S&P: Toa Re’s operating performance shows clear signs of recovery

S&P Global Ratings, a credit rating agency, has affirmed its A/Stable ratings on Toa Reinsurance Group’s core subsidiaries, reflecting a firm view that the group’s operating performance is improving, with signs of profitability returning after several challenging years.

Toa Reinsurance Co., along with its overseas subsidiaries Toa Reinsurance Co. of America (TRA) and Toa 21st Century Reinsurance Co. Ltd. (TRE), all maintain their positions as core entities within the group.

According to S&P Global Ratings, Toa Reinsurance Group had experienced a string of elevated combined ratios—over 100% for five consecutive fiscal years beginning in 2018—driven by natural catastrophes, COVID-19 claims, and social inflation in North America.

However, from fiscal 2023 onward, the group’s combined ratio improved to under 100%, suggesting underwriting reforms and cost control measures are yielding results.

S&P Global Ratings believes Toa Re’s operational adjustments—tightening underwriting, revising pricing, and cutting expenses—are responsible for the recent turnaround. While profitability remains modest compared to global peers, the trend indicates steady recovery.

Toa Reinsurance remains Japan’s only reinsurance group, a position that underpins its strong domestic foothold. Its close client relationships and consistent transaction flow with Japanese insurers provide a stable business base. According to S&P Global Ratings, this structure supports the group’s strong business risk profile.

Internationally, the group is still catching up. Compared to leading European reinsurers, Toa Reinsurance’s overseas presence is limited in scale and competitive depth.

Although it has a diversified book across life and non-life lines, international earnings remain volatile—particularly in North America, where the group’s subsidiary TRA has seen slow profit improvement despite contributing 21% of the group’s net premiums.

S&P rates the group’s capital and earnings as excellent, based on its ability to maintain capital levels at the 99.99% confidence threshold in S&P’s risk-based capital model. Liquidity is also judged to be exceptional, backed by a conservative investment portfolio and a lack of debt.

Nonetheless, the agency flags the group’s high exposure to natural catastrophes and domestic equity markets as persistent risk factors.

Given Japan’s disaster history and the group’s significant local exposure, earnings volatility remains a concern. That said, S&P notes the group’s proactive measures to manage exposure—through retrocession, risk reduction, and asset reallocation—offer a mitigating buffer.

S&P has issued a stable outlook for Toa Reinsurance and its core subsidiaries, grounded in expectations that the group will preserve its strong domestic market position and capital base.

If Toa Re fails to maintain capital adequacy due to a sustained decline in performance or external shocks, a downgrade may be considered over the next two years.

A rating upgrade is possible if the group strengthens its competitive position, particularly by sustainably improving its combined ratio and diversifying its earnings base across geographies and business segments. A significant reduction in market risk exposure, such as a drawdown in equity holdings, would also be viewed favorably.

S&P’s base-case projections for fiscal 2025 and 2026 forecast: net premiums written between ¥250–280 billion; adjusted net income of ¥10–20 billion; a combined ratio between 97–99%; and capital adequacy sustained at the 99.99% confidence level.

Toa Reinsurance’s groupwide strategy continues to focus on international expansion, especially in North America and Europe. While profitability from overseas operations has yet to fully materialise, S&P expects continued investment in strengthening risk control and governance frameworks, particularly across subsidiaries.

S&P views the group’s governance as generally sound, though it continues to monitor the performance of international operations, particularly TRA. While Toa Reinsurance has made substantial efforts to address earnings volatility and exposure risks, the group’s effectiveness in implementing and maintaining strong risk controls remains a key factor to watch.

On environmental risk, S&P Global Ratings considers Toa Re’s exposure to natural catastrophes to be moderately negative but notes the group’s ample capital buffers and robust reinsurance protections mitigate this concern.

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