(The following statement was released by the rating agency) HONG KONG, September 12 (Fitch) Fitch Ratings has affirmed Meiji Yasuda Life Insurance Company's (Meiji Yasuda Life) Insurer Financial Strength (IFS) Rating at 'A+. The Outlook is Negative. KEY RATING DRIVERS The affirmation of the ratings reflects Meiji Yasuda Life's strong capitalisation, its well-established brand, improving profitability, and satisfactory asset and liability management (ALM). Meiji Yasuda Life's rating is currently capped by the Japanese sovereign's Long-Term Local-Currency IDR of 'A+' and the Negative Outlook on the company's ratings is in line with the Negative Outlook on the sovereign rating. This is because Meiji Yasuda Life has a high level of government debt holdings (42% of invested assets as of 31 March 2014). The company does not have sufficient overseas business diversification to counterbalance the high level of Japanese government bond holdings. Meiji Yasuda Li fe's statutory solvency margin ratio (SMR) remained highest among the four Japanese major life insurers at 945.5% at the end of financial year 2014 on 31 March (FYE14), improving slightly from 930.3% at FYE13. On the other hand, its capital adequacy remains sensitive to volatility in stock market due to its risky assets to adjusted equity (110.6% at FYE14), despite the reduction of its exposure on a book value basis. With the strong sales of the higher-margin medical and healthcare products (known as the third sector products in Japan, annualised new business premiums rose 13.2% yoy in FYE14), Meiji Yasuda Life's value of new business margins improved to 6.37% in FYE14 from 5.76% in FYE13. However, it remained low compared to its peers due to a lower share of third-sector products to overall new business. Its core profit rose 16.7% in FYE14, supported by increased investment gains while core profit margins improved to 12.7% at FYE14 from 10.8% at FYE13. Meiji Yasuda Life's European embedded value is less sensitive to decline in interest rates thanks to its effort to narrow duration mismatch between its assets and liabilities. However, the large amount of single-premium whole-life products sold through bank channels in FYE12 could potentially cause investment loss if interest rate rises sharply and the surrender rate rises more than expected. RATING SENSITIVITIES With Meiji Yasuda Life's rating rated at Japan's Long-Term Local-Currency IDR, an upgrade is unlikely in the near future. Conversely, if the rating on Japan were lowered, the rating on the insurer is also likely to be lowered. Key rating triggers that could lead to a downgrade include a significant decline in the capital buffer as a result of a sustained stock market decline, volatility in interest rates or a decline in profitability due to a change in product mix. Specifically, the rating could also be downgraded if the SMR declines below 700% for a sustained period, or core profit margins deteriorate to below 10% for a prolonged period. Contact: Primary Analyst Akane Nishizaki Associate Director +852 2263 9942 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Teruki Morinaga Director +81 3 3288 2781 Committee Chairperson Marc-Philippe Juilliard Senior Director + 33 1 44 29 91 37 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Insurance Rating Methodology'', dated 4 September 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status 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 A ND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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