Fitch Rates Sumitomo Life's USD Sub Notes 'BBB'

Tue Sep 17, 2013 1:19am EDT

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(The following statement was released by the rating agency) HONG KONG/TOKYO, September 17 (Fitch) Fitch Ratings has assigned Sumitomo Life's USD1bn 6.5% cumulative subordinated notes with interest deferral options due 2073 a 'BBB' rating. Fitch has simultaneously affirmed Sumitomo Life's Insurer Financial Strength (IFS) Rating at 'A' and its Long-Term Issuer Default Rating at 'A-'. The Outlook is Stable. KEY RATING DRIVERS The subordinated notes are rated two notches below Sumitomo Life's IDR to reflect its loss absorption features, including the issuer's option to defer coupon payment. The notes are recognised by regulators as capital under Japan's statutory solvency margin. This led Fitch to assign the notes 100% equity credit in the agency's internal assessment of capital adequacy. However, since the notes are dated, they are treated as 100% debt in Fitch's assessment of Sumitomo Life's financial leverage. The proceeds from the debt issue will be used to refinance Sumitomo Life's JPY100bn outstanding perpetual subordinated debt. Thus Fitch is of the view that the issuance of new USD-denominated subordinated notes will have a limited impact on the company's credit profile, despite a slight rise in its financial leverage ratio. Sumitomo Life's ratings reflect its sufficient capitalisation, moderate leverage and its stable mortality and morbidity margins. These strengths are offset by the susceptibility of its economic-value based capital to interest-rate volatility due to persisting duration mismatch between assets and liabilities. RATING SENSITIVITIES Sumitomo Life's ratings could be upgraded if its statutory solvency margin ratio remains well above 700% (832.8% at end March 2013); if Fitch determines there is a sustained improvement in capitalisation; or if the insurer manages to substantially reduce the sensitivity of its economic-value based capital to interest-rate volatility. Fitch could downgrade the ratings if capitalisation drops sharply on Fitch's internal assessment; if financial leverage increases to a level consistently above 35% (15% at end March 2013); profitability deteriorates; or if the embedded value becomes volatile for a prolonged period. Contact: Primary Analyst Akane Nishizaki Associate Director +852 2263 9942 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Teruki Morinaga Director +81 3 3288 2781 Committee Chairperson David Prowse Senior Director +44 20 3530 1250 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Insurance Rating Methodology'', dated 19 August 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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