(The following statement was released by the rating agency)
Nov 14 -
Summary analysis -- Meiji Yasuda Life Insurance Co. --------------- 14-Nov-2012
CREDIT RATING: Country: Japan
Local currency A/Stable/A-1
Primary SIC: Life insurance
Credit Rating History:
Local currency Foreign currency
22-Dec-2010 A/A-1 --/--
04-Feb-2005 A-/A-1 --/--
Our ratings on Meiji Yasuda Life Insurance Co. (Meiji Yasuda Life; A/Stable/A-1) reflect the company’s strong competitive position as one of Japan’s largest life insurers, good-quality investments, strong asset-liability management, and adequate capitalization. Weaknesses include the company’s relatively large exposure to stocks and concentration risk toward Japanese banks.
Standard & Poor’s Ratings Services holds the view that Meiji Yasuda Life occupies a strong competitive position as a leader in Japan’s group life insurance market, with good business growth in the individual life insurance and annuities market. At the end of March 2012, the company had a market share of 29.5% in the group life insurance segment in terms of business-in force. Its leading position in the group life market is supported by a strong customer base, including financial institutions and local government offices, which the insurer had inherited from the former Meiji Life Insurance Co. and the former Yasuda Mutual Life Insurance Co. Meiji Yasuda Life effectively utilizes its strong customer base. For example, it promotes individual insurance products to retired employees who had been covered by group life insurance policies.
In fiscal 2011 (ended March 31, 2012), the insurer’s annualized premiums for both new and in-force business for individual life and annuities saw strong year-on-year growth. That was fueled by the rapid expansion of single premium whole life insurance sales at its bank channel and improved efficiency in its tied agency channel. Although the sum insured amount of its in-force business continues to decline, some indicators, including the retention rate of its sales agents, lapse ratio, and persistency rate, have also improved and helped the company to maintain its operating performance.
In its three year medium-term management plan between fiscal 2011 and fiscal 2013 (ending March 31, 2014), Meiji Yasuda Life aims to achieve stable growth and channel its investments into growing business areas, such as overseas life insurance and nursing care. In overseas life insurance, the company jointly acquired stakes in two major insurance groups in Poland with Talanx AG (A-/Stable/--). The acquisitions are backed by a strategic alliance agreement that Meiji Yasuda Life entered into with Talanx in November 2010 to formalize their capital and business alliance. In addition, Meiji Yasuda Life has ventured into the life insurance markets in Indonesia and China during the past few years. However, Standard & Poor’s expects that it will likely take time for the overseas businesses to make a material contribution to the insurer’s overall earnings.
The company’s core insurance profit (kiso rieki) in fiscal 2011 rose after its negative spread turned positive, thanks to an increase in its interest and dividend income and accumulation of additional liability reserves. The improvement was also due to an increase in its mortality and morbidity margin, caused by a rebound from insured losses generated by the Great East Japan Earthquake on March 11, 2011. We believe the company’s interest margin will increase, given the gradual decline of its assumed interest rate on liability reserves, and contribute to the insurer’s profitability. On the other hand, the company’s overall profitability--measured by core insurance profit divided by its general account assets--could decline, given that the sales trend in its savings-type products remains unchanged. The profitability of savings-type products such as whole life insurance and individual annuities, which are the primary driver of its recent sales growth, is lower than that of protection-type products. It is crucial to see if the company will be able to utilize its new customer base acquired through its bank channels, as well as strengthen its tied agents’ consultancy skills and improve after-sales service for in-force policies, to boost sales of profitable protection-type products.
Meiji Yasuda Life has a good-quality investment portfolio and its asset-liability management (ALM) is strong, in our view. Using the standards for surplus management-type ALM and taking into account insurance liability characteristics, it is striving to improve its asset portfolio. Surplus management-type ALM is used to recognize positive differentials between assets and liabilities, evaluated on a market-consistent and economic-value basis, and to control surplus fluctuation risks. The insurer is accumulating assets such as yen-denominated public and corporate bonds and loans. It is also reducing interest rate risk by lengthening bond durations to reduce asset-liability duration mismatch and utilizing swaps. The company is also reducing volatile assets such as stocks. However, it still has a large exposure to stocks in its general account assets, and has particular credit concentration risk toward Japanese banks. As the company has increased sales of single premium whole life insurance, it is pressed to manage lapse risk, which could be caused by an increase in the surrender ratio if there is an interest rate hike, in our opinion.