20-D-0202 June 25, 2020 Japan Credit Rating Agency, Ltd. (JCR) announces the following credit rating. MS&AD Insurance Group Holdings, Inc. (security code: 8725) <Affirmation> Long-term Issuer Rating: AA Outlook: Stable Bonds (Dated subordinated bonds): A+ Mitsui Sumitomo Insurance Company, Limited (security code: -) <Affirmation> Long-term Issuer Rating: AA+ Outlook: Stable CP: J-1+ Aioi Nissay Dowa Insurance Company, Limited (security code: -) <Affirmation> Long-term Issuer Rating: AA+ Outlook: Stable Ability to Pay Insurance Claims: AA+ Outlook: Stable CP: J-1+ Rationale (1) MS&AD Insurance Group is Japan’s major non-life insurance group which has Mitsui Sumitomo Insurance Company, Limited (“MSI”) and Aioi Nissay Dowa Insurance Company, Limited (“ADI”) as the 2 core companies, and also Mitsui Sumitomo Aioi Life Insurance Co., Ltd. (“MS Aioi Life”), Mitsui Sumitomo Primary Life Insurance Co., Ltd. (“MS Primary Life”), and others under umbrella of its holding company, MS&AD Insurance Group Holdings, Inc. (“MS&AD Holdings”). Holding also many overseas insurance companies, it is building a business portfolio that is well diversified in terms of risks and geographical areas. MSI’s and ADI’s ratings are the same as the Group’s overall creditworthiness, which is valued for the strong business bases in which the 2 core companies display their strengths in mutually different areas of the domestic non-life insurance business, the Group’s stable earnings capacity through diversification with the domestic life insurance and international businesses, financial soundness, etc. Meanwhile, delays of earnings improvement of MS Amlin plc (“MS Amlin”) in the international business is an issue to be addressed. MS&AD Holdings’ rating is 1 notch below that for the core companies to reflect a holding company’s structurally subordinate nature in light of its slightly high double leverage ratio. (2) While MSI globally offers insurance and financial services backed by the domestic huge customer base centered on the Mitsui Group and the Sumitomo Group, ADI has strength in its partnership with the TOYOTA Group and the Nippon Life Group. The group adjusted profit based on internal control shows a slight delay of diversification of its business portfolio due partly to delays of the international business’ earnings recovery. Large natural disasters have been frequently happening in Japan, and far larger payments for claims than usual year were recorded for 2 years in a row in the fiscal year ended March 2020 (FY2019). While it roughly covered the payments for claims incurred through recovery of reinsurance claims and reversal of catastrophe reserve, they may become a factor for downward pressure on its profit level, as it cannot avoid effects from domestic natural disasters going forward. Uncertainties about business environment are increasing due to the current COVID-19 pandemic. JCR sees that the Group will be able to continue recording a stable profit into the future in light of the solid movements of the domestic non-life business’ profit and building of well diversified business portfolio. (3) In the domestic non-life insurance business, the net premiums written for FY2019 were stable. Profitability of automobile insurance accounting for approximately 50% of the total is stable. Improvement of profitability of fire insurance, on the other hand, is an issue to be addressed. The 1 / 3 https://www.jcr.co.jp/en/ key point is whether it can appropriately revise the premium rates and products based on risk and return balance, while ensuring competitiveness, to manage developments such as an increase of reinsurance costs. JCR will also pay attention to whether it can promote more efficient operations such as reduction of expenses through R&D investments. In the domestic life insurance business, while MS Aioi Life sells protection-type products with relatively high profitability through various sales channels centering on the non-life insurance agents, MS Primary Life has top-class business base as a company specializing in bancassurance. Although these 2 companies develop strategies based on characteristics of products and channels, their business performance has been stagnant due to severe market conditions. (4) In the international business, recovery of profitability of MS Amlin is an urgent issue to be addressed. MS Amlin’s profit level has been far lower than the initially planned level with the significantly increased payments for claims for non-cat lines as well as effects from overseas natural disasters. MSI carried out organizational restructuring for the purpose of more efficient operations of the international business, and its overseas and other businesses control each region and recorded impairment losses on goodwill, etc., of the Lloyd’s and other businesses where profitability is decreasing. MS Amlin is withdrawing from unprofitable types of insurance and raising premium rates on an ongoing basis. The business environment is severe due partly to the COVID-19 pandemic. JCR will closely watch progress and achievements of MS Amlin’s measures to improve earnings such as revisions to the pricing strategies and stricter insurance underwriting policy including MSI’s appropriate control. ADI is promoting global development of mobility service, leveraging TOYOTA Group’s customer base, for its international business, and is generating good results in differentiating itself from others in terms of products and services for telematics auto insurance in which it has strength. (5) The Group, based on ERM cycle, aims to increase its enterprise value through realizing an improvement of profitability and capital efficiency, while securing soundness. It has been using economic value-based assessment in the product strategies, investment policy, retention and reinsurance policies. Measures including diversification of insurance underwriting risks, reduction of price fluctuation risk from the strategic-holding stocks and strategic utilization of reinsurance are controlling fluctuations in equity capital and earnings. In light of the fact that its earnings and financials have been affected by natural disasters both in Japan and abroad and also international business, penetration of risk and return concept is more important. JCR sees that the Group’s consolidated ESR remains at a sufficient level even in a certain stress scenario. Tomohiro Miyao, Seito Achiha 2 / 3 https://www.jcr.co.jp/en/ Rating Issuer: MS&AD Insurance Group Holdings, Inc. <Affirmation> Long-term Issuer Rating: AA Outlook: Stable Issue Amount (bn) Issue Date Due Date Coupon Rating 1st Series Deferrable Interest and Callable Unsecured Subordinated Bonds JPY 70 Dec. 26, 2016 Dec. 25, 2076 (Note 1) A+ 2nd Series Deferrable Interest and Callable Unsecured Subordinated Bonds JPY 30 Dec. 26, 2016 Dec. 25, 2076 (Note 2) A+ 3rd Series Deferrable Interest and Callable Unsecured Subordinated Bonds JPY 50 Jan. 31, 2017 Jan. 31, 2047 (Note 3) A+ Notes: 1. 1.03% until and including Dec. 26, 2021. It will switch to 6M Euroyen LIBOR + 0.87% for the period from Dec. 27, 2021 to Dec. 26, 2026 and 6M Euroyen LIBOR + 1.87% on and after Dec. 27, 2026. 2. 1.24% until and including Dec. 26, 2026. It will switch to 6M Euroyen LIBOR + 1.92% after that date. 3. 1.18% until and including Jan. 31, 2027. It will switch to 6M Euroyen LIBOR + 1.92% after that date. Issuer: Mitsui Sumitomo Insurance Company, Limited <Affirmation> Long-term Issuer Rating: AA+ Outlook: Stable CP: J-1+ Maximum: JPY 300 billion Issuer: Aioi Nissay Dowa Insurance Company, Limited <Affirmation> Long-term Issuer Rating: AA+ Outlook: Stable Ability to Pay Insurance Claims: AA+ Outlook: Stable CP: J-1+ Maximum: JPY 75 billion Rating Assignment Date: June 22, 2020 The criteria used for identifying matters which serve as assumptions for the assessment of the credit status, and the criteria used for setting of grades indicating the results of the assessments of the credit status are published as "Types of Credit Ratings and Definitions of Rating Symbols" (January 6, 2014) in Information about JCR Ratings on JCR's website (https://www.jcr.co.jp/en/). Outline of methodology for determination of the credit rating is shown as "JCR's Rating Methodology" (November 7, 2014), "Non-Life Insurance" (July 1, 2013), "Rating Methodology for Financial Groups' Holding Companies and Group Companies" (March 29, 2019), "Ratings of Hybrid Securities" (September 10, 2012) and "Rating Methodology for Financial Institutions' Capital and TLAC Instruments" (April 27, 2017) in Information about JCR Ratings on JCR's website (https://www.jcr.co.jp/en/). Japan Credit Rating Agency, Ltd. Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan Tel. +81 3 3544 7013, Fax. +81 3 3544 7026 Information herein has been obtained by JCR from the issuers and other sources believed to be accurate and reliable. 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