OREANDA-NEWS. Fitch Ratings has assigned Meiji Yasuda Life Insurance Company's (Meiji Yasuda Life) USD2bn step-up callable subordinated notes with interest deferral options due 2045 an 'A-' rating. Fitch has simultaneously published the insurer's Long-Term Issuer Default Rating (IDR) at 'A'. The Insurer Financial Strength (IFS) Rating was affirmed at 'A'. The Outlooks on the IDR and IFS rating are Stable.

KEY RATING DRIVERS

The subordinated notes are rated one notch below Meiji Yasuda Life's Long-Term IDR to reflect their subordination and minimal non-performance risk, in line with Fitch's notching criteria.

The notes include a mandatory interest deferral feature on cumulative basis, which is triggered when Meiji Yasuda Life's Japan statutory solvency margin ratio (SMR) falls below the regulatory capital requirement of 200% or on the issuance of an order of prompt corrective action by Japan's Financial Services Agency. The company's SMR was 1,041.0% at the end-March 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 (11.4% on pro-forma basis at the end March 2015) for Meiji Yasuda Life's rating category and interest coverage to be strong.

Meiji Yasuda Life's IFS rating is currently constrained by Japan's Long-Term Local-Currency IDR of 'A' with Stable Outlook and rated one notch below its unadjusted IFS rating of 'A+'. Fitch does not allow Meiji Yasuda Life's rating to be above that of the sovereign, given the company's high level of government debt holdings (39% of invested assets as of end-March 2015) and its lack of business diversification outside Japan.

Meiji Yasuda's ratings are supported by the company's strong capitalisation, well-established market position and good profitability; but these strengths are offset by its high exposure to domestic equities, which causes volatility in its capital adequacy.

RATING SENSITIVITIES

An upgrade of Meiji Yasuda Life is unlikely in the near future as the company's Insurer Financial Strength Rating is currently on par with Japan's Long-Term Local-Currency IDR. If the rating on Japan were lowered, however, its rating is also likely to be lowered.

Key rating triggers that could lead to a downgrade include a significant decline in the capital buffer as a result of a sustained stock market decline, volatility in interest rates or a decline in profitability due to a change in product mix. Specifically, the rating could also be downgraded if the SMR declines below 700% for a sustained period, or core profit margins (14.9% for the fiscal year ended March 2015) deteriorate to below 10% for a prolonged period.