OREANDA-NEWS. Fitch Ratings has assigned Nippon Life Insurance Company's (Nippon Life) proposed US dollar step-up callable subordinated notes with interest deferral options due 2046 an expected rating of 'A-(EXP)'. Fitch has simultaneously affirmed Nippon Life's Insurer Financial Strength (IFS) Rating at 'A', its Long-Term Issuer Default Rating at 'A' and the ratings on its other subordinated notes at 'A-'. The Outlooks are Stable. A full list of rating actions is at the end of this release.

The proceeds from the note issue will be used for general corporate purposes. The total issuance amount and the coupon of the subordinated notes have yet to be decided. The final rating is contingent on the receipt of final documents conforming to information already received.

KEY RATING DRIVERS

The subordinated notes are rated one notch below Nippon Life's Long-Term IDR to reflect the assumption of "Below Average" recovery and minimal non-performance risk (no additional notching applied), in line with Fitch's notching criteria.

The notes include a mandatory interest deferral feature on cumulative basis, which is triggered when Nippon Life's Japan statutory solvency margin ratio (SMR) falls below the regulatory capital requirement of 200% (on a consolidated or nonconsolidated basis) or on the issuance of an order of prompt corrective action by Japan's Financial Services Agency. The company's SMR was 920.4% on nonconsolidated basis, and 934.5% on consolidated basis at end-September 2015.

This subordinated note is classified as 100% capital due to regulatory override within Fitch's risk-based capitalisation and is classified as 100% debt for the agency's financial leverage calculations, according to Fitch's methodology. Fitch expects leverage to remain low (8.0% at the end September 2015) for Nippon Life's rating category and fixed charge coverage ratioto be strong.

Nippon Life's IFS rating is currently constrained by Japan's Long-Term Local-Currency IDR of 'A' with Stable Outlook and is one notch below its unadjusted IFS rating of 'A+'. Fitch does not allow Nippon Life's rating to be above that of the sovereign, given the company's high level of government debt holdings (30.7% of invested assets as of end-September 2015) and its lack of business diversification outside Japan.

Nippon Life's ratings are supported by a market-leading position in Japan's individual life industry; high-quality capital; low leverage and stable operating performance. However, capital adequacy remains highly susceptible to stock-market volatility due to its very high investment exposure to domestic equities (risky assets to adjusted equity of 127.6% at end-September 2015).

RATING SENSITIVITIES
An upgrade of Nippon 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 include:
- A downgrade of Japan's Long-Term Local-Currency IDR
- A significant decline in the capital buffer - specifically, if SMR were to decline below 600% 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

FULL LIST OF RATING ACTIONS

Nippon Life Insurance Company:
IFS Rating affirmed at 'A': Outlook Stable,
Long-Term IDR affirmed at 'A': Outlook Stable.
US dollar-denominated subordinated notes due 2042 affirmed at 'A-'
US dollar-denominated subordinated notes due 2044 affirmed at 'A-'
US dollar-denominated subordinated notes due 2046 assigned 'A-(EXP)' rating.