S&P Assigns ‘A-‘ Rating to Sompo’s Chinese Subsidiary

Standard & Poor’s Ratings Services announced that it has assigned its “A-” long-term counterparty credit and insurer financial strength ratings to China-based Sompo Japan Insurance (China) Co. Ltd., a wholly owned subsidiary of Sompo Japan Insurance Inc. (rated – ‘AA-/Stable/–‘), with a stable outlook.

“The ratings on Sompo Japan China reflect its strategic importance to Sompo Japan group and explicit support from the parent in the form of a net worth maintenance agreement,” said S&P. “The ratings also reflect Sompo Japan China’s strong capitalization, prudent investment strategy, and access to group resources.”

The rating agency said, however, that “the insurer’s low competitive position in the Chinese insurance market, stemming from its limited geographical distribution and short history of operation in the region” constitute “offsetting factors.” S&P added that the “company also faces various challenges and uncertainties common to other foreign players in the rapidly changing Chinese market, including sudden changes in the regulatory and competitive environment.”

S&P also noted: “Sompo Japan China, based in Dalian, China, became a stand-alone subsidiary in July 2005 after two years of operation as a branch office. The company primarily writes direct insurance for Japanese businesses, and it has also undertaken a significant amount of inward reinsurance business.

“The stable outlook reflects Standard & Poor’s expectation that Sompo Japan will extend implicit and explicit support over the long term. Sompo Japan China’s capitalization should remain strong, although it may deteriorate in line with fluctuations in earnings during its start-up period.

“Sompo Japan views the China market as a key part of its strategy for international growth and geographic risk diversification. Sompo Japan China is expected to maintain its focus on Japanese-owned interests, primarily in support of group relationships. Material deviation from this strategy could diminish the subsidiary’s strategic importance to the group.”