TEXT-Fitch affirms Sumitomo Life's IFS at 'A'; outlook stable

TEXT-Fitch affirms Sumitomo Life's IFS at 'A'; outlook stable


Fitch Ratings has affirmed Sumitomo Life Insurance Company's (Sumitomo Life) Insurer Financial Strength (IFS) rating at 'A' and its Long-Term Issuer Default Rating at 'A-'. The Outlook is Stable.

The ratings reflect Sumitomo Life's overall steadily improving life insurance underwriting performance and strengthened capitalisation. The company is also strengthening its economic value based enterprise risk management (ERM).

Its capital adequacy has improved due to the company's greater control of capital and risks. Efforts to accumulate capital and reserves and to further reduce its domestic equity holdings have led Sumitomo Life's statutory solvency margin ratio (SMR) to improve to 708.6% at end-March 2012 from 636.5% at end-March 2011, despite a weak domestic equity market. Also, its adjusted debt leverage improved to 18.4% from 22.3% during the same period. To better manage risk, the company continues to refrain from accumulating variable annuity-type products.

Sumitomo Life has demonstrated continuous premium growth in profitable third sectors such as medical and care insurance. Annual premium of in-force policies of Sumitomo Life's profitable third sectors continued to grow 0.8% in the year to March 2012, faster than most other traditional Japanese life insurers. In addition, its surrender and lapse rate continued to decline to 5.33% at end-March 2012 from 5.77% a year ago.

The ratings may be upgraded if adjusted debt leverage improves to below 15% on a sustained basis or if the current new statutory SMR remains well above 700% and Fitch's internal capitalisation measures improve further on a sustained basis, or if sensitivity to interest rate volatility is substantially reduced.

Key negative rating drivers include material erosion of capitalisation, deterioration in profitability or volatility in the embedded value. Specifically, Sumitomo Life's ratings may be downgraded if Fitch's internal capitalisation measures drop sharply, if adjusted debt leverage increases to a level consistently above 35% or if the embedded value becomes volatile for a prolonged period.

Sumitomo Life is a mutual company established in 1907, and is one of the four major Japanese domestic life insurers. Its market share was 7.4% by total assets and 8.7% by total premium at end-March 2011.