OREANDA-NEWS. Sompo Japan Nipponkoa Insurance Inc's (Sompo Japan Nipponkoa) Long-Term Issuer Default Rating and Insurer Financial Strength Rating of 'A' will not be affected by the proposed acquisition of US-based Endurance Speciality Holdings Ltd. (Endurance), says Fitch Ratings.

Sompo Holdings, Inc. (SOMPO), the parent of Sompo Japan Nipponkoa, announced its plans to acquire Endurance on 5 October 2016. Fitch believes the estimated acquisition costs of about JPY638bn are manageable compared with SOMPO's net assets of JPY1.7trn, shareholders' equity of JPY839bn and cash and equivalents of JPY551bn at end-March 2016.

Fitch expects the deal to be positive for SOMPO's credit profile over the medium term due to Endurance's extensive franchise in the US non-life insurance markets, solid underwriting expertise and strong capitalisation. Endurance, which focuses on agriculture and speciality insurances, such as directors and officers liability insurance, cyber insurance and professional lines, will help SOMPO diversify its risk profile and raise overseas earnings as a share of the Japanese group's revenue.

SOMPO estimates that the acquisition will enhance its global diversification by increasing its overseas adjusted consolidated profit to 29% or more of the group's total profit in the financial year ending March 2019 (FYE19), compared with 12% in FYE16. Fitch deems any negative effects on SOMPO's capital adequacy or leverage is likely to be manageable.

Sompo Japan Nipponkoa's IFS Rating is constrained by Japan's sovereign rating of 'A'/Negative. Fitch does not believe SOMPO currently has sufficient international diversification to counterbalance its large holding of Japanese government debt. The agency assesses Sompo Japan Nipponkoa's unadjusted IFS Rating at 'A+' without the constraint from Japan's sovereign rating.