OREANDA-NEWS. June 17, 2015. Fitch Ratings says that Tokio Marine & Nichido Fire Insurance Co., Ltd.'s (TMNF; Insurer Financial Strength (IFS) Rating A+/Stable) proposed acquisition of HCC Insurance Holdings, Inc. (HCC; its core insurance operating companies' IFS Ratings AA/Rating Watch Negative) is positive for the credit profile of the Japanese company.

TMNF is a core company of Tokio Marine Holding, Inc (TMHD), which said on 10 June 2015 that it planned to acquire the US-based HCC. The cost of the acquisition - expected to be about JPY940bn - is manageable compared with TMHD's net assets of JPY3.61trn, shareholders' equity of JPY1.50trn, and cash and equivalents of JPY1.00trn at end-March 2015.

Fitch expects the deal to be positive for the Tokio Marine Group's credit profile over the medium term, given both HCC's extensive franchise in the US non-life and life insurance markets, and its solid underwriting expertise and strong capitalisation.

HCC, which specialises in areas with limited exposure to natural catastrophes, such as professional liability, accident/health and surety/credit, will help TMHD to diversify its risk profile and raise overseas earnings as a share of the Japanese group's revenue. HCC's operations will also have a small overlap with TMHD's existing US non-life insurance subsidiaries, Philadelphia Consolidated Holdings Corp. (Philadelphia) and Delphi Financial Group, Inc. (DFG), while some synergies can be expected.

The acquisition should enhance Tokio Marine Group's global diversification by increasing overseas insurance premiums and business unit profits to about 38% and 46% respectively of the group's total in the financial year ending March 2016 (FYE16) compared to about 32% and 38% (pre-acquisition basis) according to TMHD's estimate. Negative impact on TMHD in terms of capital adequacy and leverage is likely to be limited.

TMNF's IFS Rating was downgraded to 'A+' from 'AA-' on 28 April 2015, after Fitch downgraded Japan's Long-Term Local-Currency IDR to 'A'. Fitch allows the company's rating to be above that of the sovereign by up to one notch, because TMHD's sizeable international diversification counterbalances its large holdings of Japanese government debt. Without the constraint from Japan's sovereign rating, Fitch assesses TMNF's IFS Rating to be in the 'AA' category.

The transaction is subject to certain conditions, including the receipt of regulatory approval in Japan, the US and other regions.