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FOR IMMEDIATE RELEASE
HONG KONG - JANUARY 23, 2015 09:20 AM (EST)
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the 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 affirmation reflects Nissay's sound risk-adjusted capitalization, adaptive product strategy and well-established business profile.
The company's adjusted capital and surplus (non-consolidated), which consists of total net assets, contingency reserves and price fluctuation reserves, improved 23% to JPY 6.4 trillion at the end of March 2014, mainly driven by the significant increase in net unrealized gains on available-for-sale securities. Accumulation in contingency and price fluctuation reserves also contributed to the capital strengthening. Moreover, the consistent stream of interest and dividend income, coupled with prudent control over operating expenses, also allowed the gradual growth in earnings surplus.
In view of the highly competitive domestic life insurance market in Japan, Nissay was proactive in adjusting its product spectrum toward customer appetite. Coupled with the company's effort in improving its sales and after-sales services, the result was reflected in its market leadership position and consistently improving trend in market share in terms of new annualized premium equivalent.
Leveraging its long operating history and strong franchise, Nissay continued to utilize an extensive network of sales representatives to source the majority of its premium income and captured a 13.9% market share in fiscal year 2013.
Partially offsetting rating factors include Nissay's high exposure to investment risk and the relatively sluggish outlook for Japan's domestic life insurance market amid strong market competition. In particular, driven by the favorable stock market performance over recent years, Nissay's available-for-sale stock investments (on a market-value basis) accounted for increasing weightings of total investment portfolio, albeit the company has been gradually reducing its stock investments on a book-value basis.
Positive rating actions could occur if Nissay can demonstrate consistent improvement in its underwriting profitability, which contributes to strengthening the risk-adjusted capitalization with the accumulation of retained surplus. 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 financial and operational support received from its parent company, Nissay; its established position in Asian markets within the United States and its evolving business diversification strategy. In addition to maintaining a sizable position within its core small group Japanese business segment, the company continues to grow its business among U.S. operations of South Korean and Indian companies. NLB intends to significantly build its ancillary business segments including group dental, life, disability and vision, as well as administrative services.
However, A.M. Best notes that NLB's business remains concentrated in the group major medical market and in a few states. NLB is challenged by the highly competitive nature and volatility within the group major medical market. This environment was demonstrated by a decrease in premium revenue in 2014, driven by the departure of a few large employer groups in response to rate increases and NLB's exit from the small group medical business in New York and California. The company also faces the challenges of complying with the requirements of the Affordable Care Act (ACA). A.M. Best will continue to monitor the impact of the ACA on NLB's strategy and operating results over the near-term future.
NLB's rating considers Nissay's financial strength and NLB's strategic importance to its parent.
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.
Key insurance criteria reports utilized:
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best's Ratings & Criteria Center.
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