OREANDA-NEWS. Fitch Ratings has conducted its peer review committee on nine Japanese life insurers including Sumitomo Life Insurance Company (Sumitomo Life). The agency has affirmed the company's 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 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 rated 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 - 41% of invested assets as of end-March 2015(FYE15) - and its lack of business diversification outside Japan.

Sumitomo Life's ratings are supported by sufficient capital adequacy despite the planned acquisition of Symetra Financial Corporation (Symetra, operating subsidiaries' IFS A/Stable) for USD3.7bn (JPY467bn); low leverage; well-established market position as one of Japan's four major life insurers; and substantial mortality and morbidity margins. The ratings also take into account the exposure to interest-rate volatility due to a persisting duration mismatch between assets and liabilities.

Fitch expects Sumitomo Life to maintain sufficient capital adequacy based on moderate investment risks (risky assets to adjusted equity was 84.5% at FYE15). The company's capital adequacy including statutory solvency ratio (SMR) is less volatile than its peers with higher exposure to risky assets. Sumitomo Life's SMR was 944.2% at FYE15, up from 888.2% at FYE14. Financial leverage remained low at 17.2%.

Sumitomo Life is likely to maintain substantial mortality and morbidity margins, underpinned by an ongoing strategic focus on the higher-margin medical and nursery care ("third sector") products. This helped to maintain a higher value of new business (VONB) margins that of its peers.

The acquisition of Symetra means that the overseas insurance business in terms of premium income is likely to rise to 14% from almost zero by FYE15, and adjusted earnings from the overseas business should rise to 8% on a pro forma basis. Earnings diversification outside Japan would be considered positive for Sumitomo Life in the medium term, while Fitch will monitor the progress of operational integration of the Symetra since this is the company's first major acquisition outside Japan.

RATING SENSITIVITIES
An upgrade of Sumitomo Life is unlikely in the near future as the company's 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 significant decline in the capital buffer - specifically, if the SMR were to decline below 700% for a sustained period
- A rise in financial leverage over 25% on a sustained period
- Decline in profitability for a prolonged period
- Increased volatility of embedded value.