TEXT-Fitch affirms Daido Life at IFS 'A+'; outlook stable

(The following statement was released by the rating agency)

Oct 04 - Fitch Ratings has affirmed Daido Life Insurance Company's (Daido Life) Insurer Financial Strength (IFS) rating at 'A+'. The Outlook is Stable.

The IFS rating reflects Daido Life's and its parent T&D Life Group's overall solid life insurance underwriting and robust capitalisation, the highest among Japanese traditional life insurers. Fitch also notes that Daido Life is strengthening its enterprise risk management (ERM) to tighten control on capital and risks. For example, the company will continue the lengthening of assets' duration to cope with interest rate risk stemming from the duration gap between its assets and liabilities, which remains the primary risk for the company.

Fitch notes that Daido Life has been strengthening its profitable third sector such as medical insurance - with annual premium of new policies growing 80.7% in the year to March 2012. Fitch will continue to monitor Daido Life's business in the third sector. The company's surrender and lapse rate steadily declined to 8.04% at end-March 2012 from 8.75% a year ago.

Partly owing to the company's efforts to further reduce its domestic equity holdings, Daido Life's new statutory solvency margin ratio (SMR) improved to 851.9% at end-March 2012 from 720.6% at end-March 2011, despite a weak domestic equity market.

An upgrade is unlikely in the near future, considering the potential constraint from the sovereign rating. Japan's Long-Term Local-Currency Issuer Default Rating is 'A+'/Negative.

Key rating triggers for a downgrade include material erosion of capitalisation, deterioration in profitability and volatility in the insurer's embedded value. Specifically, Daido Life's ratings may come under pressure if Fitch's internal capitalisation measure drops sharply, if the SMR declines below 650%, or if the embedded value becomes volatile for a prolonged period. The agency believes Daido Life can exceed the sovereign's Local Currency IDR by one notch due to the company's overall robust credit profile, so a downgrade of the sovereign by one notch would not necessarily lead to the downgrade of the company's IFS rating.

According to Fitch's Insurance Rating Methodology, Daido Life is a core constituent of T&D Holdings, Inc (T&D). However, given the strength of its standalone credit profile, Daido Life is rated on a standalone basis and its rating does not include any uplift from it being part of T&D. As the core member of the group, Daido Life could be downgraded, however, if the prospects of either T&D or other members of the group were to worsen materially.

Daido Life is a domestic life insurer for Japanese small and medium-sized enterprises.

((Bangalore Ratings Team, Hotline: +91 80 4135 5898 Debanjali.Ghosh@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Debanjali.Ghosh.reuters.com@reuters.net))