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Fitch Affirms Daido Life and Taiyo Life at 'A'/Stable; Withdraws Taiyo Life's Rating
October 23, 2017 / 4:48 AM / 2 months ago

Fitch Affirms Daido Life and Taiyo Life at 'A'/Stable; Withdraws Taiyo Life's Rating

(The following statement was released by the rating agency) TOKYO/HONG KONG, October 23 (Fitch) Fitch Ratings has affirmed the Insurer Financial Strength (IFS) Ratings of Daido Life Insurance Company and Taiyo Life Insurance Company at 'A(Strong)'. The Outlook is Stable. At the same time, Fitch has chosen to withdraw the rating of Taiyo Life for commercial reasons. KEY RATING DRIVERS Daido Life and Taiyo Life are core subsidiaries of T&D Holdings, Inc, whose consolidated group solvency margin ratio remained strong at 1,105% at end-March 2017 (end-March 2016: 1,156%). Fitch sees T&D's overall credit profile as solid. Daido Life's IFS Rating reflects its sound operating performance and robust capitalisation at both standalone and group levels. Its statutory solvency margin ratio remains the highest among traditional Japanese life insurers, at 1,253% at end-March 2017 (end-March 2016: 1,342%). Daido Life's unconstrained standalone IFS Rating is 'A+'. Taiyo Life's unconstrained standalone IFS Rating reflects its adequate performance and capitalisation at the standalone level. Fitch sees Taiyo Life as a core company within T&D, along with Daido Life, under the agency's Insurance Rating Methodology. Therefore, Taiyo Life shares the same IFS Rating as Daido Life, incorporating a one-notch uplift. Japan's Long-Term Local-Currency Issuer Default Rating (IDR) is 'A' with a Stable Outlook. Both Daido Life and Taiyo Life have a high level of government debt holdings (24% and 23%, respectively, of invested assets at end-March 2017) and no overseas business diversification to counterbalance the Japanese government bond holdings. Therefore, the insurers' final IFS Ratings are capped by Japan's sovereign rating. Fitch believes some risks remain in the duration mismatch between Daido Life's assets and liabilities under the ongoing low-interest-rate environment. There is also price fluctuation risk in both insurers' domestic equity holdings, which are smaller than at most traditional Japanese life insurers, but larger than at most similarly rated foreign life insurers. Japanese life insurers' economic capital and economic solvency ratios improved in 2017 due to a moderately steepening yield curve on yen fixed-income and remain sufficient for the insurers' current ratings. T&D's consolidated economic solvency ratio improved to 175% at end-March 2016, from 162% a year earlier. Daido Life provides insurance for Japanese SMEs, while Taiyo Life provides insurance for domestic households, including for elderly women - its core customers- and their families. T&D had a 7% market share in Japan's life insurance market by value of policies in force at end-March 2017. RATING SENSITIVITIES An upgrade of Daido Life is not probable in the near-term due to the constraint of the sovereign rating. Japan's Issuer Default Rating caps the insurer's Insurance Financial Strength Ratings, despite its strong standalone credit fundamentals. Conversely, Daido Life's rating is likely to be downgraded if Japan's rating is downgraded. The following could lead to a downgrade of Daido Life's rating: -A significant decline in the capital buffer; specifically, if T&D's consolidated solvency margin ratio falls below 700% for a sustained period -Decline in Daido Life's profitability- specifically, a decline in core profit margins to below 10% for a prolonged period -Daido Life's and T&D's embedded value substantially declines for a prolonged period Rating sensitivities are not applicable for Taiyo Life as its ratings have been withdrawn. 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 Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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