AM Best Affirms Credit Ratings of Nippon Life Insurance Company and Its Subsidiary

HONG KONG--(BUSINESS WIRE)--
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 Nissay’s subsidiary, Nippon Life Insurance Company of America (NLB) (West Des Moines, Iowa, USA). The outlook of all of these Credit Ratings (ratings) is stable.

The ratings reflect Nissay’s 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 reflects its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), underpinned by its robust capital base. The company’s absolute capital recorded material increase by 52% to JPY 10.5 trillion as of 31 March 2024, driven by substantial unrealised gains on its securities investments amid favourable market conditions. The balance sheet strength assessment is supported further by the company’s low financial leverage, sophisticated internal capital assessment capabilities using economic solvency ratio, and a prudent asset-liability management strategy. While the company is exposed to moderate equity risk from its stock investments, its sizeable available capital provides a solid cushion against such risks. AM Best also expects the company’s announced acquisition of Resolution Life Group Holdings Ltd. (Resolution Life) to have a limited impact on its balance sheet fundamentals, given its capital size relative to the scale of the acquisition, although some moderate erosion of its risk-adjusted capitalisation may occur.

In the fiscal year ended 31 March 2024, Nissay demonstrated stable and resilient operating performance, with premium income reaching JPY 8.6 trillion and a core operating profit of JPY 764 billion. This strong performance was underpinned by a 35% year-over-year increase in premium revenue, driven by significant growth in sales of savings-type single premium products, supported by favourable foreign and domestic interest rate environments. Additionally, higher investment income, benefiting from Japanese Yen depreciation, and reduced COVID-19-related losses contributed to the improvement of its core operating profit. Despite recent challenges from the COVID-19 pandemic and financial market volatility, the company has maintained a stable return on equity (ROE) over the past five fiscal years. In the first half of fiscal year 2024, the company also recorded a 36% increase in core operating profit, supported by higher investment returns. Over the long term, AM Best expects Nissay’s stable in-force book of business in Japan, coupled with its efforts to diversify its business, to position the company to achieve sustainable core operating profits.

Nissay continues to be one of Japan’s leading life insurance companies, with a market share of approximately 20% in terms of premium income in fiscal year 2023. The company continues to leverage its strong sales representative base while diversifying its distribution channels through acquisitions and new ventures to reach a broader customer base and achieve sustainable revenue growth in the domestic market. The company has been expanding its international footprint cautiously through life insurance businesses in Asia-Pacific countries and Australia. Its recently announced plans to acquire Resolution Life and the remaining stake in MLC Life Insurance are expected to accelerate its geographical diversification and strengthen its presence in developed markets such as the United States and Australia.

Negative rating actions could occur if there is material and sustained deterioration in Nissay’s risk-adjusted capitalisation caused, for example, by a substantial increase in investment and underwriting risk following large business acquisitions. Negative rating actions also could occur if there is material and prolonged deterioration in operating performance caused by a substantial decline in core operating profit. Positive rating actions could occur if the company further enhances its business profile to exhibit an indisputable market leadership position with strong brand recognition in both domestic and overseas markets.

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 enterprise risk management.

The affirmation of NLB’s ratings is underpinned by a risk-adjusted capitalization that AM Best views as strongest, as measured by BCAR, and supported by modest underwriting leverage and a conservative investment portfolio. Furthermore, NLB’s capitalization, although, at the strongest level continues to be impacted by sizable dividend made to Nissay. However, NLB’s capitalization remains more than sufficient to support its risks. The company continues to maintain an established market position in the Asian markets within the United States.

AM Best notes that NLB’s business remains concentrated in the group major medical market and in certain states. The group major medical market is highly competitive, and the company has experienced volatility within this segment in recent years. Despite elevated pricing, NLB is keeping persistency due to strong customer service, which is helping drive close to 90% customer retention. NLB’s top-line growth has historically been impacted by both pricing and limited opportunities for growth. However, the company expects slightly better sales and improved premium level in the near term. Additionally, the company continues to grow its ancillary products, which tends to have better profit margins.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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Charles Chiang
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Chanyoung Lee
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Michael Sweeney
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Christopher Sharkey
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Al Slavin
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Source: AM Best