September 25 (Fitch) Fitch Ratings has affirmed Daido Life Insurance Co.’s (Daido Life) and Taiyo Life Insurance Company’s (Taiyo Life) Insurer Financial Strength (IFS) ratings at ‘A’.
The Outlook on both ratings is Stable. KEY RATING DRIVERS Daido Life and Taiyo Life are core subsidiaries of T&D Holdings, Inc’s (T&D), whose consolidated group solvency margin ratio (SMR) rose to 1,220.7% at end-March 2015 from 1,115.0% a year earlier.
T&D’s overall credit profile has been improving. Its group-based enterprise risk management has been enhanced and the unity of T&D has further strengthened recently.
Daido Life’s IFS rating reflects its solid operating performance and robust capitalisation at the standalone and group level.
Daido Life’s statutory SMR remains the highest among Japanese traditional life insurers. Its SMR rose to 1,363.7% at end-March 2015 from 1,156.4% a year earlier. Daido Life’s unadjusted standalone IFS rating is ‘A+’.
Taiyo Life’s IFS rating reflects its strong operating performance and adequate capitalisation at the standalone level. Fitch views Taiyo Life as a core company within T&D along with Daido Life under Fitch’s Insurance Rating Methodology.
Therefore, Taiyo Life shares the same IFS rating as Daido Life, which incorporates a one-notch uplift from its unadjusted standalone IFS rating of ‘A’. Japan’s Long-Term Local-Currency Issuer Default Rating (IDR) is ‘A’.
The Outlook is Stable. Both Daido Life and Taiyo Life have a high level of government debt holdings (24% and 20%, respectively, of invested assets at end-March 2015) and do not have overseas business diversification to counterbalance the high level of Japanese government bond holdings.
Therefore, these insurers’ “adjusted” IFS ratings are capped by Japan’s sovereign rating. Fitch considers that some risks still exist in the holdings of domestic equities at Daido Life and Taiyo Life, which are smaller than most traditional Japanese life insurers but still larger than most similarly rated foreign life insurers, and the duration mismatch between assets and liabilities at Daido Life.
Daido Life provides insurance mainly for Japanese small and medium-sized enterprises, and Taiyo Life provides insurance for domestic households, not only for elderly women who have been its core customers but also their family members.
T&D has a market share of 6.6% in the Japanese life insurance market by value of policies in force at end-March 2015. RATING SENSITIVITIES An upgrade on either Daido Life or Taiyo Life is unlikely in the near future, given the constraint of the sovereign rating.
Japan’s sovereign IDR will cap both companies’ Insurance Financial Strength (IFS) ratings, despite their strong standalone credit fundamentals.
Key rating triggers for a downgrade include a significant erosion of T&D’s capitalisation, deterioration in its profitability, and volatility in its Embedded Value (EV).
Specifically, Daido Life’s and Taiyo Life’s ratings may come under pressure if T&D’s consolidated SMR falls below 700%