June 26, 2014 / 7:06 AM / in 3 years

RPT-Fitch Affirms Japan's Taiyo Life at IFS 'A'; Outlook Stable

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June 26 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Japan-based Taiyo Life Insurance Company's (Taiyo Life) Insurer Financial Strength (IFS) rating at 'A'. The Outlook is Stable.

Key Rating Drivers

The IFS rating reflects the company's growing profitable protection insurance business and its strong capitalisation. Due to its overall solid fundamentals, Taiyo Life is increasingly important to T&D Life Group, contributing to the group's improving financial strength.

Taiyo Life's statutory solvency margin ratio (SMR) improved to 981.3% at end-March 2014 from 823.4% a year earlier, mainly because the company has further accumulated capital. This is lower than that of its sister company Daido Life Insurance Company (IFS A+/Negative), but still commensurate with an 'A' rating.

The company's financial leverage increased to 21.5% at end-March 2014 from 15.8% a year earlier, because Taiyo Life issued dated subordinated debts of JPY50bn in September 2013. This is high among IFS 'A' category domestic peers, but is still considered consistent with an 'A' rating.

Taiyo Life's effective asset liability management (ALM) has resulted in its assets and liabilities being closely matched in duration, which is exceptional among Japanese traditional life insurers. Also, Taiyo Life's exposure to high-risk assets remains one of the lowest among Japanese traditional life insurers and is consistent with the company's current rating.

The company's underwriting fundamentals continue to improve due to its increased efforts to promote protection products, which are more profitable than its other products. The insurer's policy amount in force continued to grow, at 2.7% yoy in the financial year ended March 2014 (FYE14), faster than that at most other Japanese traditional life insurers.

Taiyo Life provides insurance for households, mainly for elderly women who have been its core customers thus far.

Rating Sensitivities

Key rating triggers for an upgrade include further evidence of the company becoming more integrated within T&D Holdings, Inc. (T&D) and therefore being considered "core" to the group according to Fitch's group rating methodology. In particular, further growth in protection insurance and strengthened capital adequacy within the operating entities of T&D would be regarded as potential upgrade factors.

Key rating triggers for a downgrade include material erosion of capitalisation, deterioration in profitability and volatility in the embedded value within the combined operating entities of T&D. Specifically, Taiyo Life's rating may also come under pressure if Fitch's internal capitalisation measures for T&D drop sharply, T&D's consolidated SMR declines below 600% (1,115.0% at end-March 2014), T&D's consolidated financial leverage increases above 35% (10% at end-March 2014), or the embedded value at T&D becomes volatile for a prolonged period.

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