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Rating Action:

Moody's affirms Nippon Life’s and Taiju Life’s ratings; changes outlooks to stable

 The document has been translated in other languages

15 July 2021


Tokyo , July 15, 2021 -- Moody's Japan K.K. has affirmed the A1 insurance financial strength rating (IFSR) and A3(hyb) subordinated bond rating of Nippon Life Insurance Company (Nippon Life), and the A1 IFSR of Taiju Life Insurance Company Limited (Taiju Life).

At the same time, Moody's has revised the outlook on these companies to stable from negative.

The change in outlooks to stable reflects Moody's view that Nippon Life's and Taiju Life's capitalization has improved over the past year, and will remain at a level that commensurate with its similarly-rated peers.

The IFSR and outlook of Taiju Life are the same as those of Nippon Life because Moody's considers that both insurers as belonging to the same analytic unit, considering the high degree of integration in the management and operations of the companies.

Moody's reference to Nippon Life below represents the combined operations of Nippon Life, with the vast majority of the business in Japan, including those of Taiju Life and Nippon Wealth Life Insurance Company Limited.

RATINGS RATIONALE

The affirmation and change in outlook to stable reflects Nippon Life's improved capitalization and Moody's expectation that the insurer will enhance its risk control and maintain its very strong market position and good profitability resulting from large mortality and morbidity margin.

Nippon Life's capitalization will be supported by continued internal capital generation over the next 12-18 months even amid the lingering pandemic, driven by the insurer's large and stable mortality and morbidity margin. The insurer's capitalization has also recovered because of financial market recovery.

The potential introduction of the new economic capital regulation in Japan will promote Nippon Life's risk control, leading the insurer to implement more active economic capital management. Moody's expects the insurer will gradually reduce its interest rate and equity risks and also look for ways to strengthen its capital including hybrid issuances. In June 2020, the Japanese Financial Services Agency published a report on economic value-based capital regulation, which suggests that the new regulation, while tentative, would be implemented in April 2025.

Nippon Life's market share in terms of premiums was about 3.9x the typical market share of life insurers in Japan as of the fiscal year ended 31 March 2021 (fiscal 2020), which is the largest in Japan. Moody's expects the negative impact of the pandemic on the insurer's sales will be manageable in fiscal 2021. The insurer's large number of existing policies with long durations support its premium base. The stable premium base will also support Nippon Life's resilient internal capital generation even amid the pandemic.

Nevertheless, Nippon Life's strengths are counterbalanced by its weaker asset quality and Moody's estimate that its asset-liability duration gap is wider than similarly rated global peers, as well as the strain on its investment yield from the prolonged ultralow interest rate environment in Japan.

Nippon Life's holdings of equities are relatively high. For example, domestic equities accounted for 14.5% of the insurer's general account assets on a non-consolidated basis as of March 2021. In addition, Moody's has estimated that the insurer's duration gap is wider than similarly rated global peers. The high equity holdings and large duration gap leave the insurer's economic capitalization exposed to equity and interest rate movements.

Like its Japanese peers, Nippon Life's investment yields will remain strained, given the ultralow interest rates in Japan and decreased dividend income from equities amid the pandemic. For example, Nippon Life's interest rate margin on non-consolidated basis decreased by 11% in fiscal 2020 compared with a year earlier.

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

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

However, Moody's could upgrade the ratings if the Government of Japan's (A1 stable) rating is upgraded and if (1) Nippon Life's economic capitalization further improves significantly; (2) its five-year average return on capital (ROC) increases, such that it remains above 8% on a consistent basis; and (3) its risky assets decrease, falling below 100% of shareholders' equity on a consistent basis.

Moody's could downgrade the ratings if: (1) Nippon Life's economic capitalization deteriorates significantly; (2) its profitability consistently declines, with its five-year average ROC falling below 2% or its mortality and morbidity gains decreased significantly; (3) its duration gap deteriorates; (4) its risky assets exceed 200% of shareholders' equity; or (5) Japan's sovereign 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.

Nippon Life Insurance Company, headquartered in Osaka, is Japan's largest life insurance company by premium income for the fiscal year ended 31 March 2021. At the end of March 2021, the insurer's total assets amounted to JPY85.6 trillion and its net assets totaled JPY8.8 trillion on a consolidated basis.

Taiju Life Insurance Company Limited, headquartered in Tokyo, is one of Japan's life insurance companies. At the end of March 2021, the insurer's total assets amounted to JPY8.0 trillion and its net assets totaled JPY583.3 billion on a non-consolidated basis.

REGULATORY DISCLOSURES

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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, CFA
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

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