Dec 13 -
Summary analysis -- MetLife Alico Life Insurance KK --------------- 13-Dec-2012
CREDIT RATING: Country: Japan
Local currency AA-/Negative/A-1+
Primary SIC: Life insurance
Credit Rating History:
Local currency Foreign currency
02-May-2012 AA-/A-1+ --/--
26-Mar-2012 A+/A-1 --/--
Our ratings on MetLife Alico Life Insurance KK (MetLife Alico Japan) reflect its core status in the MetLife group. They also reflect MetLife Alico Japan's strong stand-alone credit profile, supported by a strong distribution network and its wide range of product offerings; strong earnings from relatively low-risk products; and adequate capitalization relative to the risks it assumes. On the other hand, the slow recovery in Japan's economy is likely to mute MetLife Alico's sales growth and earnings potential.
MetLife Alico Japan is a subsidiary of American Life Insurance Co. (Alico; AA-/Stable/--), which MetLife Inc. (MET; A-/Stable/A-2) acquired in 2010. We view Alico as a core operating subsidiary of the MetLife group, given the successful integration of Alico's markets, distribution channels, and product sets into the group. MetLife Alico Japan was established on April 1, 2012, as a Japan subsidiary to succeed the business of a Japanese branch of Alico. We consider MetLife Alico Japan as a core subsidiary of both Alico and the MetLife group because its capital and earnings constitute a majority of Alico's capital and earnings, and it also contributes a significant portion to the overall capital and earnings of the MetLife group. In addition, the MetLife group has a strong commitment to MetLife Alico Japan's business operations.
The ratings reflect MetLife Alico Japan's strong competitive position and business profile. The company has a strong distribution network and good product diversification. We believe that it has good potential to ride on the strength of MET's branding and increase its market share under MET's leadership. However, the slow recovery in Japan's economy and tough competition among insurance companies could mute its growth potential, in our view.
Standard & Poor's believes that MetLife Alico Japan is adequately capitalized relative to the risks it assumes. The company completed the transfer of business from a Japanese branch of Alico at the end of May 2012. Although the net assets as of Sept. 30, 2012, fell by JPY80.9 billion from the amount that Alico Japan recorded as of March 31, 2012, its solvency margin ratio remained high at 897.5%. We expect the company to be well capitalized and to maintain its solvency margin ratio at a good level. We also believe that the parent group will provide funding to support growth, if necessary.
MetLife Alico Japan derives its strong and stable earnings from a good mix of protection businesses (life and medical insurance) and savings businesses (annuities and retirement services). The products have relatively low risk and high margins and should improve the MetLife group's overall earnings quality. Its net income in fiscal 2011 (ended March 2012) slipped JPY5.6 billion from fiscal 2010 (ended March 2011) to JPY63.5 billion due to JPY54.9 billion of provisions for price fluctuation reserves. Although its core insurance profit declined to JPY113.5 billion in fiscal 2010, mainly because of payments for damages incurred in the Great East Japan earthquake, in fiscal 2011, the core insurance profit improved to JPY153.5 billion, mainly due to a decline in foreign exchange loss.
Its return on assets (ROA; core insurance profit divided by the two-year average of general account investment assets) was 2.12% in fiscal 2011 and higher than its peers. The company doesn't have negative spread and its profitability is supported by profitable third-sector insurance products (medical insurance and cancer insurance.) However, its acquisition cost has increased, putting pressure on its core insurance profit.
We believe that MetLife Alico Japan has adequate risk controls in place and it will benefit from the MetLife group's strong enterprise risk management (ERM) program.
MetLife Alico Japan's investment portfolio is heavily invested in investment-grade sovereign and corporate bonds and has a very small portion of equity assets. The company holds a high portion of foreign-currency denominated securities to match its large portion of foreign-currency liabilities. MET has been actively reducing the higher-risk assets in Alico's investment portfolio since acquiring the company in 2010.
The negative outlook on MetLife Alico Japan reflects that on Japan. Although the outlook on the MetLife group's core operating companies, including Alico, is stable, our ratings and outlook on MetLife Alico Japan are constrained by the sovereign ratings on Japan, because it operates only in Japan and it has a high percentage of domestic assets in its investment assets. Even if we upgrade the core subsidiaries of the MetLife group, the ratings on MetLife Alico Japan will continue to be capped by the Japan sovereign ratings. If we downgrade the MetLife group's core subsidiaries, we are likely to downgrade the company as well.
Related Criteria And Research
Principles Of Credit Ratings, Feb. 16, 2011
Interactive Ratings Methodology, April 22, 2009.
Group Methodology, April 22, 2009