HONG KONG–(BUSINESS WIRE)–#insurance—AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa-” (Superior) of Nippon Life Insurance Company (Nissay) (Japan). Concurrently, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Nippon Life Insurance Company of America (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 assesses as strongest, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management.
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). The assessment is also supported by the company’s low financial leverage. Although Nissay is exposed to moderate equity risk from its stock investment portfolio, its sizable available capital, established reputation in Japan and abroad, and good access to debt markets should allow it to withstand such risk.
Nissay has a track record of a consistently strong operating performance, mainly supported by a stable trend of core operating profit and a five-year average return-on-equity of 7.2% (fiscal years 2017-2021), as calculated based on comprehensive income. The company’s operating performance remained consistent and resilient amid the COVID-19 pandemic with its core operating profit improving on an annual basis from JPY 691 billion to JPY 872 billion for the fiscal year ended 31 March 2022 (FY2021). The company’s payment of benefits was adversely affected by a new wave of COVID-19 infections in Japan over the near term. However, AM Best expects that the impact of COVID-19-related claims will moderate significantly from October 2022, following the Japanese government’s updated guidelines and the company’s stable book of in-force business, which will continue to support its core operating profit over the long term.
Nissay is one of Japan’s leading life insurance companies, with a market share of approximately 19% in terms of premium income. The company’s sales representative base remains strong, and it is making efforts to diversify its distribution channels further to achieve revenue growth and strengthen profitability in its domestic market. The company continues to have modest geographic diversification, with 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 strength assessment, supported by its risk-adjusted capitalisation at the strongest level, as measured by BCAR. Ongoing strategic initiatives implemented by management and a diversified product portfolio are also expected to support Nissay’s consistent operating performance over the intermediate term.
Negative rating actions could occur if there is a material deterioration in Nissay’s risk-adjusted capitalisation caused by substantial investment losses. Negative rating actions could also occur if there is a material and prolonged deterioration in operating performance caused by a substantial decline in core operating profit.
The ratings of NLB reflect its balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate ERM.
NLB’s balance sheet strength is supported by its risk-adjusted capitalization at the strongest level, as measured by BCAR, its favorable liquidity position and a conservative investment portfolio. The capital growth lagged premium expansion over the past five years. Dividend payments increased substantially at year-end 2021 and as of the third quarter of 2022, resulting in a decreased level of capital in both periods. However, capital remains more than sufficient to support NLB’s risks.
NLB has reported continued overall profitability over the past five years, and net income reached its highest historical level in the third quarter of 2022. Claim utilization has been lower than expected because of good risk selection. Additionally, nonessential medical services may have been delayed given increased costs amid higher inflation. Favorable underwriting results over the past four years and positive investment returns have resulted in continued profitable operating results.
The company maintains limited product diversification with a high concentration in group major medical business and geographic concentration in a few states. NLB’s bottom line-focused strategy has been driving above-market pricing and limiting opportunities to write new business, which contributed to lower-than-expected premium growth and lower premiums in 2021 and through the third quarter of 2022. The company continues to try to grow its dental and vision products, as profit margins tend to be stronger.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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