RPT-Fitch affirms Daido Life at IFS 'A+'; outlook stable

Thu Apr 18, 2013 3:05am EDT

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April 18 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Daido Life Insurance Company's (Daido Life) Insurer Financial Strength (IFS) rating at 'A+'. The Outlook is Stable.

Key Rating Drivers

The IFS rating reflects Daido Life's and its parent T&D Life Group's overall solid life insurance underwriting performance and robust capitalisation, the highest among Japanese traditional life insurers.

T&D Life Group is strengthening its enterprise risk management (ERM) to tighten control on capital and risks and has started to implement economic value-based capital management.

Daido Life will continue to extend the duration of its assets to narrow the gap with liabilities and therefore reduce interest rate risk, which remains the primary risk for the company.

Daido Life has been strengthening its profitable third sector such as medical insurance - with annual premium of new policies growing 31.7% yoy in the period of April to December 2012. In addition, the company's surrender and lapse rate steadily declined to 5.81% at end-December 2012 from 6.28% a year ago.

Owing to Daido Life's efforts to further accumulate its core capital and reduce its exposure to domestic equity, its statutory solvency margin ratio (SMR) improved to 977% at end-December 2012 from 851.9% at end-March 2012. Also, T&D Holdings, Inc.'s (T&D) consolidated SMR improved to 859.4% at end-December 2012 from 810.6% at end-March 2012.

Rating Sensitivities

An upgrade is unlikely in the near future, given the potential constraint from the sovereign rating. Japan's Long-Term Local-Currency Issuer Default Rating is 'A+' with Negative Outlook.

Key rating triggers for a downgrade include material erosion of capitalisation, deterioration in profitability and volatility in the insurer's embedded value.

Specifically, Daido Life's ratings may come under pressure if Fitch's assessment of internal capitalisation drops sharply, if the SMR declines below 650%, or if the embedded value becomes volatile for a prolonged period. Daido Life could exceed the sovereign's Local Currency IDR by one notch due to the company's overall robust credit profile, so a downgrade of the sovereign by one notch would not necessarily lead to the downgrade of the company's IFS rating.

Under Fitch's Insurance Rating Methodology, Daido Life is a "core" constituent of T&D. However, given the strength of its credit profile, Daido Life's rating does not include any uplift from it being part of T&D. As the core member of the group, Daido Life could be downgraded, however, if the prospects of either T&D or other members of the group were to worsen materially.

Daido Life is a domestic life insurer for Japanese small and medium-sized enterprises.

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