AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa-” (Superior) of Nippon Life Insurance Company (Nissay) (Japan). Concurrently, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Nippon Life Insurance Company of America (NLB) (West Des Moines, Iowa, USA). The outlook of these Credit Ratings (ratings) is stable.

The ratings of Nissay reflect its balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management (ERM).

Nissay’s balance sheet strength assessment mainly reflects its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), underpinned by its large amount of absolute capital of JPY 7.1 trillion (USD 53 billion) as of 31 March 2023. The assessment is also supported by the company’s low financial leverage. The company also has implemented a sophisticated capital model, including the economic solvency ratio, which allows it to evaluate risk-taking activities and capital on a timely basis. While Nissay remains exposed to moderate equity risk from its stock investment portfolio, its sizeable available capital and good access to debt markets as a well-known life insurance company in Japan and overseas should allow it to withstand such risk.

Nissay has demonstrated strong and stable operating performance, continuously achieving robust consolidated premium revenue and large core operating profits over an extended period of time. The company has exhibited an historically stable return-on-equity (ROE) ratio, with a five-year average of 3.4% (fiscal year 2018 – 2022), amid Japan’s prolonged ultra-low interest rate environment. Although the company’s core operating profit was negatively impacted by COVID-19 related hospitalisation losses and volatile capital market in fiscal year 2022, it recovered in the first half of the fiscal year 2023. This improvement is expected to continue in the full fiscal year 2023 compared with fiscal year 2022. Over the long term, AM Best expects Nissay’s stable in-force business will continue to provide sustainable support to its core operating profit.

Nissay continues to be one of Japan’s leading life insurance companies, with a market share of approximately 17% in terms of premium income. While the company continues to have a strong sales representative base, it is also making efforts to diversify its distribution channels, through acquisitions and the establishment of new companies, to achieve revenue growth and strengthen profitability in its domestic market. The company also continues to have modest geographic diversification in other Asia-Pacific countries and the United States.

The ratings of NLB reflect its balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate ERM.

NLB’s balance sheet strength is supported by its risk-adjusted capitalization at the strongest level, as measured by BCAR, its favorable liquidity position and conservative investment portfolio. NLB's capital level reported growth in 2022; however, it decreased in 2021 and through the first nine months of 2023. The capital declines were related to sizable dividend payments made to its parent. However, NLB’s capital remains more than sufficient to support its risks.

NLB has reported five years of profitable operations and recorded its highest historical level in 2022. Claim utilization was lower than expected in 2022. Good risk selection played a part in reduced utilization, and the increasing cost of inflation may have also contributed to reduced utilization. Non-essential medical services may have been put off by policyholders while waiting for inflation to dissipate. Favorable underwriting results over the past four years and positive investment returns have resulted in continued profitable operating results for NLB.

NLB’s niche is writing group major medical and supplemental health products for the U.S. operations of Japan and Korea-based multinational corporations. As a result of its success in this niche, NLB is highly concentrated in the group major medical product line, which represented approximately 90% of premium. The company is also highly geographically concentrated in a few states as its core international customer base tends to reside in metropolitan coastal areas. It has been difficult for NLB to execute its strategy to diversify the product mix by expanding its ancillary business.

Negative rating actions could occur if there is material deterioration in Nissay’s risk-adjusted capitalisation caused, for example, by a substantial increase in investment risk. Negative rating actions could occur if there is material and prolonged deterioration in Nissay’s operating performance caused by a substantial decline in core operating profit. Positive rating actions could occur if Nissay demonstrates sustained improvement in its balance sheet strength metrics although the likelihood of such actions remains limited at this time.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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