Meiji Yasuda Life Insurance Company's core profit margin improved to 18% by the end of the financial year to March 2024 (FYE2024), from 12% a year earlier, notes Fitch Ratings.
This improvement was due to reduced claim payments related to "deemed hospitalisations", following the government's easing of COVID-19-related restrictions since May 2023. The weaker Japanese yen against the US dollar also contributed to the increased profit in yen terms.
The group's premium and core profit rose by 15% and 27% in 1QFYE25 (April-June 2024), respectively, partly supported by the strong sales of single-premium foreign currency-denominated products under the weakening yen environment. Fitch expects the insurer's underwriting profitability to continue its strong recovery and return to pre-pandemic levels.
US business to expand
Meiji Yasuda Life has agreed to acquire American Heritage Life Insurance through its US life insurance subsidiary, StanCorp Financial Group. Fitch believes this aligns with the group's strategic objective to expand its international footprint and diversify its revenue base. Fitch believes the acquisition will expand StanCorp's reach into the voluntary employee group business and broaden its customer base, primarily in south-eastern US.
Earnings contribution from the overseas business and other group businesses rose to 16% of group core profit by FYE2024, from 13% a year earlier, driven by decreased claim payments in StanCorp's group insurance and individual disability income insurance business.
Ratings affirmed
Fitch has affirmed Meiji Yasuda Life's Insurer Financial Strength (IFS) Rating at 'A+' (Strong) and Issuer Default Rating (IDR) at 'A'. The outlook is ‘Stable’. At the same time, Fitch has affirmed the rating on Meiji Yasuda Life's US dollar subordinated debt at 'A-'.
The rating affirmation factors in Meiji Yasuda Life's recovering underwriting profitability, expanding US business, 'Favourable' company profile and strong capital position. The ratings also take into account the susceptibility of the insurer's capital adequacy to market volatility, primarily due to high investment risk associated with its equity investments and exposure to foreign-exchange and interest-rate fluctuations.
Aside from underwriting profitability, other rating drivers for Meiji Yasuda Life include:
'Favourable' Company Profile: Fitch ranks Meiji Yasuda Life's company profile as 'Favourable' as a result of a 'Favourable' business profile and 'Neutral' corporate governance compared with other Japanese insurers. This is underpinned by its top-five position in the domestic life insurance market, its leading role in the group insurance sector, and its diversified business portfolio and distribution channels.
Strong Capital Adequacy: The insurer's capital score, measured by the Fitch Prism Global model, improved to the 'Very Strong' category by FYE2024, from the 'Strong' category a year earlier, on increased total equity and reserves despite continued high investment risks. Its solvency margin ratio on a consolidated basis stayed high at 1,033% at 1QFYE25 with a group economic-solvency ratio of around 220% in FYE2024 (FYE2023: 207%). Its financial-leverage ratio declined to 12% by FYE2024 (FYE23: 18%), better than the ratio guideline for its rating category.
High Investment Risks: Fitch expects the risky-asset ratio, which stood at 109% in FYE2024 (FYE2023: 111%), to continue to exceed the ratio guideline for its current ratings. This is primarily due to the favourable performance of Japanese domestic equities, despite the insurer's intention to reduce its exposure to domestic equities. Most of the investments were allocated to Japanese government bonds.