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Fitch Rates Asahi Life's Subordinated Bonds 'BB-(EXP)'
January 10, 2017 / 2:56 AM / 10 months ago

Fitch Rates Asahi Life's Subordinated Bonds 'BB-(EXP)'

(The following statement was released by the rating agency) TOKYO, January 09 (Fitch) Fitch Ratings has assigned Asahi Mutual Life Insurance Co.'s (Asahi Life; Insurer Financial Strength rating: BB+/Stable) proposed US dollar step-up callable cumulative perpetual subordinated bonds with interest deferral options an expected rating of 'BB-(EXP)'. The agency has simultaneously published Asahi Life's Long-Term Issuer Default Rating (IDR) at 'BB' with a Stable Outlook. The proceeds from the bond issue will be used for general corporate purposes. The total issuance amount and coupon of the subordinated bonds have yet to be decided. The issue is expected to be callable after five years, at which point there would be a 100bp coupon step-up feature. The final rating is contingent on the receipt of final documents conforming to information already received. KEY RATING DRIVERS The subordinated bonds are rated one notch below Asahi Life's Long-Term IDR to reflect our baseline assumption of "below average" recovery. The bonds include a mandatory interest deferral feature on a cumulative basis, which is triggered when Asahi Life's statutory solvency margin ratio (SMR) falls below the regulatory capital requirement of 200% on a consolidated or non-consolidated basis or on the issuance of an order of prompt corrective action by Japan's Financial Services Agency. The company's SMR was 707% on non-consolidated basis and 710% on consolidated basis at end-September 2016. Fitch classifies the interest deferral features on this instrument as "minimal" non-performance risk, with no additional notching applied, in line with Fitch's notching criteria. The subordinated bonds are classified as 100% capital within Fitch's assessment of risk-based capital adequacy, as Fitch follows the regulatory treatment of hybrids under its criteria when assessing capital adequacy. The bonds are classified as 50% debt and 50% equity capital for the agency's financial leverage calculations, which follow Fitch-specific guidelines under the agency's methodology for treatment of hybrids in the financial leverage ratio. Typically, hybrids with coupon step-ups combined with call provisions are treated as 100% debt by Fitch. However, the agency believes that under the current regulation, Japanese regulators will be assertive in ensuring Japanese insurers meet requirements to issue at least the same amount of perpetual subordinated debt of the same (or better) quality when a company redeems perpetual subordinated debts. Fitch therefore regards Japanese insurers' perpetual subordinated debt as having economically "perpetual" characteristics, even if they have call dates with modest step-ups. Fitch expects Asahi Life's financial leverage and its interest coverage to remain adequate, after this perpetual subordinated bonds issuance. RATING SENSITIVITIES Key rating triggers for an upgrade include a further strengthening of capitalisation and a decline in financial leverage to below 35% on a sustained basis. Growth in the profitable "third" (health) sector business and lower surrender and lapse rates of death-protection products would also be positive. Key rating triggers for a downgrade include a major erosion of capitalisation; higher financial leverage to above 45%; and significant deterioration in profitability, such as the core profit margin falling below 5% on a sustained basis. 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 Date of the Relevant Rating Committee: 19 December 2016 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=1017350 Solicitation Status here 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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