TEXT-Fitch affirms Meiji Yasuda Life at IFS 'A'
(The following statement was released by the rating agency)
Sept 28 - Fitch Ratings has affirmed Meiji Yasuda Life Insurance Company's (Meiji Yasuda Life) Insurer Financial Strength (IFS) Rating at 'A'. The Outlook is Stable.
The affirmation reflects Meiji Yasuda Life's robust capitalisation, its well established market position, stable core profit, and adequate asset and liability management (ALM). Offsetting factors are the company's high exposure to domestic equities relative to peers and low new business margins.
Capital adequacy strengthened through the issue of additional JPY100bn of foundation funds (kikin) in August 2012. The statutory solvency margin ratio (SMR), for the fiscal year ended March 2012, was 749.6%, up from 663.6% at FYE11, the highest among Japan's four major life insurers. However, capital adequacy remains volatile due to the high exposure to domestic equities, which accounted for 9.2% of general account assets at FYE12, versus the sector's average of 8.2%.
Meiji Yasuda Life's European embedded value is less sensitive to interest rate movements compared with its peers, which is positive for the rating. This is a result of the company's efforts to narrow the duration gap between its assets and liabilities. Offsetting this, the sizable amount of single-premium products sold through bank channel in FY12 (44% of total premium income) could cause investment loss if interest rates rise sharply and surrender rates increase.
Value of new business rose 38% yoy in FY12, mainly driven by strong sales growth of single-premium whole life products from bank channels. However, growth of annualised in-force premium of the third sector products such as medical insurance was flat, leaving new business margins lower than that of peers at 4.37% at FYE12.
Key rating triggers for an upgrade include reduced volatility in capital adequacy through reduction of exposure to domestic equities. In particular, the rating may be upgraded if the SMR is maintained at well above 700% and if Fitch's internal capital adequacy measures improve on a sustained basis. Improvement in profitability through stable sales growth of protection-type products will also be positive for the rating.
Key rating triggers for a downgrade includes sustained drop in the capital buffer and sustained deterioration in profitability. A weakened capital buffer is likely to be manifested in the SMR declining below 600% or in Fitch's internal capital adequacy measures falling on a sustained basis.
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