RPT-Fitch Revises Outlooks on 8 Japanese Insurers, Aflac to Negative

Wed Jun 11, 2014 3:13am EDT

(Repeat for additional subscribers)

June 11 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has revised the Outlooks on eight Japanese insurers, and one US insurer with significant Japanese business exposure, to Negative from Stable. The ratings on all of the insurers have been affirmed. The nine insurers are The Dai-ichi Life Insurance Company, Limited (Dai-ichi Life), Daido Life Insurance Company (Daido Life), Meiji Yasuda Life Insurance Company (Meiji Yasuda Life), Mitsui Sumitomo Insurance Company , Limited (MSI), Nippon Life Insurance Company (Nippon Life), Sompo Japan Insurance, Inc. (Sompo Japan), Sumitomo Life Insurance Company (Sumitomo Life), Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF), and Aflac, Inc. (Aflac). A full list of rating actions is provided at the end of this commentary.

KEY RATING DRIVERS

The Outlook revisions follow the agency's previously announced review of the ratings on these insurers in light of the ongoing Negative Outlook for the 'A+' sovereign rating on Japan. See "Fitch to Review Ratings of Nine Insurers Linked to Japan Sovereign" dated 26 May 2014 at www.fitchratings.com for a more detailed discussion on the rationale and nature of the review. The insurers subject to the review are rated at or above Japan's Long-Term Local Currency Issuer Default Rating (IDR).

As part of its review, which involved taking a fresh look at these issues by the agency, Fitch concluded that only Japanese insurers with both very strong credit quality and sizeable international business diversification can be rated above the sovereign rating, if they hold high levels of government debt (that is, more than 20% of their invested assets). In Fitch's view, insurance groups that generate 20% or more of their net premiums from sources outside of Japan on a sustained basis would be considered as having sizeable international business diversification. These parameters are similar to those used by Fitch in its evaluations of insurers facing sovereign constraints in other parts of the world, including Europe.

Fitch concluded that of the nine insurers under review, TMNF and Aflac have achieved sufficient international business diversification to counterbalance the impact on their rating as a result of their heavy Japanese government debt holdings. This allows the ratings on these two insurers to be rated higher than the sovereign rating.

TMNF is one of the core companies of Tokio Marine Group, which generates about 35% of its net premium, and about 50% of its adjusted after-tax earnings, from its international business (under Japanese GAAP). Aflac generates about 25% of its net premium and about 25% of its pre-tax operating earnings from outside Japan (under US GAAP). While the Insurer Financial Strength (IFS) ratings on TMNF and Aflac's operating subsidiaries were affirmed at 'AA-', their Outlooks have been revised to Negative from Stable since Fitch no longer envisions rating these entities more than one notch above the sovereign.

The other seven insurers that have high levels of Japanese government debt do not have sufficient international business diversification to counterbalance the impact of their government holdings. Fitch has revised the Outlook on their ratings to Negative from Stable to align with the Outlook of the sovereign rating.

The Japanese insurance sector's credit fundamentals, aside from sovereign risk, remain strong, with improving operating performance and strengthened capitalisation. Therefore, Fitch's underlying fundamental sector outlook remains Positive for the life insurance sector and Stable for the non-life insurance sector.

RATING SENSITIVITIES

With the insurers currently rated at or above Japan's Long-Term Local-Currency IDR, an upgrade of any of the nine insurers above is unlikely in the near future.

Conversely, if the rating on Japan were lowered, the ratings on the insurers are also likely to be lowered.

FULL LIST OF RATING ACTIONS

Rating actions on the eight Japanese insurers included in this review are:

The Dai-ichi Life Insurance Company, Limited.

--IFS Rating affirmed at 'A+'; Outlook changed to Negative from Stable

--Long-Term IDR affirmed at 'A'; Outlook changed to Negative from Stable

Daido Life Insurance Company

--IFS rating affirmed at 'A+'; Outlook changed to Negative from Stable

Meiji Yasuda Life Insurance Company

--IFS Rating affirmed at 'A+'; Outlook changed to Negative from Stable

Mitsui Sumitomo Insurance Company, Limited

--IFS Rating affirmed at 'A+'; Outlook changed to Negative from Stable

--Long-Term IDR affirmed at 'A+'; Outlook changed to Negative from Stable

--USD1.3bn subordinated notes due 2072 affirmed at 'A-'

Nippon Life Insurance Company

--IFS Rating affirmed at 'A+'; Outlook changed to Negative from Stable

--Long-Term IDR affirmed at 'A'; Outlook changed to Negative from Stable

--USD2bn subordinated notes due 2042 affirmed at 'BBB+'

Sompo Japan Insurance Inc.

--IFS Rating affirmed at 'A+'; Outlook changed to Negative from Stable

--Long-Term IDR affirmed at 'A+'; Outlook changed to Negative from Stable

--USD1.4bn subordinated notes due 2073 affirmed at 'A-'

Sumitomo Life Insurance Company

--IFS Rating affirmed at 'A+'; Outlook changed to Negative from Stable

--Long-Term IDR affirmed at 'A'; Outlook changed to Negative from Stable

--USD1bn subordinated notes due 2073 affirmed at 'BBB+'

Tokio Marine & Nichido Fire Insurance Co., Ltd.

--IFS Rating affirmed at 'AA-'; Outlook changed to Negative from Stable

Rating actions on the U.S. insurer with significant Japanese exposures included in this review are:

Aflac, Inc.

--Long-Term IDR affirmed at 'A'; Outlook changed to Negative from Stable

--3.65% USD 700 million senior notes due June 2023 affirmed at 'A-';

--2.26% Uridashi notes due September 2016 affirmed at 'A-';

--1.47% Samurai notes due July 2014 affirmed at 'A-';

--1.84% Samurai notes due July 2016 affirmed at 'A-';

--Variable Samurai notes due July 2014 affirmed at 'A-';

--8.5% senior notes due May 15, 2019 affirmed at 'A-';

--6.9% senior notes due Dec. 17, 2039 affirmed at 'A-';

--3.45% USD300m senior notes due Aug. 15, 2015 affirmed at 'A-';

--6.45% USD450m senior notes due Aug. 15, 2040 affirmed at 'A-';

--2.65% USD650m senior notes due Feb. 15, 2017 affirmed at 'A-';

--4.0% USD350m senior notes due Feb. 15, 2022 affirmed at 'A-';

--5.5% USD500m junior subordinated debentures due Sept. 15, 2052 affirmed at 'BBB';

American Family Life Assurance Co. of Columbus

American Family Life Assurance Co. of New York

Aflac Japan

--IFS Rating affirmed at 'AA-'; Outlook changed to Negative from Stable

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article