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Rating Action:

Moody's affirms Dai-ichi Life at A1; outlook stable

05 November 2020

Tokyo , November 5, 2020 Moody's Japan K.K. has affirmed the A1 insurance financial strength rating (IFSR) and the A3(hyb) subordinated bond rating of The Dai-ichi Life Insurance Company, Limited (Dai-ichi Life).

The outlook on Dai-ichi Life remains stable.

Moody's assessment is based on the main domestic Japanese life insurance business of Dai-ichi Life Holdings, Inc., as represented by Dai-ichi Life and The Dai-ichi Frontier Life Insurance Co., Ltd., given the high degree of integration in the management and operations of the two companies.

Please click on this link https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1000003701 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

The affirmation of Dai-ichi Life's IFSR reflects the insurer's very strong market position in the domestic insurance market, as well as its robust control over its distribution channels and strong capitalization.

These strengths are partially offset by the insurer's relatively weak asset quality compared to global peers and Moody's expectation that its investment yields will remain under pressure.

Dai-ichi Life has a very strong market position and brand, as one of Japan's largest life insurers by market share. The insurer's new insurance sales will likely decline in the fiscal year ending 31 March 2021 (fiscal 2020) as social distancing practices amid the coronavirus pandemic limit customer contact. That said, Dai-ichi Life's premium base is supported by its large number of existing policies with long durations.

Dai-ichi Life's capitalization is also strong, as evidenced by Dai-ichi Life Holdings, Inc. (Dai-ichi Holdings)'s improving economic solvency ratio of 195% as of the end of March 2020, up from 170% a year earlier despite the sharp decline in domestic equity market and widening credit spread in March 2020. In addition, Moody's expects that the insurer's stable and large mortality/morbidity margin will support its overall profitability which would help with its organic capital generation. That said, there is still the risk that the insurer's otherwise-strong capitalization could erode, should there be a significant equity market fall or a significant widening of credit spread given the sizeable credit investments it holds.

Dai-ichi Life's control over distribution channels is very strong because its main retail and corporate sales channels are captive sales channels.

On the other hand, its proportion of high-risk assets as a percentage of adjusted shareholders' equity is high at 98.6% when compared with similarly rated global peers. The insurer is taking various measures to reduce its market risks, with a target to decrease its equity risk and interest rate risk by 20% at the Dai-ichi Holdings level by the end of March 2024, which is credit positive as it will help reduce the volatility on its capitalization and earnings from capital market movements.

However, Dai-ichi Life's investment yields remain under pressure, similar to its Japanese peers, given the ultralow interest rate environment in Japan and the declining interest rates in other markets as Dai-ichi Life invests a fair amount of unhedged foreign bonds.

The stable outlook reflects Moody's expectation that Dai-ichi Life will maintain its very strong market position and brand and strong capitalization, and that its new business sales will recover gradually if the coronavirus pandemic subsides.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade is unlikely in the near term because Dai-ichi Life's A1 rating is at the same level as that of Japanese government bonds (JGBs), and the insurer has sizable exposures to JGB investments and the Japanese insurance market.

However, Moody's could upgrade the rating if the Government of Japan's (A1 stable) rating is upgraded and if there is: (1) an increase in the insurer's premium-based relative market share, whereby on the basis of the combined shares of Dai-ichi Life and Dai-ichi Frontier Life Insurance Co., Ltd. (Dai-ichi Frontier), to above 3.0x the typical market share of life insurers in Japan; (2) an increase in the insurer's five-year average return on capital (ROC), whereby it remains above 8% on a consistent basis; (3) a decrease in its high-risk assets, whereby it drops below 75% of shareholders' equity on a consistent basis.

On the other hand, Moody's could downgrade the rating if the insurer's: (1) economic capitalization substantially deteriorates; (2) five-year average ROC declines below 1%; (3) high-risk assets increase to more than 150% of adjusted shareholders' equity; (4) the Government of Japan's rating is downgraded.

The principal methodology used in these ratings was Life Insurers Methodology (Japanese) published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187350 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Dai-ichi Life Insurance Company, Limited, headquartered in Tokyo, is one of Japan's major life insurance companies, with total assets of around JPY37 trillion as of June 2020.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1000003701 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Rating Solicitation

• Issuer Participation

• Participation: Access to Management

• Participation: Access to Internal Documents

• Disclosure to Rated Entity

• Endorsement

• Lead Analyst

• Releasing Office

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Soichiro Makimoto
VP-Senior Analyst
Financial Institutions Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo
Japan
JOURNALISTS : 81 3 5408 4110
Client Service : 81 3 5408 4100

Sally Yim, CFA
MD-Financial Institutions
Financial Institutions Group
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Releasing Office :
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS : 81 3 5408 4110
Client Service : 81 3 5408 4100

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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