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Fitch to Review Ratings of 9 Insurers Linked to Japan Sovereign
May 26, 2014 / 5:52 AM / 3 years ago

Fitch to Review Ratings of 9 Insurers Linked to Japan Sovereign

(The following statement was released by the rating agency) TOKYO/HONG KONG, May 26 (Fitch) Fitch Ratings said today it will review the ratings on eight Japanese insurers and one US insurer with significant Japanese business exposure to assess the implications of the Negative Outlook for the sovereign rating of Japan. The list of insurers can be found below. Fitch expects its review to conclude within the next two to three weeks. Fitch on 14 May 2014 affirmed Japan's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'A+' with a Negative Outlook. The Insurer Financial Strength (IFS) ratings of all nine companies are currently at or above the Long-Term Local Currency IDR of Japan, but the Outlook for each of the IFS ratings is currently Stable. This implies a potential willingness by Fitch to rate, or continue to rate, these entities above the sovereign rating should there be a sovereign downgrade. Fitch will review the ongoing veracity of that position on a company by company basis. Fitch's master rating criteria for insurance companies ("Insurance Rating Methodology", 13 November 2013) allows very strong insurance entities to be rated above the applicable local-currency sovereign rating if the entity is judged to be sufficiently strong to withstand a sovereign crisis. The criteria states three conditions for rating above the sovereign: first, that the profile otherwise implies a higher rating than the sovereign; second, the insurer is not directly exposed to the issues constraining the sovereign; and third, the insurer does not hold high levels of government debt in its investment portfolio. In applying the above criteria, rating committees also consider the impact of mitigants that can act to counterbalance the failure of an insurer to fully meet all of the above conditions. In several cases, Fitch has considered international business diversification to be such a mitigant. This concept has been applied to the ratings of Mapfre SA of Spain and Assicurazioni Generali SpA of Italy, as well as two Japanese insurance companies subject to this review, Tokio Marine & Nichido Fire Insurance Co., Ltd. and Aflac Japan (branch of U.S.-based Aflac Inc.). Each of these companies' IFS ratings are currently one notch higher than their respective sovereign ratings. Fitch's observes there are still relatively high levels of government debt held by the nine insurers being reviewed, at greater than 20% of total invested assets, which is inconsistent with one of the conditions for being rated above the sovereign. Thus, Fitch's review will focus on any mitigants that may be present at each insurer to potentially counterbalance the impact of their high government debt holdings. Absent a mitigant, Fitch no longer expects to be willing to rate a Japanese insurer with high government debt holdings above the sovereign. In such cases, at the conclusion of the review, Fitch would expect to revise the respective rating Outlooks to Negative from Stable to align them with the Outlook of the sovereign. Fitch does not expect the review to result in any downgrades. How Fitch ultimately reflects its views on sovereign risk in potential Outlook changes is not reflective of the agency's underlying fundamental view of the Japanese insurance sector. Credit fundamentals absent sovereign risks for Japanese insurance companies remain relatively strong, with satisfactory operating performance and adequate capitalization. Accordingly, at the conclusion of its review, Fitch's underlying fundamental sector outlook for the Japanese insurance sector is expected to remain Stable for non-life insurance companies and Positive for life insurance companies. The eight Japanese insurers included in this review are: The Dai-ichi Life Insurance Company, Limited (IFS 'A+'/Stable) Daido Life Insurance Company (IFS 'A+'/Stable) Meiji Yasuda Life Insurance Company (IFS 'A+'/Stable) Mitsui Sumitomo Insurance Company, Limited (IFS 'A+'/Stable) Nippon Life Insurance Company (IFS 'A+'/Stable) Sompo Japan Insurance, Inc. ('A+'/Stable) Sumitomo Life Insurance Company (IFS 'A+'/Stable) Tokio Marine & Nichido Fire Insurance Co., Ltd. (IFS 'AA-'/Stable) The U.S. insurer with significant Japanese exposures included in this review is: Aflac, Inc., including Aflac Japan (IFS 'AA-'/Stable). Contact: 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 Jeffrey Liew Senior Director +852 2263 9939 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 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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