Moody's Japan K.K. raised the outlook on Tokio Marine & Nichido Fire Insurance Co. Ltd.'s rating to stable from negative and affirmed the insurer's rating.

The rating agency said Jan. 19 that it affirmed the Tokio Marine Holdings Inc. unit's insurance financial strength rating at Aa3.

The affirmation reflects the company's strong market position, brand, product focus and diversification, Moody's said. It also reflects its strong capital adequacy. There strengths are offset by the insurer's high level of risk assets to shareholders' equity, and the natural catastrophe exposure associated with its domestic and global business, the rating agency added.

Meanwhile, the raised outlook on the insurer's rating reflects its improved profitability, improving capital base and the good management of HCC Insurance Holdings Inc., which was acquired by Tokyo Marine & Nichido Fire Insurance in October 2015.

The rating agency said that upward pressure on Tokio Marine & Nichido Fire Insurance's rating is unlikely because its rating is already higher than Japan's sovereign rating.

A downgrade in the rating could result from a significant increase in the company's holdings of Japanese government bonds, a sharp rise in insurance and asset management risks, as well as capital erosion resulting from catastrophe losses or other significant acquisitions, Moody's said. A downgrade of Japan's sovereign rating and operational failures associated with the HCC Insurance acquisition could also lead to a downgrade.