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 (Nippon Life Benefits or NLB) (Des
Moines, IA). The outlook for all ratings is stable.
The ratings reflect Nissay's adequate capitalization level, improving
operating performance and diversified distribution channels. Nissay
strengthened its capitalization in fiscal year 2011 with an increase in
its foundation fund by JPY 100 billion to JPY 1,250 billion, in addition
to a significant increase in its unrealized gains on its bond portfolio.
As a result, the company's regulatory solvency margin improved from 529%
to 567% at the end of March 2012. Nissay reported the first upturn in
its in-force annualized premium since fiscal year 2004, underpinned by
growth in new sales of individual protection and annuity products as
well as improvement in its persistency. In addition, Nissay's core
operating profits increased by 5.4% year on year to JPY 544 billion in
fiscal year 2011, with increases in all components of mortality,
interest and expense margins. The restructuring in the cost structure of
personnel and IT systems and an additional amount to the policy
reserves, which had been accumulated over five years, since the year
ended March 31, 2007 also boosted the company's margins.
The continued low levels of interest rates could weigh on Nissay's
investment returns given the large proportion of fixed income assets in
its investment portfolio.
Partially offsetting these positive rating factors are the persistently
low interest rate environment and Nissay's high exposure to the
fluctuating stock market.
Positive ratings actions could occur if Nissay shows a significant
improvement in its risk capitalization and/or operating performance.
Conversely, negative rating actions may occur if there is material
deterioration in the company's risk-adjusted capital position and/or
The rating affirmations for NLB reflect the operational and financial
support it receives from Nissay, its continued favorable financial
results, established niche in the U.S. Asian (Japanese and Korean)
markets and its solid risk-adjusted capital position. Additionally, NLB
successfully completed the transition of its business to CoreSource to
administer and pay its claims. However, NLB has a concentration in the
competitive and volatile group medical market, combined with the
challenges of the health care reform legislation.
NLB primarily markets group medical products to the U.S. operations of
Japanese companies as well as other companies in the United States. In
2009, NLB started marketing products to the U.S. operations of the South
Korean companies and this business has maintained continued growth.
The methodology used in determining these 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. Key criteria utilized include: "Risk
Management and the Rating Process for Insurance Companies"; "Rating
Members of Insurance Groups"; "Understanding Universal BCAR"; and
"Evaluating Country Risk." Best's Credit Rating Methodology can be found
Founded in 1899, 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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