S&P report on Japan Club keeps rating at BBB+

Standard & Poor’s has maintained its triple B-plus rating on Japan Club, noting that the club’s strengths included a solid market position, supported by strong relationships with Japan-related shipowners, plus a conservative investment policy with low financial leverage.

However, its weaknesses were a low diversification because it specialized in marine protection and indemnity (P&I) and concentrated on Japan-related shipowners, plus moderately strong capital and earnings constrained by low capital in terms of absolute value

S&P assessed that the company’s creditworthiness was at the lower end of the average of the global P&I sector in terms of business and financial positions.

Japan P&I ranks at the lower end of the average among 13 international P&I clubs in terms of premiums and free reserves. It specializes in marine P&I and has a solid market position supported by strong and long-standing relationships with Japan-related shipowners. On the other hand, Japan P&I’s business line is less diversified and its customer base is geographically concentrated in Japan.

Japan P&I has focused more on underwriting profit rather than investment profit. S&P observed that, while it was now enhancing its investment capabilities and making its internal risk management more sophisticated, it believed that the Club’s conservative investment approach would remain unchanged.

Japan P&I has no outstanding debt and issuance plans. Therefore, it has improved its capital to the ‘AA’ level at end-March 2018. In its base-case scenario, S&P expected Japan P&I to continue improving its capital, bringing it close to the ‘AAA’ level over the rating horizon.

However, the absolute value of its capital would remain small, constraining the agency’s  assessment of that capital.

Outlook: Stable

S&P said that Japan P&I was likely to maintain its current business model, supported by the Japan-related shipping companies that mad up most of its members. On the other hand, the agency expected Japan P&I to continue strengthening its capital through free reserve accumulation; however, the absolute value of its capital would remain small.

S&P’s macroeconomic assumptions are that:

  • Interest rates in Japan will stay low over the next two years.
  • Japan’s real GDP growth will grow at a steady pace and remain moderate