OREANDA-NEWS. Fitch Ratings has affirmed the Insurer Financial Strength (IFS) Ratings of Daido Life Insurance Co. (Daido Life) and Taiyo Life Insurance Company (Taiyo Life) 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 1,128.9% at end-December 2015 from 1,220.7% at end-March 2015. Fitch views T&D's overall credit profile as solid.

Daido Life's IFS Rating reflects its steady operating performance and robust capitalisation at both the standalone and group level. Its statutory SMR remains the highest among traditional Japanese life insurers - 1,336.5% at end-December 2015 from 1,363.7% at end-March 2015. 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 18%, respectively, of invested assets at end-December 2015), and no overseas business diversification to counterbalance the Japanese government bond holdings. Therefore, these insurers' 'adjusted' IFS Ratings are capped by Japan's sovereign rating.

Fitch feels that some risks still exist in the foreign-currency exposure at Taiyo Life and the duration mismatch between assets and liabilities under the ongoing low-interest-rate environment at Daido Life. There is also price fluctuation risk 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.

Daido Life provides insurance mainly for Japanese SMEs, and Taiyo Life 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 of 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-December 2015), or if its EV were to remain stayed volatile for a prolonged period.