September 29, 2017 / 7:21 AM / 22 days ago

Fitch Affirms Meiji Yasuda Life at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/TOKYO, September 29 (Fitch) Fitch Ratings has affirmed Meiji Yasuda Life Insurance Company's (Meiji Yasuda Life) Insurer Financial Strength (IFS) Rating at 'A' 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 due 2045 at 'A-'. KEY RATING DRIVERS Meiji Yasuda Life's IFS is constrained by Japan's sovereign IDR of 'A', and rated one notch below the insurer's unconstrained IFS rating of 'A+'. Fitch will not rate Meiji Yasuda Life above the sovereign, given the company's high level of government debt holdings (39% of invested assets as of the financial year-end 31 March 2017 (FYE17)) and its limited business diversification outside Japan. The rating reflects a robust business position in Japan, strong capitalisation, and satisfactory operating performance. The rating also takes into account its large exposure to domestic equities (equity investment to adjusted equity was 104% at FYE17). Fitch believes Meiji Yasuda Life is likely to maintain sufficient capitalisation, backed by foundation funds (kikin), sustainable retained earnings and subordinated debt. Its statutory solvency margin ratio (SMR) on a consolidated basis remained high at 999% at FYE17, compared with 984% at FYE16. However, Fitch considers that the company's economic value-based capitalisation is being affected by the current low-interest environment, despite its duration mismatch between assets and liabilities being smaller than that of peers. Meiji Yasuda Life's core profit margin (core profit divided by gross premium income) had improved to 18% by FYE17, from 14% at FYE16, due largely to lower premium income, as the company controlled the sales of savings-type products from bank channels. Core profit was supported by substantial mortality and morbidity gains plus investment returns. Sales of higher-margin medical ("third-sector") insurance remained strong, with in-force premiums rising by 4%. Meiji Yasuda Life has been increasing investment in dollar-denominated bonds to enhance investment yield. Fitch estimates its unhedged foreign-currency exposure to adjusted equity is higher than that of its peers. RATING SENSITIVITIES An upgrade of the ratings is unlikely in the near future as the IFS rating is currently on a par with Japan's Long-Term Local-Currency IDR. However, the ratings on the subordinated notes would remain at 'A-', if Meiji Yasuda Life's IFS rating and IDR were downgraded to 'A-' due to a downgrade of Japan's IDR. Key rating triggers that could lead to a downgrade include: -A downgrade of Japan's Long-Term Local-Currency IDR. - A significant decline in the capital buffer - specifically, if the consolidated SMR were to decline to below 700% for a sustained period. - Decline in profitability due to a change in product mix - specifically, a decline in core profit margins to below 10% for a prolonged period. Contact: Primary Analyst Akane Nishizaki Associate Director +852 2263 9942 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Teruki Morinaga Director +81 3 3288 2781 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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