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April 25 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Japan-based Mitsui Life Insurance Company Limited's (Mitsui Life) Insurer Financial Strength (IFS) rating at 'BBB'. The Outlook is Stable.
The affirmation of the rating reflects Mitsui Life's adequate capitalisation, moderate investment risks and its focus on higher margin medical and health care products (known in Japan as third-sector products). These strengths are moderated by the high degree of sensitivity of its embedded value to potential movements in interest rates due to persistent duration mismatches between asset and liabilities.
Fitch expects Mitsui Life to maintain an adequate capital buffer that will underpin its current ratings. The company has relatively low exposure to equities in its total invested assets (7.3% at end December 2013, estimated by Fitch). Mitsui Life's statutory solvency margin ratio (SMR) was 631.5% at end-December 2013, an improvement from 601.3% at the end of the financial year ended March 2013 (FY13), due mainly to increased unrealised gain on marketable securities. The financial leverage ratio remained low at 16% at end-December 2013.
Mitsui Life is likely to maintain higher margins for the value of new business compared with its peers. Annualised new sales premiums from the third sector have been declining since FY10, however they still generated one-third of the company's new business premiums in the first nine months of FY2014, which is higher than the industry average of 23%. Its core profit margin, excluding the impact of the change in variable annuity reserves, improved to 5.0% in 9M14 from 4.3% a year earlier on increased interest income, but remained relatively low due to negative spread burden.
Key rating triggers for an upgrade include sustained improvement in its capital adequacy and a turnaround in sales of third-sector products. In particular, an upgrade may be considered if the SMR remains well above 500% for a sustained period or if Mitsui Life's capitalisation measured by Fitch improves on a sustained basis.
Key rating triggers for a downgrade include deterioration of capitalisation, a significant decline in profitability or increased sensitivity to interest rate movements.