Standard & Poor’s confirms Japan Club at bbb+

Rating agency Standard & Poor’s (S&P) has confirmed Japan P&I Club’s rating at bbb+, stating that the business risk profile is “satisfactory”. S&P said that the Club has a “solid market position” in Japan that was “supported by strong relationships with domestic shipowners”. It observed “low diversification” because the Club specializes in marine P&I and concentrates on Japanese shipowners.

The financial risk profile was said to be “upper adequate”, with moderately strong capital and earnings “constrained by small absolute capital. The agency observed that the Club had a conservative investment policy with low investment leverage, and that there was no outstanding debt, with none needed and none contemplated.

S&P printed upside and downside scenarios that could lead to a change in ratings.

It said that it might lower the Club’s rating within the next 24 months if for a prolonged period its prospective capital adequacy deteriorated significantly below the ‘A’ confidence level in S&P’s risk-based capital model. “This could result from an unexpectedly high frequency of claims or a significant increase in risk exposure”, S&P said. A lowering could also occur if a significant premium decline weakened the Club’s competitive position, and its operating performance consistently and materially fell short of that of its competitors. An upgrade could occur if the Club grew its free reserves to a sustainable level that caused the agency to revise upward its score for its financial risk profile to strong; or enhanced its competitive position through stronger business diversification by expanding its business with non-Japanese shipowners and, at the same time, maintaining its moderately strong capital and earnings. S&P’s base case scenario assumes that interest rates in Japan will remain very low and that the country’s real GDP will grow slowly. On a company-specific basis, S&P assumes that annual income will be in the ¥0.3bn to ¥0.5bn ($2.7m to $4.5m) range for the years to March 31st 2018 and to March 31st 2019.

S&P said that when it compared Japan P&I’s combined ratio with those of its rated P&I club peers, it considered its operating performance as “better than average”.