OREANDA-NEWS. Fitch Ratings has affirmed Asahi Mutual Life Insurance Co.'s (Asahi Life) 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, which are supported by a strategic focus on the profitable "third" (health) sector in recent years.

Its statutory solvency margin ratio (SMR) remained adequate at 669.1% at end-December 2015 compared with 667.7% at end-March 2015. Its financial leverage also continued to be reasonable at 40.1% at end-December 2015 compared with 38.7% at end-March 2015.

Nevertheless, Asahi Life's capital position is weaker than 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 due to 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 6.1% in April to December 2015 from 5.0% a year earlier. Annual premiums of in-force policies in this segment increased by 3.2% in April to December 2015, 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 strengthen 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.