Nippon Life Insurance Co. Outlook Revised To Positive On Enhanced Capital; Ratings Affirmed At 'A+'

  • We expect Nippon Life will continue to build up capital through the ongoing accumulation of retained earnings.
  • We are therefore revising up our outlook on the insurance group to positive from stable.
  • We are affirming our financial strength, issuer, and issue credit ratings on Nippon Life, in consideration of our beliefs that its capitalization could be maintained at the current category, and that there are some constraining factors on the ratings, such as relatively high sensitivity to market fluctuations.
  • We are also revising up our enterprise risk management assessment based on evidence that the company is effectively using its risk management framework.
TOKYO (S&P Global Ratings) Dec. 20, 2018--S&P Global Ratings today said it has 
affirmed its financial strength and long-term issuer credit ratings on Nippon 
Life Insurance Co. (Nippon Life) at 'A+'. We also affirmed the issue credit 
ratings on its hybrid debt at 'A-'. At the same time, we revised our outlook 
on the insurer to positive from stable. 

Our upward outlook revision to positive from stable reflects our views that 
the group's very strong capitalization will improve further, and that the 
group's capital base could possibly within the next 24 months reach the 
extremely strong level (the 'AAA' confidence level in our risk-based capital 
model). We base our views primarily on two factors. First, the group's 
capitalization has improved mainly due to the continued accumulation of 
retained earnings and the issuance of hybrid debt with intermediate equity 
content, the amount of which totaled ¥220 billion in 2018. Second, we think 
the group will maintain very strong capitalization relative to the risks it 
incurs, supported by stable sources of retained earnings generated from the 
huge amount of policies it has in force. In our view, the group's high volume 
of policies in force will be underpinned by its very strong competitive 
advantages: It has the largest share in the Japanese life insurance market and 
a very good reputation among consumers. While we expect the company to 
increase its holdings of foreign securities and other types of relatively 
high-risk assets, we expect risks to increase at a slower pace than its 
capital grows. This is because we believe the company has the ability to 
capably manage market risk through its increasingly sophisticated ERM 

We have affirmed our 'A+' ratings on Nippon Life. Its capitalization has been 
improving, but in our base case, we are likely to maintain our assessment of 
its capitalization in the current category. In addition, somewhat constraining 
this strength are the high level of soft capital such as unrealized gains on 
equity holdings and hybrid debt with intermediate equity content in its total 
adjusted capital, and the relatively large interest rate mismatch, which might 
lead to capital and earnings volatility. 

We revised the group's enterprise risk management score to adequate with 
strong risk controls from adequate, in consideration of the improvement in its 
ability to control market risks thanks to continual efforts to enhance ERM 
systems. In addition, we have seen evidence that the company is utilizing 
economic-based metrics to make business decisions over the medium to long 
term, and believe that enough time has passed since the implementation of the 
ERM system for us to confidently confirm it is effective.

We believe the likelihood of an upgrade for Nippon Life is limited as long as 
our sovereign ratings on Japan remain at the current level. This is because 
our ratings on the company are at the same level as our sovereign ratings on 
Japan. We would not consider rating Nippon Life above the sovereign as it 
conducts the majority of its business in Japan.

We may revise the outlook to stable from positive on Nippon Life if the 
insurer's capital does not improve to the degree that we expect in the next 
two years or if the outlook on our sovereign ratings on Japan is revised to 
stable from positive.
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