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Announcement:

Moody's changes outlooks for Japan's Big Three P&C insurers to negative

 The document has been translated in other languages

23 Mar 2011

Tokyo, March 23, 2011 -- Moody's Japan K.K. has affirmed its ratings on the subsidiaries of the three largest domestic property & casualty (P&C) insurance groups in Japan -- Tokio Marine Group, NKSJ Group and MS&AD Group (see a complete list of the ratings below).

At the same time, Moody's has changed the outlooks on all the ratings to negative from stable.

The announcement follows the earthquake of March 11, the largest in Japan's history. The quake and ensuing tsunami have caused widespread economic damages, a portion of which will be covered by these companies.

The negative outlook for these P&C insurers reflects the view that losses from the event will further pressure the profitability and, to a lesser degree, the capitalization benchmarks of these insurers at their current rating levels.

In addition, given the large number of prefectures and sectors that have been impacted by the earthquake and tsunami, it will likely take many months to ascertain the true extent of insured losses. This situation magnifies the potential for upward revisions of initial loss estimates.

Furthermore, this sizable catastrophe comes at a time when the domestic P&C market already suffers from low-to-negative growth and modest profitability. Reinsurance costs are also likely to increase.

In light of this negative market outlook, Moody's does not expect meaningful improvements to profitability over the near to medium term; a situation which could delay the replenishment of resources depleted by earthquake-related losses.

In addition, the P&C insurers could experience additional volatility in their economic capital due to investment exposures to the domestic stock market. Such exposures are relatively high when compared to other P&C insurers globally.

Indeed, Moody's sees downside risks to its baseline forecast for Japan having increased with this catastrophe, and any weakening of Japan's economy would have a direct effect on the financial performance of the P&C insurers.

Despite these meaningful headwinds, Moody's affirmation reflects our base case assumption that the earthquake will result in material, but manageable, insured losses for these market leaders. For residential earthquake exposures, the Japanese insurers are reinsured through Japan Earthquake Reinsurance Co., Ltd. (JER), a government-backed pooling scheme for residential earthquake risk. Although the insurers remain exposed to a maximum insured loss of JPY593 billion, the JER plays an important role in substantially mitigating the potential risk for the primary insurers.

For commercial earthquake exposures, extensive reinsurance protection is provided by international reinsurance companies, and such protection should keep net losses at a manageable level.

The following ratings have been affirmed with a negative outlook:

Tokio Marine & Nichido Fire Insurance Co., Ltd.

Insurance financial strength at Aa2

Mitsui Sumitomo Insurance Co., Ltd.

Insurance financial strength at Aa3

Long-term issuer rating at Aa3

Short-term commercial paper rating at Prime-1

Sompo Japan Insurance Inc.

Insurance financial strength at Aa3

Subordinated debt rating at A2 (hyb)

Aioi Nissay Dowa Insurance Company, Limited

Insurance financial strength rating at A1

The last rating action on Tokio Marine was on July 24, 2008, when Moody's affirmed the company's Aa2 insurance financial strength rating with a stable outlook, following the announcement that it was acquiring Philadelphia Consolidated Holding Corp.

The last rating action on Mitsui Sumitomo was on January 27, 2009, when Moody's affirmed its ratings with a stable outlook following the announcement of the integration of the Mitsui Sumitomo, Aioi, and Nissay Dowa insurance groups.

The last rating action on Sompo Japan was on March 10, 2010, when Moody's affirmed the company's ratings and changed the outlook to stable from negative.

The last rating action on Aioi Nissay Dowa was on September 30, 2010, when Moody's affirmed the company's ratings with the stable outlook, in connection with the merger of Aioi Insurance Company Limited and Nissay Dowa General Insurance Company, Limited.

The principal methodology used in these ratings was "Moody's Global Rating Methodology for Property and Casualty Insurers" published on September 30, 2010, and available on www.moodys.co.jp.

Tokio Marine & Nichido Fire Insurance Co., Ltd., headquartered in Tokyo, is the largest P&C insurance company in Japan, with total assets of JPY8.7 trillion as of December 31, 2010.

Mitsui Sumitomo Insurance Company, Limited, headquartered in Tokyo, is one of Japan's largest P&C insurance companies, with total assets of JPY5.7 trillion as of December 31, 2010.

Sompo Japan Insurance Inc., headquartered in Tokyo, is one of Japan's major P&C insurance companies, with total assets of JPY 4.8 trillion as of December 31, 2010.

Aioi Nissay Dowa Insurance Company, Limited, headquartered in Tokyo, is one of Japan's major P&C insurance companies, with total assets of JPY3.4 trillion as of December 31, 2010.

Tokyo
Natsuko Ishida
Analyst
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Minoru Kubota
MD - Financial Institutions
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's changes outlooks for Japan's Big Three P&C insurers to negative
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