfer, risk management and operational support to TTFC. AM Best views Toa Re as strongly committed to TTFC’s development and long-term success and will provide necessary financial support if needed.