Overall credit fundamentals of Japanese life insurers to remain resilient, Fitch says

Written by Adam Cadle

07/06/2023

The overall credit fundamentals of Japanese life insurers will remain resilient in the financial year ending March 2024 (FYE24), Fitch Ratings has said.

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. Aggregate core profits at the nine Japanese traditional life insurers decreased to JPY1,54bn (-41% yoy) in FYE23, mainly due to the substantial rise in insured losses resulting from "deemed hospitalisation" for the Omicron Covid-19 variant.

"We expect the life insurers’ capital adequacy to remain sufficient for their ratings for some time, largely due to steadily accumulated core capital. In addition, 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.

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