Moody's Japan K.K. upgraded the outlook on Mitsui Sumitomo Insurance Co. Ltd. to stable from negative mainly due to the company's improved profitability and improving capital base after the reduction in its capital due to the acquisition of MS Amlin Plc.

The rating agency affirmed the A1 insurance financial strength ratings of Mitsui Sumitomo Insurance and another MS&AD Insurance Group Holdings Inc. unit Aioi Nissay Dowa Insurance Co. Ltd. At the same time, the long-term issuer rating of Mitsui Sumitomo Insurance was affirmed.

The outlook on Aioi Nissay Dowa Insurance was maintained at stable.

Moody's said Mitsui Sumitomo Insurance's ratings reflect its strong market position, level of reserve adequacy and high financial flexibility. Meanwhile, Aioi Nissay Dowa Insurance's ratings reflect its strong market position in the Japanese P&C market, robust capitalization and high financial flexibility.

An upgrade for both companies' ratings is unlikely. However, the ratings for both the insurers could be upgraded if there is a consistent decline in high-risk assets and a sustainable increase in return on capital to above 8%, among others.

Conversely, the companies' ratings could be downgraded if there is an increase in high-risk assets, a decline in return on capital to less than 4% and ample claim payment due to catastrophe losses.