Stability and Growth in Japanese Insurance MarketStability and Growth in Japanese Insurance Market Japanese insurance companies have experienced a period of stability and strengthening capital, driven by improved financial conditions and risk mitigation strategies. However, rating agencies project that ratings for these insurers will likely remain stable. The strong performance of Japan’s insurance sector can be attributed to revenue diversification, higher interest rates, a weaker yen, and reduced COVID-19-related expenses. The four largest life insurers and three largest non-life insurance groups have reported significant gains in profits. Despite the positive outlook, the sector faces potential limitations. The country’s credit rating restricts the upward trend in insurers’ creditworthiness. Domestically, insurers are investing in growth and shareholder returns, which may limit capital appreciation. Analysts forecast that core insurance earnings for life insurers will remain supported by higher domestic interest rates and diversified investments. Non-life insurance groups are expected to benefit from income diversification and strategic investments. However, the impact of natural catastrophes and economic conditions could influence performance. Overall, Japanese insurers are well-capitalized and poised for growth. However, investment and shareholder return priorities may temper the pace of capital accumulation. Rating agencies expect stable ratings for these insurers in the near term.
The capital of major Japanese insurance companies has continued to stabilize and strengthen, largely due to improved financial conditions, such as higher interest rates, and efforts by insurers to reduce market risk. However, S&P Global’s ratings for these insurers are likely to remain fairly stable, the agency said.
This is mainly because the agency’s credit rating of Japan (A+/Stable/A-1) limits the upward trend in insurers’ creditworthiness.
Japan’s largest insurance companies posted higher revenues and profits in fiscal 2023 despite inflation, according to S&P Global. The gains were driven by revenue diversification, higher interest rates and stock prices, and a weaker yen.
The four largest life insurers are Nippon Life Insurance Co., The Dai-ichi Life Insurance Co. Ltd., Sumitomo Life Insurance Co. and Meiji Yasuda Insurance Co. The three largest non-life insurance groups are Tokio Marine Group, MS&AD Insurance Group and Sompo Holdings Group.
The combined unconsolidated core insurance profits and consolidated net profit of the four largest life insurers increased by approximately 32% and approximately 101%, respectively, over the same period.
The combined consolidated net profit of the three non-life insurance groups grew by approximately 142%, or 141% after adjusting for reserves that are sources of profit retention.
Analysts say large life insurers could see increased capital stability as an opportunity to boost growth investments and improve their long-term earnings power.
Core life insurer profits recovered mainly due to a reduction in COVID-19-related payments. However, currency hedging costs remained high, partly offsetting this improvement.
The profit of non-life insurance groups also grew thanks to geographical diversification and the sale of strategic investments.
Domestically, the groups are focused on improving performance in their home and motor insurance businesses. They are likely to continue investing for growth and to boost shareholder returns, which could limit capital appreciation somewhat, analysts said.
S&P Global expects higher domestic interest rates and diversified investment assets to support core insurance earnings at four major life insurers in fiscal 2024, though performance will depend on economic conditions.
Analysts conclude that while Japanese insurers’ capital is strengthening, investment and shareholder returns are likely to limit the rate of capital growth.
In fiscal 2024, the profit levels of the three largest non-life insurance groups are also likely to be supported by income diversification and gains on sales of strategic equity stakes. It could also depend on the impact of natural catastrophes.
