Japan’s major insurance companies’ capital has further stabilised and it is strengthening, mainly due to better financial conditions, such as higher interest rates, and insurer efforts to reduce market risk, yet S&P Global’s ratings on these insurers are likely to remain rather stable, the agency has revealed.
This is mainly due to the fact that the agency’s sovereign rating on Japan (A+/Stable/A-1) constrains the upside to its ratings on insurers.
In fiscal 2023, Japan’s major insurance companies achieved higher revenue and profit despite inflation, driven by revenue diversification, higher interest rates and stock prices, and a weaker yen, S&P Global has observed.
The four major 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 major 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 income of the four major life insurers increased about 32% and about 101%, respectively, in the same period.
Combined consolidated net income of the three non-life insurance groups grew about 142% or 141% after adjusted for reserves that are sources of retained earnings.
According to analysts, major life insurers could see its increased capital stability as an opportunity to boost growth investments and improve their long-term earnings capacity.
Core insurance profits recovered at life insurers mainly due to reduction in payments related to COVID-19. However, costs of foreign currency hedging remained high, partially offsetting this improvement.
Non-life insurance groups also saw profit growth with geographic diversification and sales of strategic shareholdings.
Domestically, the groups are focused on improving performance in their fire insurance and auto insurance businesses. They are likely to continue to invest for growth and to increase shareholder returns, which may somewhat constrain capital growth according to analysts.
Looking ahead, in fiscal 2024, S&P Global believes that higher domestic interest rates and diversified investment assets will underpin four major life insurers’ core insurance profits, although performance will depend on economic conditions.
While Japan insurer’s capital is strengthening, investments and shareholder returns will likely limit the pace of capital growth, analysts concluded.
Also in fiscal 2024, profit levels of the three major non-life insurance groups are likely to be supported by revenue diversification and gains on sales of strategic shareholdings. It could also depend on the impact of natural catastrophes.
