HONG KONG--()--A.M. Best Asia-Pacific Limited has upgraded the financial strength rating to A+ (Superior) from A (Excellent) and issuer credit rating to “aa-” from "a+" of Meiji Yasuda Life Insurance Company (Meiji Yasuda) (Japan). The outlook for both ratings is stable.
“Risk Management and the Rating Process for Insurance Companies”
The ratings reflect Meiji Yasuda’s strong capitalization, conservative reserve accumulation and the persistent improvement in its operating performance. Meiji Yasuda’s statutory solvency ratio improved 86 percentage points to 749% in fiscal year 2011. This was a result of a boost in unrealized gains in Meiji Yasuda’s domestic bonds and foreign securities, a JPY 50 billion increase in foundation funds (Kikin) and the company’s efforts to scale down risk assets. The ratio further rose to 790% at the end of September 2012 mainly due to a decline in market risk. Meiji Yasuda’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains adequate for its current ratings.
Over the past years, Meiji Yasuda has accumulated additional reserves to lower its assumed average interest rate, which declined by 10 basis points to 2.25% in fiscal year 2011. As a result, the interest profit, a component of the core operating profit, turned positive for the first time in 20 years to JPY 19 billion. The company also has lowered its risk amounts by lengthening the duration of its fixed income portfolio and reducing risk assets in its investment portfolio. In addition, Meiji Yasuda has tightened its risk controls against sales of single premium products by controlling the sales volume and promoting the level premium products.
In fiscal year 2011, Meiji Yasuda reported its fourth consecutive year of double-digit growth in annualized premiums of new business, as well as a 19% year-on-year increase in its core operating profit. Meiji Yasuda also demonstrated continuous improvements in its 13th and 25th month persistency ratios, which increased by 0.6 and 2.8 percentage points to 94.1% and 86.7%, respectively, as the company enhanced after sales services and product quality.
Partially offsetting these positive rating factors are Meiji Yasuda’s exposure to volatile financial markets and a persistently low interest rate environment.
Negative rating actions may occur if there is a material deterioration in the company’s risk-adjusted capital position and/or operating performance.
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 at www.ambest.com/ratings/methodology.
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