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Fitch Affirms Dai-ichi Life's IFS Rating at 'A+'; Outlook Stable
November 6, 2017 / 6:07 AM / 18 days ago

Fitch Affirms Dai-ichi Life's IFS Rating at 'A+'; Outlook Stable

(The following statement was released by the rating agency) TOKYO/HONG KONG, November 06 (Fitch) Fitch Ratings has affirmed The Dai-ichi Life Insurance Company, Limited's (Dai-ichi Life) Insurer Financial Strength (IFS) Rating at 'A+' (Strong) and its Long-Term Issuer Default Rating (IDR) at 'A'. The Outlook is Stable. Fitch has also affirmed the company's US dollar-denominated subordinated notes at 'A-'. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS Dai-ichi Life's ratings reflect strong capital adequacy, steady growth in the more profitable domestic third (health) sector, a well-established brand as Japan's second-largest life insurer and parent Dai-ichi Life Holdings, Inc.'s (Dai-ichi Life Holdings) successful international expansion. However, its capital adequacy is susceptible to interest-rate and stock-market volatility due to the duration mismatch between assets and liabilities as well as a high investment exposure to domestic equities (risky assets/adjusted equity of 136% at end-March 2017). Dai-ichi Life Holdings' successful global diversification counterbalances its heavy Japanese government debt holdings (28% at end-March 2017 on a consolidated basis). As a result, we rate Dai-ichi Life up to one notch above the Japanese sovereign (Long-Term Local-Currency IDR: A/Stable), as outlined in Fitch's methodology. Dai-ichi Life Holdings has managed to integrate Australia-based TAL Group, whose core business is life insurance, and US-based Protective Life Corporation (Protective, IFS Ratings of primary life insurance subsidiaries, such as Protective Life Insurance Company: A+/Stable) after the companies were acquired. Dai-ichi Life Holdings disclosed that it derived more than 20% of its consolidated annualised premiums in-force from outside Japan (mainly from the US and Australia) in the financial year ended March 2017 (FYE17). This is considerably more than other Japanese life insurers and Fitch expects Dai-ichi Life Holdings' international insurance businesses to continue growing steadily, supported by Protective's sustainable organic growth and further M&As. The agency will monitor any integration and governance risks that could possibly arise from Dai-ichi Life Holdings' international M&As. RATING SENSITIVITIES An upgrade of the IFS Rating is unlikely in the near term as it is constrained by the sovereign rating. Conversely, if the rating on Japan is lowered, the IFS Rating on the insurer is also likely to be lowered. However, the subordinated debt's rating will remain at 'A-', even if Dai-ichi Life's IFS Rating and Long-Term IDR are downgraded to 'A-' because of the sovereign downgrade, according to Fitch's methodology. The following could lead to a downgrade of Dai-ichi Life: -A significant decline in the capital buffer; specifically, if Dai-ichi Life Holdings' consolidated solvency margin ratio falls below 600% (749% at end-March 2017) for a sustained period. -A decline in Dai-ichi Life's profitability- specifically, a decline in core profit margins to below 10% (15% in FYE17) for a prolonged period. -Dai-ichi Life's and Dai-ichi Life Holdings' embedded value substantially declines for a prolonged period. FULL LIST OF RATING ACTIONS The Dai-ichi Life Insurance Company, Limited: --IFS Rating affirmed at 'A+'; Outlook Stable, --Long-Term IDR affirmed at 'A'; Outlook Stable, --USD1.3 billion cumulative perpetual subordinated notes with interest deferral options issued in March 2011affirmed at 'A-' --USD1 billion cumulative perpetual subordinated notes with interest deferral options issued in October 2014 affirmed at 'A-' --USD2.5 billion cumulative perpetual subordinated notes with interest deferral options issued in July 2016 affirmed at 'A-' Contact: Primary Analyst Teruki Morinaga Director +81 3 3288 2781 Fitch Ratings Japan Limited Kojimachi Crystal City East Wing 3F 4-8 Kojimachi, Chiyoda-ku Tokyo 102-0083 Secondary Analyst Akane Nishizaki Associate Director +852 2263 9942 Committee Chairperson Julie Burke Managing Director +1 312 368 3158 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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