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Fitch Affirms Fukoku Life at IFS Rating 'A'; Outlook Stable
April 23, 2014 / 5:57 AM / in 4 years

Fitch Affirms Fukoku Life at IFS Rating 'A'; Outlook Stable

(The following statement was released by the rating agency) TOKYO/HONG KONG, April 23 (Fitch) Fitch Ratings has affirmed Fukoku Mutual Life Insurance Company's (Fukoku Life) Insurer Financial Strength (IFS) Rating at 'A' and its Long-Term Issuer Default Rating (IDR) at 'A-'. The Outlook is Stable. Fitch has also affirmed the company's EUR300m fixed- to floating-rate subordinated callable notes due on 28 September 2025 and USD500m cumulative perpetual subordinated notes at 'BBB'. KEY RATING DRIVERS The ratings reflect Fukoku Life's solid capitalisation and stable life insurance underwriting business with its successful focus on the more profitable third (health) sector. These strengths are offset by its smaller size and franchise compared with its larger rivals. Fukoku Life is the seventh-largest Japanese traditional life insurer, with a market share of 3% by value of policies in force at end-March 2013. Fukoku Life's capital adequacy has continued to improve. Its statutory solvency margin ratio (SMR) rose to 1,053.5% at end-December 2013, the second highest among Japanese traditional life insurers. The SMR has improved due to continuously accumulated capitalisation and reserves, increased unrealised gain on securities and its effective use of hybrid capital. In September 2013 the company issued USD500m of cumulative perpetual subordinated notes to international investors to strengthen capitalisation. Annualised premium in force at Fukoku Life's third sector has increased at a moderate but steady pace, rising 0.9% in April to December 2013. The agency estimates about half of Fukoku Life's total insurance underwriting profit is generated from its third-sector products and it expects the contribution from this segment to continue to expand. To better manage risk and cope with Japan's new economic solvency regime, the company is strengthening its enterprise risk management (ERM) and is steadily narrowing the duration gap between its assets and liabilities to reduce interest rate risk, which remains one of the primary risks for the company. Fukoku Life was established in 1923 and it is one of Japan's nine major traditional life insurers. RATING SENSITIVITIES Positive rating action may be considered if Fukoku Life maintains its SMR at well above 700%, or if Fitch's own assessment of capital adequacy improves further, on a sustained basis. Fitch would also view positively further growth in the company's health insurance sector or further improvement in the surrender and lapse rates of death protection products. Negative rating action may result from material erosion of capitalisation and deterioration in profitability, particularly if Fitch's assessment of capital adequacy drops sharply, the SMR falls below 600% or financial leverage increases to above 35% (15.4% at end-December 2013), for a prolonged period. 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 Harish Gohil Managing Director +44 20 3530 1257 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 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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