19-D-0717 October 17, 2019 Japan Credit Rating Agency, Ltd. (JCR) announces the following credit rating. JAPAN POST HOLDINGS Co., Ltd. (security code: 6178) <Affirmation> Long-term Issuer Rating: AA+ Outlook: Stable Rationale (1) JAPAN POST HOLDINGS Co., Ltd. (the “Company”) is a special company established under the Act on Japan Post Holdings Co., Ltd. As the holding company of JAPAN POST Group, it has JAPAN POST Co., Ltd., JAPAN POST BANK Co., Ltd. and JAPAN POST INSURANCE Co., Ltd. under its umbrella. It is stipulated in laws and ordinances that the Company and JAPAN POST are responsible for offering universal services to enable customers to receive postal, savings and insurance services consistently, universally and fairly at post offices throughout the country. Backed by a huge network of post offices, the Group has a customer base that is far broader than that of its private-sector rivals not only for the postal business but also for the banking and insurance sectors. As the JAPAN POST Group is subject to the process of privatization of postal services, which were once directly operated by the Japanese government, its shares in the Company and also the Company’s shares in JAPAN POST BANK and JAPAN POST INSURANCE will be disposed of in that process. (2) The current rating on the Company reflects JCR’s views that it is highly likely that the Company will receive additional support from the Japanese government when it is under stresses in light of the JAPAN POST Group’s function as an important social infrastructure, obligation to offer universal services, etc. With discovery of many cases of inappropriate solicitation with regard to the rewritten insurance policies of the Group’s insurance policies sales, the Group is now conducting the investigation on the whole picture. The decrease of public trust in the Group may not only impair the customer base but become an obstacle to the receiving necessary support from the government. Seeing at the moment that there is little need to change views on the additional support from the government, JCR affirmed the rating on the Company. JCR considers, however, that the issue of inappropriate insurance solicitation may have an adverse effect on the Company’s creditworthiness, depending on the future clarification of the actual conditions and trend of public opinion. (3) The government, under the laws and ordinances, is required to dispose of its shareholdings in the Company as soon as possible to reduce the investment ratio, while being obligated to hold more than one-third of the total shares at all times. The political importance of the Company’s operations will remain unchanged even with the lowered government’s investment ratio. Meanwhile, the Company is required to dispose of its entire shareholdings in the 2 financial companies (JAPAN POST BANK and JAPAN POST INSURANCE) as early as possible in consideration of their business conditions. In April 2019, it additionally sold the shares in JAPAN POST INSURANCE. The capital relationships between the Company and the 2 financial companies are expected to weaken in the medium to long run, but JCR assumes that there will remain strong unity between the 2 financial companies and JAPAN POST in their daily operations. (4) The Postal Service Privatization Act stipulates that the government shall take necessary measures to ensure performance of obligations of offering universal services, and JCR considers that “necessary measures” include financial support based on factors including: (i) the JAPAN POST Group’s operations are very politically important; and (ii) in some privatization examples in Europe, post office operators receive subsidies and/or are exempt from the value-added tax on universal postal services. The government has been continuously deliberating policies and ways of cost burden to ensure universal services. In April 2019, a subsidy system was created to maintain the post office network. In addition, the government is currently considering revisions to the frequencies of deliveries and a number of delivery days to improve the income and outgo of the postal service. (5) The earnings capacity of the 2 financial companies which are supporting the JAPAN POST Group’s profit is lowering along with the prolonged low interest environment. The issue of 1 / 2 https://www.jcr.co.jp/en/ inappropriate solicitation can have an adverse impact on the Group’s business performance. Over the medium to long term, percentage of the 2 financial companies in the Group’s total profits will decline along with disposal of their shares. The Company, facing these circumstances, is now working on enhancement of the earnings bases through business alliance and M&A as well as expansion of real estate business. In December 2018, it announced the alliance with Aflac Incorporated and said that it would reflect a part of the Aflac’s profit in its consolidated financial statements by applying equity method to it. JAPAN POST, on the other hand, significantly increased its profit for the fiscal year ended March 2019 thanks primarily to the increased handled volume of its Yu-Pack parcel delivery service. In the expanding home delivery market, JAPAN POST is strengthening the services to capture further demand for the Yu-Pack parcel delivery service. The income and outgo of postal service will improve, if the revisions to the frequencies of deliveries, etc. are made. Given these factors for the profit increase, JCR sees that profits of the Company and JAPAN POST will expand over the medium term and that the JAPAN POST Group will be able to remain in the black in the face of a decline of the 2 financial companies’ profits. (6) There are few concerns about the financial structure. JAPAN POST’s burden of interest-bearing debt repayment is not large, although the equity ratio is low. For JAPAN POST BANK, its high-risk investments and loans such as fund investments are rapidly expanding, and it is necessary to closely monitor the trend, but JCR sees that the risks against capital are within a manageable level in general. JAPAN POST INSURANCE has also sufficient capital base against risks. (7) As for the inappropriate solicitation issue, the Company, JAPAN POST INSURANCE and JAPAN POST are conducting investigation to grasp the actual conditions and they issued an interim report on investigation of rewritten insurance policies on September 30, 2019. It was found that there are 6,327 cases involving potential violation of laws and regulations or internal rules such as overlapping insurance, insurance policies canceled before date of writing new policy, and declining of new policy underwriting out of a total of 68 thousand cases for which they were able to confirm the detailed contract process. Conduct of inappropriate insurance sales that caused disadvantages to customers at JAPAN POST INSURANCE and JAPAN POST is a serious problem in terms of group governance. If the inappropriate solicitation problem becomes more serious, it will have an adverse effect on the earnings, and JCR sees that a risk that the government cannot easily extend support when the JAPAN POST Group is under stresses will increase due to further decline of public trust in the Group. JCR will closely watch the results of the investigation, trends of public opinion and Group’s business performance, etc. Kenji Sumitani, Akira Minamisawa Rating Issuer: JAPAN POST HOLDINGS Co., Ltd. <Affirmation> Long-term Issuer Rating: AA+ Outlook: Stable Rating Assignment Date: October 15, 2019 The criteria used for identifying matters which serve as assumptions for the assessment of the credit status, and the criteria used for setting of grades indicating the results of the assessments of the credit status are published as "Types of Credit Ratings and Definitions of Rating Symbols" (January 6, 2014) in Information about JCR Ratings on JCR's website (https://www.jcr.co.jp/en/). Outline of methodology for determination of the credit rating is shown as "FILP Agencies, etc." (March 13, 2014), "JCR's Rating Methodology" (November 7, 2014), "Land Transportation" (December 7, 2011), "Rating Methodology for a Holding Company" (January 26, 2015) and "Rating Methodology for Financial Groups' Holding Companies and Group Companies" (March 29, 2019) in Information about JCR Ratings on JCR's website (https://www.jcr.co.jp/en/). Japan Credit Rating Agency, Ltd. Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan Tel. +81 3 3544 7013, Fax. +81 3 3544 7026 Information herein has been obtained by JCR from the issuers and other sources believed to be accurate and reliable. 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