OREANDA-NEWS. Fitch Ratings has assigned Nippon Life Insurance Company's (Nippon Life) USD1.5bn 4.7% step-up callable subordinated notes with interest deferral options due 2046 a final rating of 'A-'.

The assignment of the final rating follows the completion of the bond issue and receipt of documents conforming to the information previously received. The final rating is the same as the expected rating assigned on 6 January 2016.

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 ratio to be strong.

RATING SENSITIVITIES
An upgrade of Nippon Life's ratings 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.