S&P Lowers 4 Japan Life Insurers; Assigns 3 New Rtgs.
The ratings reflect a deterioration in the companies' operating environment, stemming from depressed investment conditions and the recessed economy in Japan. At the same time, the industry has to contend with heightened competition emanating from deregulation. In fiscal 1997 (ended March 31, 1998), premium growth in the Japanese life industry remained depressed, surrenders and lapses remained high, and investment portfolios suffered diminution in underlying asset values. Loan asset quality also deteriorated, necessitating additional write-offs and loan loss reserving. Fiscal 1997 also heralded a new era in competition, with nonlife insurers entering the life market through subsidiaries, resulting in an increasing number of life companies chasing a slow-growing premium pool.
The difficult operating conditions will place further pressure on earnings and asset quality, and delay the recovery of the life insurance market. In addition, the industry will continue to face a number of key challenges, including inherent structural product problems and attendant asset/liability management challenges; high expense levels; diminished hidden gains on equity holdings; and limited financial flexibility to raise additional capital. Notwithstanding these difficulties, the Japanese life insurance industry remains one of the largest and most important life markets in the world, reflecting the country's strong savings culture. For the most part, the traditional peer group of major life companies covered in this release is actively implementing initiatives to reduce expenses, improve balance sheet structures, and reduce vulnerability to asset fluctuations. The ultimate solutions for a number will be to move from mutual status to stock companies, thereby facilitating the raising of pure equity, and to shift investment risk to policyholders. -0-
RATINGS LOWERED TO FROM Meiji Life Insurance Co. Financial strength rtg A+ AA- Counterparty credit rtg A+/Stable/A-1 AA-/--/A-1+ Pacific Guardian Life Insurance Co. Ltd. Financial strength rtg A+ AA- Counterparty credit rtg A+/Stable/-- AA-/--/-- Mitsui Mutual Life Insurance Co. Financial strength rtg BBB- BBB Counterparty credit rtg BBB-/Negative/-- BBB/--/-- Nippon Life Insurance Co. Financial strength rtg AA AA+ Counterparty credit rtg AA/Stable/-- AA+/--/-- Yasuda Mutual Life Insurance Co. Ltd. Financial strength rtg A A+ Counterparty credit rtg A/Stable/A-1 A+/--/A-1 NEW RATINGS Asahi Mutual Life Insurance Co. Financial strength rtg BBB- Counterparty credit rtg BBB-/Negative/-- Dai-Ichi Mutual Life Insurance Co. Financial strength rtg A Counterparty credit rtg A/Stable/-- Sumitomo Life Insurance Co. Financial strength rtg BBB Counterparty credit rtg BBB/Negative/--
MEIJI LIFE INSURANCE CO.
Meiji Life's ratings are underpinned by the company's good capital strength, sound asset quality, and solid business profile. The operating environment has depressed the profitability and earnings outlook of Meiji Life and its peers, although relative to its peers Meiji Life's major earnings measures are satisfactory. The stable outlook is supported by Meiji's strong financial structure and solid business position, which are expected to be maintained throughout the adverse operating cycle.
MITSUI MUTUAL LIFE INSURANCE CO.
Mitsui Life's strong business franchise, stemming from its membership in the Mitsui group and position in the separate account business, has been offset by the insurer's relatively weak earnings profile and capital position. Mitsui Life has been active in addressing its need to strengthen its balance sheet structure and capital resources over the past 18 months by restructuring its investment portfolio and raising various forms of subordinated loans and quasi-capital instruments. The negative outlook reflects the need for further capital strengthening over the medium term.
NIPPON LIFE INSURANCE CO.
Nippon Life continues to exhibit leadership in terms of business position, accounting for 22% of the industry premium base. The company's financial profile is very strong, with supportive capital strength, high asset quality, and conservative reserving. Earnings also compare favorably to the peer group norm. While Standard & Poor's does not believe Nippon Life can remain immune to the difficult operating conditions in the Japanese life market, it nevertheless has, as the market leader, the financial flexibility to take advantage of opportunities emerging from the deregulating environment. As a result, the outlook for the long-term rating is stable.
YASUDA MUTUAL LIFE INSURANCE CO. LTD.
Yasuda Life's orientation to the group market has enabled the company to outperform the peer group in terms of earnings. Consequently, Yasuda Life's reliance on realizing capital gains has been lower than most. While ranking in the Big Eight life peer group, Yasuda Life's business franchise is slightly weaker than some of its larger peers. The stable outlook is supported by Yasuda Life's strong balance sheet structure, which underpins the current rating.
ASAHI MUTUAL LIFE INSURANCE CO.
The ratings assigned to Asahi Life reflect the company's solid market position as the fifth-largest life insurer in Japan and linkages to the Dai-Ichi Kangyo Bank group, which provide Asahi life with a degree of financial flexibility. Asahi Life's financial profile has been hampered by weak earnings performance and a higher orientation toward risk assets than most of its peers. Capital resources have been supplemented by recent subordinated debt and quasi-capital raising, but remain susceptible to movements in asset values. The negative outlook reflects Asahi Life's vulnerability to movements in asset values at a time when investment markets in Japan are depressed. Nevertheless, Asahi Life's business franchise has remained resilient during the difficult market conditions, with the company experiencing a better persistency ratio than peers.
DAI-ICHI MUTUAL LIFE INSURANCE CO.
Dai-ichi Life's ratings reflect its excellent business position and market franchise as the second-largest life company in Japan, coupled with a good financial profile. Dai-ichi Life maintains high asset quality, a supportive capital position, and conservative reserving practices. Similar to its peers, the insurer's earnings profile has been constrained by the suppressed investment environment and inherent problems stemming from product features. Dai-ichi Life has instituted various programs aimed at reducing expenses and improving the quality of earnings. The stable outlook is based on the company's financial profile, which supports the current rating, and outstanding franchise, which will ensure Dai-ichi Life will be able to reap any opportunities emanating from the deregulating environment.
SUMITOMO LIFE INSURANCE CO.
Sumitomo Life's solid business position in most markets it competes in, high brand recognition, and membership in the powerful Sumitomo group provide the company with strong financial flexibility. Moderating features include a weak earnings profile--the legacy of an inappropriate investment mix--and loan quality problems, which have conspired to weaken the company's capital position. Sumitomo has undertaken significant asset restructuring and raised subordinated loans to address its balance sheet issues. The insurer's financial profile is considered satisfactory and asset/liability management practices sound. The negative outlook reflects Sumitomo Life's need to continue to implement its asset-quality improvement and expense-reduction programs. Sumitomo Life's underlying earnings performance is expected to improve as the advantages from asset strengthening flow through, Standard & Poor's said.---CreditWire
CONTACT: Ayako Nakajima, Tokyo (81) 3-3593-8591
Ian Thompson, Melbourne (61) 3-9250-4540
Charles Titterton, New York (1) 212-208-1329
For more information on criteria or subscriptions: