OREANDA-NEWS. S&P Global Ratings said today that it had affirmed its 'A' local currency long-term insurer financial strength and counterparty credit ratings on Mitsui Sumitomo Insurance (China) Co. Ltd. (MSI China). The outlook is stable. We also affirmed our 'cnAA+' long-term Greater China regional scale rating on the China-based property and casualty insurer.

We affirmed the ratings because we continue to assess MSI China as a highly strategically important subsidiary of Japan-based MS&AD Insurance Group Holdings Inc. (MS&AD Group; core subsidiaries rated A+/Stable). Our assessment reflects the group's strong commitment of support to MSI China, as shown by the group's involvement in customer referrals, underwriting standards, reinsurance arrangements, enterprise risk management practices, and provision of human resources.

"We expect MSI China to maintain its position as a small player in China's property and casualty market, which is dominated by large domestic insurers," said S&P Global Ratings credit analyst Wenwen Chen. "In 2015, the insurer received regulatory approval to underwrite compulsory motor insurance. We anticipate that MSI China will gradually grow its direct motor business in a controlled manner, given its fairly prudent underwriting standards amid high market competition."

MSI China's capitalization is strong, when compared with its simple risk profile, reflecting the insurer's sound operating performance and conservative investment strategy. However, the insurer's capital base is small in absolute size and insignificant compared with that of the group.

MSI China's investment strategy is conservative, with a focus on cash deposits, money market funds, and government bonds. Given the low interest rates in China, we anticipate that the insurer will consider investing modestly in wealth management products to enhance its investment yield.

"The stable outlook on MSI China for the next 24 months reflects our outlook on the core entities of MS&AD Group," said Ms. Chen. "The outlook also reflects our expectation that the insurer will remain a highly strategically important subsidiary of the group."

We may downgrade MSI China if we lower the ratings on the core entities of MS&AD Group, which could happen as a result of group or Japan sovereign rating factors. We may also downgrade MSI China if its strategic importance to the group diminishes significantly; however, the likelihood is low over the next two years.

We could raise the ratings on MSI China if we upgrade core entities of MS&AD Group. We consider the likelihood to be remote over the next two years. That's because the ratings on the wider group, derived from the group credit profile, is unlikely to exceed the sovereign rating on Japan (A+/Stable/A-1) due to the group's bias toward business and investment assets there.