Toa Reinsurance faces volatility risks despite stable core operations: S&P Global Ratings

Refinements to its liquidity ratio calculation improved liquidity assessment.

Toa Reinsurance group maintains excellent capital adequacy under the new model criteria, with a commitment to a high confidence level. However, exposure to natural catastrophes, the domestic equity market, and risks like social inflation pose potential volatility in capital and earnings. 

Environmental factors, including a concentration in Japanese catastrophes and overseas development challenges related to ESG risks, are considered moderately negative in the credit rating analysis.

Toa Reinsurance group's core operating companies would still maintain a stable outlook. The revised capital model led to higher diversification benefits and improved capital adequacy in fiscal 2022. 

However, challenges include the post-tax treatment of equity-like reserves and recalibration of some risk charges, impacting capital to some extent. 

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Refinements to liquidity ratio calculation contributed to a positive liquidity assessment. Stable outlooks reflect expectations of Toa Reinsurance maintaining a strong business base in the domestic market and high capital levels.

Potential downgrades in the next two years may occur if the group's capital level deteriorates due to worsening operating performance or volatile financial markets. 

Ratings could be raised if the group's competitive position strengthens through performance recovery or reduced market risk. 

The group is rebuilding its reinsurance underwriting business, facing challenges with a combined ratio exceeding 100% since 2018. Efforts to improve profitability include selective underwritings, premium rate increases, and cost-cutting, but full success has not been achieved.