NN Life Japan Ratings Affirmed At #A-#; Outlook Remains Stable

Stocks and Financial Services Press Releases Friday June 8, 2018 14:26
TOKYO--8 Jun--S&P Global Ratings

TOKYO (S&P Global Ratings) June 8, 2018--S&P Global Ratings today said it has affirmed its financial strength and long-term issuer credit ratings on NN Life Insurance Co. Ltd. (NN Life Japan) at 'A-'. The outlook on the ratings remains stable. We base today's rating affirmation on our assessment that its stand-alone credit profile (SACP) remains at 'bbb+', with a one-notch uplift for support from NN Group due to its strategically important status.

On May 29, 2018, the company released its financial results for fiscal 2017 (ended March 31, 2018), and revised its financial statements for fiscal 2012 to fiscal 2016 after announcing that it has completed a review of its policy reserves. NN Life Japan's revisions of its past calculations of policy reserves have reduced its total adjusted capital under our definition. Coupled with rising risk in the insurer's growing business, we revised down our assessment of its capital adequacy in fiscal 2016 and fiscal 2017 to upper adequate, which is closer to the 'BBB' level in our risk-based capital model. In addition, we believe the insurer's risk-based target capital will continue to increase as its business grows. We have revised down NN Life Japan's financial risk profile to upper adequate from moderately strong.

However, we continue to assess the insurer's SACP as 'bbb+'. NN Life Japan focuses on providing corporate-owned life insurance (COLI) in the small-and-midsize-enterprises market. The insurer has a track record of product innovation, such as providing COLI with tax merits, and its products are well received in the market, as growth in its business indicates. In our view, ongoing support from NN Group underpins NN Life Japan's SACP.

Meanwhile, we believe NN Life Japan is becoming more important to NN Group's strategy due to its increased contributions to the parent and its growth potential in the domestic COLI market. We also think that NN Group is committed to supporting NN Life Japan.

The stable outlook on NN Life Japan reflects that on the core subsidiaries of NN Group. The outlook also reflects our view that the company will likely remain a strategically important subsidiary of NN Group and the likelihood that we will maintain our assessment of its SACP at 'bbb+'.

Although unlikely, we could consider downgrading NN Life Japan if we find reasons to revise our assessment of the company's group status back to nonstrategic within the next two years. This could happen if, against our expectations, NN Group revives the possibility of divesting its stake in NN Life Japan or if the company becomes less important because of weakened profitability or reduced contributions to the group. We may also lower our ratings on NN Life Japan if we revise downward the group credit profile (GCP) for NN Group to 'a-' from the current 'a'.

We could consider upgrading NN Life Japan if we revise upward our assessment of the GCP for NN Group within the next two years.

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