OREANDA-NEWS. Fitch Ratings has affirmed Sumitomo Life Insurance Company's (Sumitomo Life) Insurer Financial Strength (IFS) Rating at 'A' and its Long-Term Issuer Default Rating at 'A'. The Outlook is Stable. Fitch has also affirmed the rating on the US dollar-denominated subordinated notes due 2073 at 'A-'.

KEY RATING DRIVERS

Sumitomo Life's IFS Rating is currently constrained by Japan's Long-Term Local-Currency IDR of 'A' with a Stable Outlook, and is one notch below its unadjusted IFS Rating of 'A+'. Fitch does not allow Sumitomo Life's rating to be above that of the sovereign, given the company's high level of government debt holdings - 40% of invested assets as of end September 2015 - and its limited business diversification outside Japan.

Sumitomo Life's ratings reflects strong capital adequacy, which based on manageable investment risks, low financial leverage, well-established market positions, and solid mortality and morbidity margins with the company's strategic focus on the higher margin medical and nursery care products. These strengths are offset by the persistent duration mismatch between assets and liabilities.

Fitch expects Sumitomo Life to maintain capital adequacy commensurate with its rating level, despite its acquisition of US-based Symetra Financial Corp. (Symetra, IFS ratings of its life insurance subsidiaries: A/Stable) for USD3.7bn (JPY466.6bn), which was completed in February 2016. The acquisition expands Sumitomo Life's overseas premium income to 14% of total premium income on a pro-forma basis at the end of the financial year to 31 March 2015 (FYE15), from almost 0%, based on the company's estimates. Given this is Sumitomo Life's first major overseas acquisition, Fitch will monitor Sumitomo Life's success in integrating Symetra as well as any potential international business diversification benefits derived.

The ratio of risky assets to adjusted equity was 86% at end-2015, lower than its peers. Thus the company's capital adequacy is less sensitive to stock market performance compared with its peers. Its solvency margin ratio (SMR) remained strong at 887% at end-2015, after a decline from 944% in FYE15. Financial leverage remained low at 15% at the end-2015.

To cope with very low interest-rate environment, Sumitomo Life lowered the assumed interest rates on single-premium whole life products in April 2016. The company plans to invest more in foreign corporate bonds, while refraining from investing in Japanese government bonds.

The company maintained good value of new business margins of 7% in 1HFYE16. Its annualised in-force premiums for third-sector (health) products rose by 1.3% in the first nine months of FYE16.

RATING SENSITIVITIES

An upgrade of Sumitomo Life is unlikely in the near future as the company's Insurer Financial
Strength Rating is constrained by Japan's Long-Term Local-Currency IDR.

Key rating triggers that could lead to a downgrade include:
- A significant decline in the capital buffer - specifically, if the SMR were to decline below 700% for a sustained period
- A rise in financial leverage to over 25% on a sustained period
- Decline in profitability for a prolonged period
- Increased volatility of the company's embedded value.