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Fitch Affirms Fukoku Life at IFS Rating 'A'; Outlook Negative
December 15, 2016 / 6:13 AM / a year ago

Fitch Affirms Fukoku Life at IFS Rating 'A'; Outlook Negative

(The following statement was released by the rating agency) TOKYO/HONG KONG, December 15 (Fitch) Fitch Ratings has affirmed Fukoku Mutual Life Insurance Co's (Fukoku Life) Insurer Financial Strength Rating at 'A' a with a Negative Outlook and its Long-Term Issuer Default Rating at 'A-' with a Stable Outlook. Fitch has also affirmed the company's USD500m cumulative perpetual subordinated notes issued in September 2013 and USD500m cumulative perpetual subordinated notes issued in July 2015 at 'BBB+'. KEY RATING DRIVERS The ratings reflect Fukoku Life's solid capitalisation and stable life insurance underwriting business, with a successful focus on the more profitable "third" (health) sector. These strengths are offset by a smaller market share than its larger rivals, Japan's four major life insurers. The traditional Japanese life insurer's market share remains less than 5% in terms of the value of policies in force and the third sector's annual premium in force. Its risky assets/adjusted equity improved to 88% at end-March 2016, which is slightly better than Fitch's median of 90% for the 'A' rating category. Fukoku Life's statutory solvency margin ratio remains sufficient at 1,198% at end-September 2016 - the second-highest among Japanese traditional life insurers - compared with 1,224% a year earlier. This was mainly due to its large accumulated capital and reserves, high unrealised gains on securities and effective use of hybrid capital. Annualised premium in force at Fukoku Life's third sector continued to grow at a modest rate of 0.9% in April to September 2016. This was lower than some of its peers, partly because the company protected its profit margin amid ongoing price competition. Fukoku Life estimates that about half of its insurance underwriting profit is generated from third-sector products. Fitch expects this proportion to continue increasing. RATING SENSITIVITIES An upgrade of Fukoku Life's Insurer Financial Strength (IFS) Rating is unlikely in the near-term despite its strong credit fundamentals, which are better than those of most Japanese traditional life insurers. This is because the rating is constrained by Japan's Long-Term Local-Currency Issuer Default Rating (IDR) of 'A' with a Negative Outlook. Fukoku Life has a high level of government debt holdings (30% of invested assets at end-September 2016) with no overseas business diversification to counterbalance these holdings. Conversely, if Japan's Long-Term Local-Currency IDR were lowered, the issuer's IFS Rating would also likely be lowered. Upgrade triggers for Fukoku Life's IDR and hybrid debt ratings include the issuer achieving a larger market share, in terms of the value of policies in force and the third sector's annual premium in force, and a major position in the local life insurance market, or reducing its risky assets/adjusted equity ratio to below 90% for a sustained period while maintaining sound profitability and capitalisation. Downgrade triggers include a substantial erosion of capitalisation and deterioration in profitability, in particular if the statutory solvency margin ratio falls below 600% or financial leverage rises to above 35% (10% at end-September 2016) for a prolonged period. Contact: Primary Analyst Teruki Morinaga Director +81 3 3288 2781 Fitch Ratings Japan Limited Kojimachi Crystal City East Wing 3F 4-8 Kojimachi, Chiyoda-ku Tokyo 102-0083 Secondary Analyst Akane Nishizaki Associate Director +852 2263 9942 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Summary of Financial Statement Adjustments: -Adjusted equity: Contingency reserve and price fluctuation reserve are regarded as core capital for Japanese insurers and treated as adjusted equity. -Non-linked technical life provisions: Contingency reserve is deducted from technical life provisions. Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016510 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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