Japan Post Insurance Co., Ltd

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Apr 27, 2020 R&I Affirms AA-, Stable: Japan Post Insurance Co., Ltd.

Rating and Investment Information, Inc. (R&I) has announced the following: ISSUER: Japan Post Insurance Co., Ltd. Insurance Claims Paying Ability: AA-, Affirmed Rating Outlook: Stable

RATIONALE: Japan Post Insurance Co., Ltd. (Kampo) is engaged in life insurance business as a core company of the Japan Post Group. As with Japan Post Bank Co., Ltd. (Yucho), Kampo represents a significant proportion of the group profits and assets and underpins the group creditworthiness. The rating therefore directly reflects the creditworthiness of the Group consisting mainly of the two financial services companies. Japan Post Co., Ltd., Yucho and Kampo are responsible for the Group's core businesses. They primarily provide postal, logistics, banking and insurance services, using post offices as a shared platform. Their respective business bases are very robust. The risk resilience of the two financial services companies, which account for the majority of the group assets and risks, corresponds to the AA rating category. The companies' risk assets are increasing as their investment portfolios become more diversified. For Yucho, close attention will continue to be paid to the pace of expanding alternative investments and foreign securities investments, as well as the impact of such investment activities on its risk resilience. Kampo has a customer base composed primarily of women and seniors, and is the largest life insurance company in Japan in terms of annualized premiums from individual policies in force if policyholders of postal life insurance are counted. Its franchise is extremely strong. Meanwhile, regarding inappropriate sales of insurance products, Kampo and relevant group companies received administrative actions including an order to clarify their management responsibilities for the misconduct. Kampo will likely see policies in force decline for the foreseeable future because of a decrease in postal life insurance policies in force, as well as rebuilding of its business model, which is required in response to the regulator's administrative actions on inappropriate insurance sales. Moreover, the Group needs to drastically overhaul overall management practices including group governance in line with its business improvement plan. If business risk continues to increase over the medium and long term through, for instance, weakening of a customer base and sales organization, R&I's franchise evaluation for Kampo may come under review. Kampo has low risk appetite. Reflecting the characteristics of simple insurance products in small amounts, its risk profile is not complex. Although ALM (asset and liability management) risk accounts for a large proportion of the risk profile, the risk is kept in check, as compared with other major life insurers. While Kampo plans to increase risk assets amid the prolonged low interest environment, R&I believes that the insurer will be able to maintain risk resilience consistent with the rating under strengthened enterprise risk management. The profitability of products is somewhat low due in part to additional constraints imposed by the Postal Service Privatization Act on Kampo regarding flexible product development. Its earning capacity therefore has room for improvement relative to the rating. R&I is paying attention to the pace of decline in policies in force. Given premium payments received on a monthly basis and a large amount of highly liquid assets, there is no particular concern over liquidity. Kampo is a general corporation governed by the Insurance Business Act. Although the majority of shares in Japan Post Holdings Co., Ltd., the holding company of the Japan Post Group, is owned by the Japanese government, the government's creditworthiness is not incorporated in the rating for Kampo because the two financial services companies do not assume special roles or receive statutory government support. While discussions are underway to postpone the deadline for the government to sell

■Contact : Sales and Marketing Division, Customer Service Dept. TEL.+81-(0)3-6273-7471 E-mail. [email protected] ■Media Contact : Corporate Planning Division (Public Relations) TEL.+81-(0)3-6273-7273 Rating and Investment Information, Inc. TERRACE SQUARE, 3-22 Kanda Nishikicho, Chiyoda-ku, Tokyo 101-0054, Japan https://www.r-i.co.jp Credit ratings are R&I's opinions on an issuer's general capacity to fulfill its financial obligations and the certainty of the fulfillment of its individual obligations as promised (creditworthiness) and are not statements of fact. Further, R&I does not state its opinions about any risks other than credit risk, give advice regarding investment decisions or financial matters, or endorse the merits of any investment. R&I does not undertake any independent verification of the accuracy or other aspects of the related information when issuing a credit rating and makes no related representations or warranties. R&I is not liable in any way for any damage arising in relation to credit ratings (including amendment or withdrawal thereof). As a general rule, R&I issues a credit rating for a fee paid by the issuer. For details, please refer to https://www.r-i.co.jp/en/docs/policy/site.html. © Rating and Investment Information, Inc. NEWS RELEASE its shares in Japan Post Holdings by FY2022 (the year ending March 2023) for five more years, there has been no change in the stance that all of Japan Post Holdings' stakes in the two financial services companies should be sold in the near future. It is appropriate, in R&I's view, that Kampo should be evaluated in accordance with the relevant rating methodologies R&I applies for each group company, as with other corporations. R&I may change the framework of group evaluation it applies for Kampo if Japan Post Holdings' voting stake in Kampo falls below 50% through, for example, additional sale of Kampo shares. In R&I's view, the stand-alone creditworthiness of Kampo is high and satisfies the requirements for the current rating, though the franchise evaluation for the company is under downward pressure.

The primary rating methodologies applied to this rating are provided at "R&I's Basic Methodology for Corporate Credit Ratings", "Shared Rating Approach for Financial Institutions, etc.", "Life Insurance" and "R&I's Analytical Approach to Financial Groups". The methodologies are available at the web site listed below, together with other rating methodologies that are taken into consideration when assigning the rating. https://www.r-i.co.jp/en/rating/about/rating_method.html

R&I RATINGS: ISSUER: Japan Post Insurance Co., Ltd. (Sec. Code: 7181) Insurance Claims Paying Ability RATING: AA-, Affirmed RATING OUTLOOK: Stable