OREANDA-NEWS. Fitch Ratings has conducted its peer review committee on nine Japanese life insurers, including Asahi Mutual Life Insurance Co. (Asahi Life). The agency has affirmed its Insurer Financial Strength (IFS) Rating at 'BB+', with a Stable Outlook.

KEY RATING DRIVERS
The rating is based on Asahi Life's steadily improving capital adequacy and financial leverage as well as its resilient insurance underwriting, supported by a strategic focus on the profitable "third" (health) sector.

Its statutory solvency margin ratio (SMR) had risen to 667.9% by end-September 2015 from 609.1% a year earlier, due mainly to its increased unrealised gains on securities and its accumulated capitalisation and reserves. Furthermore, financial leverage had declined to 40.6% from 43.5% a year earlier, due to its strengthened capitalisation.

Nevertheless, Asahi Life's capital position is weak in comparison with its peers' average SMR of more than 900%. In addition, Asahi Life's negative spread burden of JPY33.1bn in the first half of the financial year ending March 2016 (1HFYE16) (1HFYE15: JPY35.9bn) is large, and continues to offset gains from better-than-projected mortality and morbidity rates. However, Fitch expects Asahi Life's negative spread burden to gradually shrink as a consequence of gradually declining average guaranteed yields over the medium term.

The underwriting business has been stable due to an effective focus on the third sector. The core profit margin remained adequate at 7.6% in 1HFYE16 from 5.5% a year earlier. Annual premiums of in-force policies in this segment increased by 2.7% yoy in 1HFYE16, due partly to effective sales promotions via non-traditional channels. Fitch believes that efforts in marketing third-sector products via several non-traditional channels, such as telephone marketing, are likely to further enhance strength in this segment.

RATING SENSITIVITIES
Key rating triggers for an upgrade would include: a further strengthening of capitalisation, and a decline in financial leverage to below 35%, on a sustained basis. Growth in the third-sector business and reduction in the surrender and lapse rates of the death-protection products would also be viewed positively by Fitch.

Key rating triggers for a downgrade would include: a major erosion of capitalisation, or increase in financial leverage to above 45%; significant deterioration in profitability such as the core profit margin to below 5%, on a sustained basis, would also put the rating under pressure.