A.M. Best Affirms Ratings of Nippon Life Insurance Company

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit rating (ICR) of "aa-" of Nippon Life Insurance Company (Nissay) (Japan). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of "a-" of Nissay's subsidiary, Nippon Life Insurance Company of America (NLB) (Des Moines, Iowa, USA). The outlook for all ratings is stable.

The ratings reflect Nissay's leading market position in the Japanese life industry, its robust risk-adjusted capitalization and proactive business strategy. Nissay's market share remained stable at around 16% (in terms of annualized premium equivalent excluding Japan Post Insurance) over the past five years. Although the company scaled back sales of single premium saving-type products in its bancassurance channel (in an effort to control risks) in fiscal year 2012, it reported the largest market share in new annualized premium equivalent by leveraging its strong distribution channel of sales representatives and well-established brand recognition.

The company's adjusted capital and surplus (non-consolidated), which includes net asset value and other reserves (contingency reserves and price fluctuation reserves), rose 43% to JPY 5.2 trillion as at the end of March 2013. In particular, the net asset value increased 59% to JPY 3,950 billion, owing to the substantial increase in unrealized gains on bonds and its stock portfolio. In order to cope with the potential deterioration in financial market conditions, Nissay has refined its investment strategy to further diversify asset maturities and reduce risk assets. In addition, the company has increased capital through an issuance of subordinated bonds and an accumulation of price fluctuation reserve and contingency reserve in addition to the increase in foundation funds (kikin).

Partially offsetting these positive factors include the company's high exposure to the financial market volatility and the moderate growth outlook in the domestic life insurance market. Although the company continued to reduce its investment in stocks in terms of book value in the past five years, its exposure to stocks remains high compared to its adjusted capital and surplus. The policy in-force amount of the life insurance industry is expected to report a continuous decline, which puts pressure on the company's profitability.

While there is no positive movement in the ratings considered in the short term, negative rating actions could occur if there is a material deterioration in the company's risk-adjusted capitalization triggered by adverse financial market movements.

The affirmation of NLB's ratings reflects the operational and financial support from its parent company, Nissay, a favorable risk-adjusted capital position and an established position in the United States' Asian market. The company has successfully maintained its strong position in the small group Japanese business segment and continued its reach into the U.S. operations of South Korean companies. More recently, NLB has launched marketing for the U.S. operations of the Indian market. However, the company has a concentration in the competitive and volatile group major medical market, combined with the difficult regulatory challenges of health care reform legislation.

NLB primarily markets group major medical products to the U.S. operations of Japanese companies, as well as other companies in the United States. In 2009, the company began marketing products to the U.S. operations of South Korean companies, and this business has maintained continued growth.

The methodology used in determining these interactive ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.

A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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