Japan's Secom General Insurance Downgraded To 'A-' On Natural Disaster Losses; Placed On CreditWatch Negative

  • Secom General, a Japan-based insurer, announced that it forecasts a net loss for fiscal 2018 due to a series of natural disasters in the first half of the year.
  • In addition, the insurer also expects to reverse catastrophe reserves. As a result, we view that the insurer's accumulation of retained earnings is likely to be much lower than we expected.
  • We are lowering our financial strength and issuer credit ratings on Secom General to 'A-' from 'A'.
  • We are placing the ratings on CreditWatch with negative implications, while we further analyze the impact of the natural disasters on the insurer.
TOKYO (S&P Global Ratings) Dec. 6, 2018--S&P Global Ratings today said it has 
lowered its long-term financial strength and issuer credit ratings on Japan-bas
ed Secom General Insurance Co. Ltd. (Secom General) to 'A-' from 'A'. We have 
also placed the ratings on CreditWatch with negative implications. 

The downgrade and CreditWatch placement are based our view that Secom 
General's capital adequacy is likely to deteriorate to a larger degree than we 
previously expected. Secom General expects to pay out large insurance claims 
on its fire insurance products due to the series of natural disasters in the 
first half of fiscal 2018, such as extreme rainfall in July, and Typhoon Jebi 
and Typhoon Trami in the autumn. The insurer has revised down its forecast for 
fiscal 2018 (ending March 31, 2019) to a net loss of ¥750 million. In 
addition, Secom General will likely reverse catastrophe reserves, which we 
regard as capital. As a result, the insurer is likely to accumulate retained 
earnings at a much slower pace than we had previously expected. We have 
therefore revised down our capital adequacy assessment to upper adequate from 
moderately strong and our stand-alone credit profile on the company (our 
assessment of the company's creditworthiness excluding the possibility of 
extraordinary support from the parent group) to 'bbb-' from 'bbb'.

We view Secom General as a strategically important subsidiary within the Secom 
group and incorporate group support into our ratings on the insurer. Secom 
General collaborates with the parent's security service business on sales of 
fire insurance and auto insurance to clients. We believe Secom General's 
operations supplement the parent's core security services business. In 
addition, Secom Co. Ltd. has a record of injecting capital into the insurer in 
times of need. We believe Secom General would likely receive financial support 
from the parent if necessary.

We expect to resolve the CreditWatch placement after further analyzing the 
impact of natural disasters on Secom General's retained earnings and taking 
another look at the insurer's financial strategy. We may lower our ratings on 
Secom General if its total adjusted capital looks likely to deteriorate 
further because of a surge in insurance claims related to large domestic 
natural disasters or other natural catastrophe events. On the other hand, we 
may affirm the ratings if we determine Secom General can improve its capital 
base and stably maintain its capital at a level commensurate with our current 
ratings on the company, by either improving its insurance underwriting profit 
or receiving financial support from its parent.

RATINGS LIST
Downgraded; CreditWatch/Outlook Action
                                       To                From
Secom General Insurance Co. Ltd.
Financial Strength Rating 
  Local Currency                       A-/Watch Neg      A/Stable
Issuer Credit Rating 
  Local Currency                       A-/Watch Neg/--   A/Stable/--