OREANDA-NEWS. Fitch Ratings has conducted its peer review committee on nine Japanese life insurers including Daido Life Insurance Co. (Daido Life) and Taiyo Life Insurance Company (Taiyo Life). The agency has affirmed their Insurer Financial Strength (IFS) Ratings at 'A', and the Outlook on both ratings is Stable.

KEY RATING DRIVERS
Daido Life and Taiyo Life are core subsidiaries of T&D Holdings, Inc (T&D), whose consolidated group solvency margin ratio (SMR) remained strong at 1,140.2% at end-September 2015 from 1,220.7% at end-March 2015. T&D's overall credit profile has been solid. Its group-based enterprise risk management has been enhanced. T&D's unity has also been further strengthened recently; for example, Daido Life and Taiyo Life have started to cross-sell each others' products.

Daido Life's IFS Rating reflects its solid operating performance and robust capitalisation at the standalone and group level. Its statutory SMR remains the highest among Japanese traditional life insurers, and had risen to 1,344.0% by end-September 2015 from 1,295.3% a year earlier. Daido Life's unadjusted standalone IFS Rating is 'A+'.

Taiyo Life's IFS Rating reflects its strong operating performance and adequate capitalisation at the standalone level. Fitch views Taiyo Life as a core company within T&D, along with Daido Life, under Fitch's Insurance Rating Methodology. Therefore, Taiyo Life shares the same IFS Rating as Daido Life, incorporating a one-notch uplift from its unadjusted standalone IFS Rating of 'A'.

Japan's Long-Term Local-Currency Issuer Default Rating (IDR) is 'A', with a Stable Outlook. Both Daido Life and Taiyo Life have a high level of government debt holdings (24% and 19%, respectively, of invested assets at end-September 2015), and have no overseas business diversification to counterbalance the high level of Japanese government bond holdings. Therefore, these insurers' 'adjusted' IFS Ratings are capped by Japan's sovereign rating.

Fitch considers that some risks still exist in the holdings of domestic equities at Daido Life and Taiyo Life, which are smaller than at most traditional Japanese life insurers but still larger than at most similarly rated foreign life insurers. There is also some risk in the duration mismatch between assets and liabilities at Daido Life.

Daido Life provides insurance mainly for Japanese SMEs, and Taiyo Life provides insurance for domestic households - not only for elderly women who have been its core customers but also their family members. T&D had a market share of 6.6% in the Japanese life insurance market by value of policies in force at end-March 2015.

RATING SENSITIVITIES
An upgrade on either Daido Life or Taiyo Life is unlikely in the near future, given the constraint of the sovereign rating. Japan's sovereign IDR will cap both companies' Insurance Financial Strength (IFS) Ratings, despite their strong standalone credit fundamentals.

Key rating triggers for a downgrade would include a significant erosion of T&D's capitalisation, a deterioration in its profitability, and volatility in its Embedded Value (EV). Specifically, both companies' ratings may come under pressure if T&D's consolidated SMR were to fall below 700%, consolidated financial leverage rises above 25% (3% at end-September 2015), or if its EV were to remain stayed volatile for a prolonged period.