TEXT-Fitch affirms Dai-ichi Life at IFS 'A'; outlook stable

Wed Oct 10, 2012 2:42am EDT

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(The following statement was released by the rating agency)

Oct 10 - Fitch Ratings has affirmed The Dai-ichi Life Insurance Company Limited's (Dai-ichi Life) Insurer Financial Strength (IFS) Rating at 'A' and its Long-Term Issuer Default Rating (IDR) at 'A-'. The Outlook is Stable. Simultaneously, the agency has affirmed Dai-ichi Life's USD500m subordinated notes due 17 March 2014 at 'BBB+'.

The ratings reflect Dai-ichi Life's overall stable life insurance underwriting and adequate capitalisation. The company's surrender and lapse rate was stable at 4.69% at end-March 2012 and remains the lowest among domestic peers. Efforts to further reduce its domestic equity holdings have helped improve its new statutory solvency margin ratio (SMR), despite a weak domestic equity market, to 575.9% at end-March 2012 from 547.7% at end-March 2011.

Dai-ichi Life's annual in-force premium from the profitable third (health) sector grew 1.7% for the financial year ended March 2012. Fitch estimates that the health sector represents about half of Dai-ichi Life's total insurance underwriting profit. The agency expects Dai-ichi Life's profits to continue to grow, supported by the health sector and by the company's growing international business. The company's negative spread burden remains sizable mainly due to persistently low bond yields in Japan. However, Fitch believes that the spread burden is likely to gradually narrow on sustained reduction of the average guaranteed yield.

In anticipation of the introduction of Japan's local statutory SMR based on economic value, Dai-ichi Life is strengthening its enterprise risk management and reducing the duration mismatch between assets and liabilities. It is also steadily reducing its domestic equity holdings by book value to JPY1,675bn at end-March 2012 from JPY1,916bn at end-March 2011 and exposure to European peripheral countries to JPY107bn at end-March 2012 from about JPY160bn at end-September 2011.

Key positive rating triggers include a further strengthening of capital adequacy, with sustained improvement in Fitch's internal risk-based capitalisation. Earnings growth arising from the currently profitable health sector and successful expansion of international operations would also be positive for ratings.

Key negative rating triggers include material erosion of capitalisation, deterioration in profitability and volatility in the embedded value. Specifically, negative rating action may result from Fitch's internal capitalisation measure falling sharply, or the SMR declining below 500% for a prolonged period.

Dai-ichi Life is the second-largest life insurance company in Japan with a market share of 16.6% by policies in force at end-March 2012.

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