December 14, 2012 / 12:05 AM / 7 years ago

TEXT-Fitch: Japan Life Insurers to See Further Risk Reduction

(The following was released by the rating agency)

Link to Fitch Ratings' Report: 2013 Outlook: Japanese Life Insurance here

TOKYO, December 14 (Fitch) Fitch Ratings says in a new report that Japan’s life insurance sector will continue to see an improvement in their credit profile in 2013, underpinned by reduction in investment risk and overall stable underwriting fundamentals. This is reflected in the Stable Rating Outlook for the sector.

“The Japanese life sector will benefit not only from steady capital accumulation through both retained earnings and hybrid debt issuance but also from their risk reduction such as continuous lengthening of assets’ maturity to shorten their duration gap with liabilities. The latter is the biggest risk for insurers,” says Teruki Morinaga, Director in Fitch’s Asia Pacific Insurance team.

Fitch expects the life sector’s statutory solvency margin ratio (SMR) to improve further in 2013 on continued risk reduction and accumulation of capital and reserves. Nine Japanese life insurers saw their SMR on average improve to 634.6% at end-September 2012 from 627.8% at end-March 2012.

This was despite the Nikkei Index declining to 8,870 points from 10,084 during the same period, partly owing to the sector’s steady reduction of equity holdings. Duration mismatch between assets and liabilities remains the sector’s biggest risk and Fitch expects Japanese life insurers to strengthen enterprise risk management ahead of a new solvency margin regulatory regime around 2017.

Fitch also expects Japanese life insurers’ healthy underwriting fundamentals to be underpinned by likely moderate improvement in the surrender and lapse rate and continued growth of the profitable third sector such as health products. However, some risks from unprofitable saving- type products will remain in 2013.

“Fitch will continue to monitor both earnings volatility stemming from minimum guarantee risk in variable annuities and asset-liability management risk from sharp sales growth in single-premium whole-life insurance,” adds Mr. Morinaga.

The nine Fitch-rated insurers’ annualised core profit was JPY1,672bn in H1FY12 (financial year ending March 2013) from JPY1,755bn in H1FY11. Fitch expects insurers’ earnings to remain stable in 2013.

The nine insurers rated by Fitch account for more than 70% of Japan’s life insurance market by amount of policies in force. They are Nippon Life Insurance Company (‘A+’/Stable), The Dai-ichi Life Insurance Company, Limited. (‘A’/Stable), Meiji Yasuda Life Insurance Company (‘A’/Stable), Sumitomo Life Insurance Company (‘A’/Stable), Daido Life Insurance Company (‘A+’/Stable), Taiyo Life Insurance Company (‘A’/Stable), Mitsui Life Insurance Company, Limited. (‘BBB’/Stable), Fukoku Mutual Life Insurance Company (‘A’/Stable), and Asahi Mutual Life Insurance Company (‘BB’/Stable).

The report, entitled “2013 Outlook: Japanese Life Insurance” is available at www.fitchratings.com, or by clicking on the link above.

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