A.M. Best Affirms Ratings of Nippon Life Insurance Company

HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit rating (ICR) of “aa-” of Nippon Life Insurance Company (Nissay) (Japan). The outlook for both ratings is stable.

“Risk Management and the Rating Process for Insurance Companies.”

The ratings reflect Nissay’s improved operating performance and strengthening overseas business.

After three consecutive years of decline, Nissay’s core operating profits showed a turnaround by 2.2% in fiscal year 2010, mostly owing to improved interest gains. In addition, the company just completed its five-year plan to write off the negative spread of its individual annuities.

Due to challenges in the domestic life insurance market, overseas expansion has recently become important for Japanese life companies. Although Nissay’s overseas business is still small relative to its scale in the domestic market, the overseas insurance units continued to report premium income growth in fiscal year 2010. As the company continues to strengthen its existing overseas business and build collaborative opportunities with overseas partners, the business is expected to grow further.

Partially offsetting these positive rating factors is the unfavorable investment climate and the shrinking market share in individual insurance.

Due primarily to the decrease in domestic stock prices, Nissay’s adjusted capital and surplus dropped from JPY 3.28 trillion (USD 39.7 billion) to JPY 2.98 trillion (USD 39.0 billion) in the first half of fiscal year 2011.

In terms of premium income from individual insurance, Nissay’s market share declined from 15% to 14%, despite a slight increase from JPY 3.18 trillion to JPY 3.21 trillion.

Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Nippon Life Insurance Company of America (Nippon Life Benefits or NLB) (Des Moines, IA). The outlook for both ratings is stable.

The affirmations reflect the support NLB receives from its parent company, Nissay, its improved operating results, as well as its established niche in the U.S. Asian market and solid risk-adjusted capital position. However, the company operates in the competitive and volatile group major medical market, combined with the challenges of health care reform legislation and is in the process of transferring business to CoreSource to administer and pay its claims.

NLB primarily markets group major medical products to its U.S. operation of Japanese companies, as well as other companies in the United States. In 2009, NLB started marketing products to the U.S. operation of South Korean companies and this business continues to grow.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding Universal BCAR”; “Understanding BCAR for Life/Health Insurers”; “Rating Members of Insurance Groups”; and “Risk Management and the Rating Process for Insurance Companies.” Methodologies can be found at www.ambest.com/ratings/methodology.

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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