London, 08 August 2017 -- Moody's Investors Service has today upgraded to A1 from A2, the
insurance financial strength (IFS) ratings of Lloyd's Syndicate
2001 and MS Amlin AG, the main operating subsidiaries of MS Amlin
plc ("MS Amlin", unrated). The outlook of all
entities is stable.
MS Amlin plc is a fully-owned subsidiary of Mitsui Sumitomo Insurance
Company, Limited ("MSI", A1 IFS rating,
stable) since February 2016; MSI is part of the Japanese based MS&AD
Insurance Group Holdings, Inc. group ("MS&AD"
or "the Group", unrated).
RATINGS RATIONALE
--- RATING UPGRADE AND PARENTAL SUPPORT ---
The rating upgrade of MS Amlin's operating companies reflects the
strong parental support from MSI and Moody's view that MS Amlin
is a key component of MSI's strategy to grow and diversify outside
its domestic Japanese market and, as a result, has high importance
to the Group.
The Group has a strategic goal of growing its domestic life and international
business to reach initially 30% of group core profit and 50%
in the medium term, while maintaining its domestic P&C profitability
levels. MS Amlin is already the Group's largest international
business and accounts for approximately 20% of MSI net written
premiums. Furthermore, MS Amlin's expertise in specialty
and casualty commercial lines should enable MS&AD to expand within
its domestic P&C market even as traditional consumer lines,
such as auto insurance, will likely shrink.
In Moody's view, the rebranding of Amlin to MS Amlin,
and the recently completed merger of MSI's existing Lloyd's
and reinsurance operations into MS Amlin have increased the operational
integration and reputational ties between MS Amlin and its parent.
MS&AD is also committed to MS Amlin collaborating and sharing technical,
risk management and innovative knowledge with the Group.
A further example of parental support in terms of capital and liquidity
was the capital injection of GBP230 million by MSI in December 2016,
which was subsequently used to redeem MS Amlin's outstanding debt
obligations.
--- STANDALONE CREDIT FUNDAMENTALS ---
The A1 public IFS rating reflects the combination of the aforementioned
parental support and the standalone A2 credit profile of MS Amlin's
main operating entities.
MS Amlin's standalone credit profile reflects its strong franchise,
good geographic diversification, prudent reserving and conservative
investment strategy. The recent capital injection into MS Amlin
has also boosted the company's quality of capital and, in
Moody's view, the merger of MSI's existing Lloyd's and reinsurance
operations has strengthened MS Amlin's market position by enhancing
scale and future growth prospects, which should better enable MS
Amlin to defend its market position and broaden its reach in a difficult
market.
More negatively, Moody's highlights the inherent volatility
and cyclicality in a number of MS Amlin's lines of business and
high exposure to natural catastrophe perils as key credit challenges.
In this regard, Moody's also notes that property catastrophe
reinsurance, the line most vulnerable to disruptive forces in the
specialty (re)insurance market, accounted for a significant portion
of MS Amlin's gross written premiums and operating profits.
Additional headwinds to MS Amlin's future profitability include
low investment returns, tepid reinsurance demand and changing buyer
behaviour. Notwithstanding some cost and growth synergies,
the rating agency expects MS Amlin's profitability to remain below
historic levels, which benefitted from below average natural catastrophe
losses and high reserve releases. This view is supported by the
reported 7ppt deterioration in MS Amlin's combined ratio to 97%
in 2016, although Moody's acknowledges the material adverse
impact of a number of exceptional items including the Ogden rate change
in the UK.
WHAT COULD CHANGE THE RATING UP / DOWN
Moody's stated that there is unlikely to be upward pressure on the
ratings in the short term. However, the following factors
could further augment MS Amlin's standalone credit profile:
(1) a meaningful increase in MS Amlin's market position within its
core segments; (2) sustaining strong core earnings with return on
capital above 10% over the underwriting cycle; and (3) enhanced
capital adequacy reflected in gross underwriting leverage remaining below
3.0x.
Conversely, Moody's said the following factors could lead
to downward pressure on MS Amlin's ratings: (1) a downgrade
of MSI's IFSR; (2) a reduction in shareholders' equity
in excess of 10% over a rolling 12 month period (including dividends);
(3) a meaningful deterioration in underlying profitability with combined
ratios consistently in excess of 97%; and/or (4) a material
increase in catastrophe exposures or the general risk appetite.
LIST OF AFFECTED RATINGS -
The following ratings have been upgraded:
Lloyd's Syndicate 2001:
.Insurance financial strength rating to A1 from A2
Outlook remains stable
MS Amlin AG
.Insurance financial strength rating to A1 from A2
Outlook remains stable
MS Amlin reported gross premiums written of GBP2,744 million and
profit before tax of GBP252 million for the 12 months ended 31 December
2015 with total equity of GBP1,849 million for YE2015.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global Reinsurers
published in April 2016. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Helena Kingsley-Tomkins
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454