OREANDA-NEWS. Fitch Ratings has placed Mitsui Life Insurance Company Limited's (Mitsui Life) Insurer Financial Strength (IFS) Rating of 'BBB+' on Rating Watch Positive (RWP).

The rating action follows the announcement that Mitsui Life Insurance Company Limited (Mitsui Life) and Japan's largest private insurer, Nippon Life Insurance Company (Nippon Life, IFS:A/Stable), have signed a basic agreement whereby Nippon Life will purchase all of Mitsui Life's shares and declare Mitsui Life as its affiliate. Both insurers are expected to sign a definitive agreement in late October - early November 2015. The transaction is expected to be completed by the end of March 2016, subject to regulatory approvals and the external market environment.

KEY RATING DRIVERS
The Positive Watch of Mitsui Life reflects Fitch's expectation that Mitsui Life's financial profile is likely to benefit from being a part of Japan's largest private insurer and financially stronger group.

Fitch will consider the strategic importance of Mitsui Life within the Nippon Life Group and Mitsui Life's financial performance upon the completion of the transaction. Fitch expects to upgrade Mitsui Life's rating by one to a maximum of two notches.

Mitsui Life will operate as a subsidiary of Nippon Life, while maintaining its brand name and existing distribution channel, which has strong ties with Mitsui Group. Nippon Life is in discussions with certain Mitsui Group members such as Sumitomo Mitsui Banking Corporation (IDR: A-/Stable) regarding their reacquisition of approximately 15% in aggregate of Mitsui Life's shares after the transaction.

Nippon Life reported core profit of JPY679bn, with total assets of JPY62.2trn, while Mitsui Life reported core profit of JPY59bn, with total assets of JPY7.4trn in the financial year ending March 2015.

RATING SENSITIVITIES
An upgrade is likely on completion, depending further analysis of the strategic importance of Mitsui Life within the Nippon Life Group.

A downgrade of Mitsui Life is unlikely given Fitch's view that it will maintain sufficient capitalisation based on the moderate investment risks and declining risk associated with minimum guarantees of variable annuity products.