OREANDA-NEWS. Fitch Ratings has affirmed Meiji Yasuda Life Insurance Company's (Meiji Yasuda Life) Insurer Financial Strength (IFS) Rating at 'A' and its Long-Term Issuer Default Rating at 'A' with a Stable Outlook. Fitch has also affirmed the company's US dollar-denominated subordinated notes due 2045 at 'A-'.

KEY RATING DRIVERS

Meiji Yasuda Life's IFS Rating is constrained by Japan's Long-Term Local-Currency IDR of 'A' with a Stable Outlook, and hence is one notch below its unadjusted IFS Rating of 'A+'. Fitch does not allow Meiji Yasuda 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.

Meiji Yasuda Life's ratings reflect strong capitalisation, well-established market positions and satisfactory operating performance. The ratings also take into account the high exposure to domestic equities, which cause volatility in its capital adequacy.

Fitch expects Meiji Yasuda Life to maintain its strong capitalisation, which remain backed by core capital and retained earnings despite its acquisition of StanCorp Financial Group, Inc. (SFG; IFS ratings of its life insurance subsidiaries A/Stable) for USD5bn, which was completed in March 2016. Its statutory solvency margin ratio (SMR) remained high at 997% at end-2015, compared with 1,041% at the end of the financial year to March 2015 (FYE15). Its SMR is volatile compared with that of peers with smaller exposure to domestic equities, but remains quite high nonetheless. The company's ratio of risky assets to adjusted equity was 100% at end-2015, still above Fitch's expectation for its rating category.

The acquisition of SFG will provide earnings and geographical diversification for Meiji Yasuda Life. However, we believe Meiji Yasuda Life's ability to integrate the acquired business at an operational level and ensure appropriate risk management is in place will be crucial towards materialising the benefits. Meiji Yasuda Life estimated its overseas insurance business (in terms of adjusted profit) would have been 9% including SFG at FYE15, compared with 2% without SFG.

To tackle with very low interest-rate environment, Meiji Yasuda Life stopped underwriting new group defined-benefit pension plans from April 2016 and lowered assumed interest rates on single premium whole-life products from May. The company has been increasing its foreign-currency denominated assets since FYE13 to enhance investment income. The company said it may increase investment in foreign bonds without currency hedge in FYE17, while the actual investment will be subject to movements in foreign-exchange rates and interest rates.

Meiji Yasuda Life's core profit margin remained high at 13% in 9MFYE16 supported by improved investment gains and substantial mortality and morbidity gains. Sales of the higher-margin medical (third-sector) insurance remained strong at 9MFYE16, with in-force premium rising 2.9% from FYE15. The value of its new business (VONB) margins at 1HFYE16 remained at a level similar to that of its peers.

RATING SENSITIVITIES

An upgrade of Meiji Yasuda Life is unlikely in the near future, as the Insurer Financial Strength Rating is currently on a par with Japan's Long-Term Local-Currency IDR.

Key rating triggers that could lead to a downgrade would include:
- A downgrade of Japan's Long-Term Local-Currency IDR.
- A significant decline in the capital buffer - specifically, if the SMR were to decline below 700% for a sustained period.
- Decline in profitability due to a change in product mix - specifically, a decline in core profit margins to below 10% for a prolonged period.