OREANDA-NEWS. Fitch Ratings has conducted its peer review committee on nine Japanese life insurers, including Meiji Yasuda Life Insurance Company (Meiji Yasuda Life). The agency has affirmed the company's Insurer Financial Strength (IFS) Rating at 'A' and its Long-Term Issuer Default Rating at 'A', with a Stable Outlook. Fitch has also affirmed the USD2bn subordinated notes due 2045 at 'A-'.

KEY RATING DRIVERS
Meiji Yasuda Life's IFS Rating is currently constrained by Japan's Long-Term Local-Currency IDR of 'A' with a 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 (FYE15) - and its lack of business diversification outside Japan.

Meiji Yasuda Life's ratings are supported by strong capitalisation, its well-established market position as one of Japan's four major life insurers, and satisfactory operating performance. However, these strengths are offset by its high exposure to domestic equities, which causes volatility in its capital adequacy.

Fitch expects Meiji Yasuda Life to maintain its strong capitalisation backed by core capital and retained earnings, despite the planned acquisition of StanCorp Financial Group, Inc (SFG, operating subsidiaries' IFS 'A'/Stable) for USD5bn. Its statutory solvency margin ratio (SMR) remained high at 1,041.0% at the financial year ending March 2015 (FYE15), while its capital adequacy remains volatile due to a high risky assets-to-adjusted equity ratio (100.3% at FYE15).

The core profit margin rose further to 14.9% in FYE15 from 12.7% in FYE14, supported by improved investment gains and substantial mortality and morbidity gains. Sales of the higher-margin medical ("third-sector") insurance remained strong, with the annualised in-force premium rising +3.1% yoy. This helped the ongoing improvement in the value of new business (VONB) margins to a level similar to that of its peers, despite low interest rates.

The acquisition of SFG means that the overseas insurance business in terms of premium income is likely to rise to 13% from below 1% at FYE15. Earnings diversification from overseas business would be considered positive for Meiji Yasuda Life, while Fitch will monitor the progress of operational integration since this is the company's first sole major acquisition.

RATING SENSITIVITIES
An upgrade of Meiji Yasuda 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 would include:
- A downgrade of Japan's Long-Term Local-Currency IDR.
- A significant decline in the capital buffer - specifically, if the SMR were to decline below 700% 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.