(The following statement was released by the rating agency)
Oct 04 - Standard & Poor's Ratings Services today assigned its 'A+' foreign currency counterparty credit rating to Nippon Life Insurance Co. (Nippon Life; A+/Stable/--) and 'A-' issue rating to Nippon Life's U.S. dollar-denominated subordinated notes with interest deferral features. The outlook on the foreign currency counterparty credit rating is stable. The total issuance amount and the coupon rate of the subordinated notes have yet to be decided; the coupon will be fixed rate until October 2022, after which it will switch to a floating rate.
The issue rating on the subordinated notes is two notches lower than the long-term counterparty credit rating on Nippon Life. The gap reflects subordination to senior creditors, as well as the issuer's ability to defer interest payments.
The ratings on Nippon Life reflect the company's strong competitive position in the domestic life insurance market and its very strong financial flexibility. Weaknesses include the company's relatively high exposure to equity holdings. We expect the ratings on Nippon Life to remain unchanged following the issuance of the subordinated notes, despite it having a positive effect on the insurer's capitalization.
Standard & Poor's regards Nippon Life's subordinated notes as "intermediate equity content" based on the following: The term to maturity is 30 years, which is sufficiently long under our hybrid criteria; redemption is not allowed for 10 years from issuance, although the interest rate will be stepped up after 10 years, the step-up of the coupon will be moderate at 100 basis points; the issuer can defer interest payments at its discretion; and the repayment of the notes at the time of liquidation is subordinated to other senior debt, including policy obligations.
We understand that mandatory deferral of interest would occur if Nippon Life fails to meet the regulatory minimum solvency standard (currently a solvency margin ratio at 200%), or if the regulator issues a prompt corrective action order. Standard & Poor's believes that the issuer is highly likely to defer interest payments at its discretion before such capital deficiency or regulatory action occurs. Accordingly, in our ratings analysis on Nippon Life's subordinated notes and our assessment of the notes' equity content, we do not place emphasis on their mandatory interest deferral features. We may revise downward our "intermediate equity content" classification of the notes if future Japanese regulations preclude the eligibility of the notes as regulatory capital. However, we currently see this scenario as unlikely in the case of Nippon Life's subordinated notes.
RELATED CRITERIA AND RESEARCH Interactive Ratings Methodology, April 22, 2009 Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008