A.M. Best Downgrades Rating of Unum Japan Accident Insurance Company.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Sept. 25, 2003 A.M. Best Co. has downgraded the financial strength rating to B++ (Very Good) from A- (Excellent) of Unum Japan Accident Insurance Co. Ltd., Japan. The company has been removed from under review, and the outlook has been revised to stable from negative. The rating reflects A.M. Best's opinion that Unum Japan is not a core subsidiary within the UnumProvident group. As such, it should be rated lower than UnumProvident Corporation's U.S. operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. . The rating also considers Unum Japan's lessened reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. security, inability to improve statutory surplus and lack of sustainable strengths in a competitive marketplace. On April 25, 2003, A.M. Best downgraded the financial strength ratings of UnumProvident's U.S. subsidiaries to A- (Excellent) from A (Excellent) due to the organization's concentrated business profile and concerns regarding the earnings outlook for the entire organization, given the ongoing low interest rate environment and weak U.S. economy. This factor weighs heavily in the decision to downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. Unum Japan's financial strength rating, given the Japanese subsidiary's non-core status within the organization. As a consequence of its parent's ongoing challenges, Unum Japan's reinsurance security has been adversely affected, since Unum Life Insurance Co. of America reinsures a significant portion of Unum Japan's underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. risks. Additionally, this reinsurance treaty Reinsurance Treaty (June 18, 1887) Secret agreement between Germany and Russia. Arranged by Otto von Bismarck after the collapse of the Three Emperors' League, it provided that each party would remain neutral if either became involved in a war with a third nation, and that has had the net impact of increasing the Japanese subsidiary's reported loss ratio, thereby creating a strain on statutory surplus over time. In the long term, AM. Best remains cautious about Unum Japan's ability to stay competitive in Japan's disability income market. The lack of a proprietary agency force will continue to be a significant hurdle that the company must overcome to further strengthen its competitive position against indigenous insurers with well-established business profiles. These challenges are partially offset by the company's secure stand-alone capitalization, conservative investment portfolio and improving economies to scale. The Best's Capital Adequacy Ratio Capital adequacy ratio (CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR)[], is a ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss. (BCAR BCAR Brunswick County Association of Realtors BCAR British Civil Airworthiness Requirements BCAR Bullitt County Animal Rescue (Shepherdsville, KY) BCAR Business Case Analysis Report BCAR Beaver Creek Array BCAR Buffalo Civic Auto Ramps, Inc. ) indicates that Unum Japan's level of capitalization as of fiscal year-end Fiscal Year-End The completion of a one-year, or 12-month, accounting period. Notes: The reason that a company's fiscal year often differs from the calendar year and does not close on Dec 31, is due to the nature of company's needs. 2002 on a stand-alone basis falls within the secure range. The stable outlook assigned mainly reflects management's intention to maintain a prudent local solvency margin in the foreseeable future. The company's conservative investment portfolio is also viewed favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. in light of the capital market conditions in Japan. Nearly all invested assets are allocated to cash and short-term fixed-income instruments, protecting the capital base from volatility in asset prices. Going forward, Unum Japan's operating efficiency is expected to improve in line with its declining expense ratio. The company will likely benefit from continued market growth in the near term, with fixed expenses being spread over an increasing premium base. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion