S&P Revises Aioi, Nissay Outlooks to Positive; Mitsui to Negative

Standard & Poor’s Ratings Services has revised to positive from stable its outlooks on the insurer financial strength ratings and long-term counterparty credit ratings on Japan’s Aioi Insurance Co. Ltd. and Nissay Dowa General Insurance Co. Ltd.

S&P revised its outlook on Mitsui Sumitomo Insurance Co. Ltd. and Mitsui Sumitomo Kirameki Life Insurance Co. Ltd. to negative from stable. The outlooks on the insurer financial strength ratings and long-term counterparty credit ratings on Mitsui and the outlooks on the ratings on the insurers’ core and guaranteed overseas subsidiaries were also revised accordingly.

At the same time S&P affirmed all of its ratings on the designated companies.

“The outlook revisions follow the official announcement on Jan. 23, 2009, by the three insurance groups (Aioi Insurance Co. Ltd., Mitsui Sumitomo Insurance group, and Nissay Dowa General Insurance Co. Ltd.) that they have entered negotiations to merge under a holding company,” S&P explained. “The merger, which is slated for April 2010, would create one of the largest insurance groups in Japan, with strong ties to the Toyota Motor, Nippon Life Insurance, and Mitsui and Sumitomo corporate groups, and one whose business profile would benefit from a stronger market position and diversification.”

However, S&P also indicated that the financial profile of the merged group “may be somewhat weaker than the financial profile of the Mitsui Sumitomo Insurance group, which has the strongest financial profile of the three insurers. Although all three insurers stand to reduce expenses through the integration, the new group will be challenged to strengthen its earnings capacity given the weak economy, declining population, depressed premium income, and ongoing market turmoil, which is constraining investment income.

“As the three groups hammer out details of the merger plan, the ratings on Mitsui Sumitomo Insurance and Mitsui Sumitomo Kirameki Life Insurance may be lowered by one notch if it becomes evident that the new group’s financial profile will be materially weaker than the Mitsui Sumitomo Insurance group’s current financial profile, particularly if the negative operating environment persists.

“Conversely, if it becomes likely that the group’s business profile and earnings will benefit from the merger, and the new insurance group’s financial profile will be as strong as, or only moderately weaker than, Mitsui Sumitomo Insurance’s current financial profile, then the outlooks on the ratings on the Mitsui Sumitomo Insurance companies may be revised to stable.”

S&P concluded that it expects “Aioi Insurance and Nissay Dowa to strengthen their business profiles and financial profiles significantly through the merger, backed by cost reductions and Aioi Insurance’s strengthened capital position. The ratings on the companies may be raised by one or two notches, reflecting these benefits, once the merger plan is finalized.”

Source: Standard & Poor’s – www.standardandpoors.com