The overall credit fundamentals of Japanese life insurers will remain resilient in the financial year ending March 2024, says Fitch Ratings in report.
Fitch believes overall profitability is likely to bounce back in FYE24, driven by the recovery in underwriting profitability as the Japanese government eased pandemic-related restrictions in May 2023 and changed the “deemed hospitalisation” rule.
Investment income has also been sluggish due to a recent rise in currency hedging costs. Aggregate core profits at the 9 Japanese traditional life insurers decreased to JPY1,541 billion (-41% yoy) in FYE23 and positive investment spread also decreased to JPY699 billion (-41% yoy) in FYE23, mainly due to the substantial rise in insured losses resulting from “deemed hospitalisation” for the Omicron Covid-19 variant.
Japanese Life Insurance Industry will grow to $313 bn in 2026. Japanese life insurers face a series of tough challenges over the next five years because of the country’s ageing demographic and economic factors.
Fitch expect the life insurers’ capital adequacy to remain sufficient for their ratings for some time, largely due to steadily accumulated core capital.
Most Japanese life insurers are making efforts to reduce interest-rate risk to better cope with Japan’s new regulatory regime, which will be introduced from 2025.
The aggregate statutory solvency margin ratio remained high at 955% at end-March 2023, from 999% a year earlier.
Fitch believes key market risks remain for Japanese life insurers. Potential risks that may have a negative impact in FYE24 include flattening of the yen bond yield curve, yen appreciation against the US dollar, widening of foreign credit spread and/or a crash of Japanese equities.
Outlook Remains Neutral: Fitch maintains its sector outlook at neutral.
Fitch Ratingse expect key credit metrics to remain resilient with stable rating expectations over the next 12 to 24 months.
This is based on our revised assumptions regarding global financial market stresses, such as the US regional banking sector issues and their direct and indirect impact on Japanese life insurers’ credit quality.
Fitch Ratings expect Japanese life insurers to maintain strong capital adequacy in FYE24. Their capital adequacy has remained sufficient for their ratings so far due to accumulated core capital.
The aggregate statutory solvency margin ratio stayed high at 955% at end-March 2023, from 999% a year earlier, despite the negative impact of rising foreign bond yields.
by Yana Keller
