A.M. Best Affirms Ratings of The Toa Reinsurance Company, Limited and The Toa Reinsurance Company of America.

OLDWICK, New Jersey -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit rating (ICR) of "aa-" for The Toa Reinsurance Company, Limited (Toa Re) (Japan). The outlook for both ratings has been revised to stable from negative.

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of "a" of The Toa Reinsurance Company of America (Morristown, NJ). The outlook for both ratings has been revised to stable from negative.

These rating actions reflect Toa Re's improved underwriting performance in fiscal year 2006 and the first half of 2007, superior risk-adjusted capitalization and solid market presence with diversified revenue sources. In fiscal year 2006, Toa Re's underwriting performance improved substantially compared to the previous year. The combined ratio improved to 88% in fiscal year 2006 compared to 114% in fiscal year 2005, stemming from improved results in the Japanese and North American risk portfolios.

Toa Re's superior risk-adjusted capital position is reflective of its low premium leverage and high quality investment portfolio. The company's capital position also benefits from increased internal reserves and catastrophe reserves from the profits recorded in fiscal year 2006.

The company maintains a low net premium leverage of 0.42 times as of fiscal year 2006. Adjusted policyholder surplus (APHS) was JPY 283 billion (USD 2.4 billion), which is 55% of total assets as of fiscal year 2006.

Toa Re maintains a preferred status with its Japanese non-life insurance clients, which are also its shareholders. The company enjoys an outstanding market presence as the only domestic professional reinsurance company in Japan. In recent years, the company has further diversified its portfolio into the life reinsurance market as well as the Asian reinsurance market. Further, the diversification of the book has extended to additional market segments within the property and casualty business within Japan. On a consolidated basis, Toa Reinsurance Company of America and Toa 21st Century Reinsurance Company in Switzerland provide ample opportunities for the company to develop its global presence.

Offsetting these positive rating factors is the relatively high concentration of equity assets in the investment portfolio, as well as Toa Re's volatile underwriting performance. The competitive Asian reinsurance market could also result in a reduced margin in this business segment.

Toa Re has actively reduced its equity holdings in recent years, reinvesting a large portion of its realized gains in several reserve accounts on an accelerated basis. However, as the Japanese economy has recovered, the market value of the holdings has also appreciated. As a result, equities now account for 55% of total assets and 99% of APHS. Since 77% of the equities are invested in the Japanese stock market, risk-based capitalization will depend highly on the Japanese stock market.

As the company is exposed to natural catastrophes globally, its underwriting performance is subject to catastrophe losses, as evidenced by the fluctuation in the combined ratio over the last five years. Underwriting volatility is expected to improve as the company expands into areas with lower catastrophe risk and increases its non-catastrophe writings. Going forward, Toa Re may experience continued volatility in underwriting performance, but, in A.M. Best's opinion, the company's current capitalization is strong enough to absorb any short-term volatility.

The rating affirmation of Toa Reinsurance Company of America reflects its strong risk-adjusted capital position and strategic importance to Toa Re.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.