Fitch Affirms Japan's Asahi Life at IFS 'BB'; Outlook Positive

Wed Apr 16, 2014 2:28am EDT

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(The following statement was released by the rating agency) TOKYO/HONG KONG, April 16 (Fitch) Fitch Ratings has affirmed Japan-based Asahi Mutual Life Insurance Co.'s (Asahi Life) Insurer Financial Strength (IFS) rating at 'BB'. The Outlook is Positive. KEY RATING DRIVERS The IFS rating reflects Asahi Life's weak capital adequacy compared with its peers' as well as its resilient insurance underwriting backed by the company's effective focus on the more profitable third (health) sector. Asahi Life's statutory solvency margin ratio (SMR) improved to 540.7% at end-December 2013 from 495.8% at end-March 2013, due to its accumulated capitalisation and reserves, its increased unrealised gains on securities, and its continuous efforts to reduce risk in its investments. The company's insurance underwriting business has been stable due to its effective focus on the more profitable third sector. Annual premiums of in-force policies of Asahi Life's third sector grew 1.3% in April to December 2013, partly because it launched a care insurance product, ahead of most of its peers. Fitch believes that the company's efforts in promoting third sector products via several non-traditional channels, including banks, are likely to further enhance its strength in this segment. Nevertheless, in comparison with its peers' average SMR of more than 700%, Asahi Life's capital position is weak. In addition, Asahi Life's negative spread burden remains sizable and continues to offset gains from better-than-projected mortality and morbidity rates. However, Fitch expects the company's capital adequacy to slowly but steadily strengthen due to accumulated capitalisation. The agency also expects Asahi Life's negative spread burden to moderately shrink as a consequence of gradually declining average guaranteed yields over the medium term. Asahi Life is the sixth-largest traditional domestic life insurer in Japan with a 3% market share by value of policies in force at end-March 2013. RATING SENSITIVITIES Key rating triggers for an upgrade include: a further strengthening of capitalisation, particularly if the SMR remains well above 400%; further improvement in Fitch's internal capitalisation measure; and a decline in financial leverage (with kikin (foundation funds) treated as debt) to below 45%, on a sustained basis. Growth in the company's third sector business and reduction in the surrender and lapse rates of its death protection products would also be viewed positively by Fitch. Key rating triggers for a downgrade include: material erosion of capitalisation, specifically, a decline in the SMR to below 300% or deterioration in Fitch's internal capitalisation measure on a sustained basis. Significant deterioration in profitability would also put the rating under pressure. Contacts: Primary Analyst Teruki Morinaga Director +81 3 3288 2781 Fitch Rating Japan Limited Kojimachi Crystal City East Wing 3F 4-8 Kojimachi, Chiyoda-ku Tokyo 102-0083 Secondary Analyst Akane Nishizaki Associate Director +852 2263 9942 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 at www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013, are available on 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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