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Fitch Affirms Sumitomo Life at 'A'; Outlook Stable
September 27, 2017 / 6:32 AM / 3 months ago

Fitch Affirms Sumitomo Life at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/TOKYO, September 27 (Fitch) Fitch Ratings has affirmed Sumitomo Life Insurance Company's (Sumitomo Life) Insurer Financial Strength (IFS) Rating and Long-Term Issuer Default Rating (IDR) at 'A'. The Outlook is Stable. Fitch has also affirmed the company's US dollar denominated subordinated notes at 'A-'. KEY RATING DRIVERS Sumitomo Life's IFS Rating is constrained by Japan's Issuer Default Rating (IDR) of 'A', which is a notch below Sumitomo Life's unconstrained IFS Rating of 'A+'. Fitch does not allow the insurer to be rated above the sovereign because of the company's high government bond holdings (34% of invested assets at 31 March 2017) and its limited business diversification outside Japan. The affirmation of the ratings reflects Sumitomo Life's strong capital adequacy, moderate financial leverage, very strong business profile, and solid mortality and morbidity margins. The company's main credit challenge is persistent duration mismatches between assets and liabilities, which is wider than those of its peers, in Fitch's view. The company is investing in long-dated Japanese government bonds (JGBs), despite the current low interest rates, to prevent the duration gap from widening. Fitch expects Sumitomo Life to maintain capital adequacy commensurate with its rating. The company's consolidated solvency margin ratio remained high at 839% at end-June 2017, versus 813% at end-March 2017. However, Fitch believes Sumitomo Life's economic value-based capitalisation is being negatively affected by the current low interest environment due to the duration gap, as is the case with most other Japanese life insurers. Sumitomo Life redeemed JPY70 billion of foundation funds (kikin) in July and issued USD1.3 billion of subordinated notes in September. Fitch estimates Sumitomo Life's consolidated financial leverage, including this issuance, would have been below 25% at end-June 2017. This is stronger than the median 28% for 'A' rated issuers, based on Fitch's methodology. Sumitomo Life is likely to maintain substantial mortality and morbidity margins, underpinned by the company's strategic focus on the higher-margin medical and nursery care (third sector) products. RATING SENSITIVITIES An upgrade of Sumitomo Life is unlikely in the near future as the company's IFS Rating is constrained by Japan's Long-Term Local-Currency IDR (A/Stable). However, the ratings on the subordinated notes would remain at 'A-', if Sumitomo Life's IFS Rating and IDR were downgraded to 'A-' due to a downgrade of Japan's IDR. The following could lead to a downgrade of Sumitomo Life's ratings: - A significant decline in the capital buffer; specifically, if the consolidated solvency margin ratio declines below 700% for a sustained period - A rise in Sumitomo Life's consolidated financial leverage to over 30% on a sustained period - Decline in profitability for a prolonged period - A significant decline in embedded value for a sustained period FULL LIST OF RATING ACTIONS Sumitomo Life Insurance Company IFS Rating affirmed at 'A': Outlook Stable, Long-Term IDR affirmed at 'A': Outlook Stable. US dollar-denominated subordinated notes due September 2073 affirmed at 'A-' US dollar-denominated subordinated notes due September 2077 affirmed at 'A-' Contact: Primary Analyst Akane Nishizaki Associate Director +852 2263 9942 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Teruki Morinaga Director +81 3 3288 2781 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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