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Best’s News & Research Service - January 15, 2021 11:12 AM (EST)

AM Best Affirms Credit Ratings of Nippon Life Insurance Company and Its Subsidiary

  • January 15, 2021 11:12 AM (EST)
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Hong Kong //BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa-” of Nippon Life Insurance Company (Nissay) (Japan). Concurrently, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Nippon Life Insurance Company of America (dba Nippon Life Benefits or NLB) (West Des Moines, Iowa, USA). The outlook of these Credit Ratings (ratings) is stable.

The ratings of Nissay reflect its balance sheet strength, which AM Best categorises as strongest, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management (ERM).

Nissay’s balance sheet strength assessment mainly reflects its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). This assessment also is supported by the company’s low financial leverage, with an adjusted debt leverage ratio well below 25%. In addition, its strong business network and good reputation as a life insurance company in Japan and overseas allow it to have good access to debt markets.

Nissay’s operating performance has been strong and consistent, supported by a stable trend of premium income and core operating profit in the past. Annualised premiums from new policies declined over the first quarter of fiscal-year 2020, during which Japan declared a state of emergency, although this quickly recovered to 75% of the pre-pandemic level in the second quarter. Over the near term, the company’s new sales performance is still likely to be affected negatively by the COVID-19 pandemic and the low foreign interest rate environment. Nevertheless, AM Best expects that the company’s stable in-force book of business will continue to support its core operating profit sustainably.

Nissay is one of the leading life insurance companies in Japan, with a market share of 19% in terms of premium income. The company continues to have a strong sales representative base and is making efforts to diversify its distribution channels further to achieve greater revenue growth in its domestic market. The company continues to be diversified modestly in terms of geography, given its relatively small operations in other Asia-Pacific countries and the United States.

The stable outlooks reflect AM Best’s expectation that Nissay will maintain its overall balance sheet assessment, supported by its risk-adjusted capitalisation at the strongest level, as measured by BCAR. Ongoing strategic initiatives by management also are expected to ensure Nissay maintains a stable operating performance over the intermediate term.

Negative rating actions could occur if there is a material deterioration in the company’s risk-adjusted capitalisation caused by substantial investment losses or material decline in core operating profit.

The ratings of NLB reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its marginal operating performance, limited business profile and appropriate ERM. The ratings also take into consideration NLB’s strategic importance to Nissay, and operating support provided by its parent company.

NLB’s balance sheet strength is supported by its risk-adjusted capitalization at the strongest level, as measured by BCAR, which is enhanced by a conservative portfolio and strong liquidity measures. The capital growth lagged premium expansion over the past five years, as net income has remained relatively modest and the company continued to pay dividend to the parent. However, the capital remains more than sufficient to support NLB’s risks.

NLB has reported volatile underwriting results over the past five years. However, results improved in 2018 and 2019. Despite overall premium decline, underwriting results through nine months of 2020 were significantly higher compared with the same period in 2019 and NLB’s original projections. Similar to industry trend, 2020 results were influenced heavily by the COVID-19 pandemic and a related drop in utilization of elective medical services. NLB expects full-year 2020 results to remain favourable. The company maintains limited product diversification with a high concentration in the group major medical business and geographic concentration in a few states. NLB’s strategy includes growing its dental and vision products where profit margins tend to be stronger. However, the COVID-19 pandemic resulted in lower-than-expected new sales for major medical and ancillary lines of business.

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

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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