April 4, 2018 / 3:08 PM / 6 months ago

Nippon Life: lower insurance rate gives it leeway to buy JGBs

TOKYO (Reuters) - Nippon Life Insurance Co [NPNLI.UL] said it will resume buying some Japanese government bonds (JGBs) after the insurer effectively shunned them more than two years ago when their yields became too low to meet obligations to policy holders.

“There is room now to invest in JGBs after we lowered interest rates on insurance policies,” Hiroshi Shimizu, who became president of Japan’s largest private-sector life insurer on Sunday, told Reuters.

He was referring to a cut in returns promised to policy holders of insurance products sold since April last year.

Nippon Life’s move is likely to be followed by other Japanese insurers that also reduced promised returns.

Nippon Life, which manages assets worth $626 billion, and other Japanese insurers are among the most affected by the Bank of Japan’s massive monetary easing, which has driven down yields on JGBs and other assets.

Ultra-low yields of government debt, which make up roughly 40 percent of their investment portfolio, has made it difficult for insurers to secure enough returns promised to policy holders, prompting them to seek riskier but higher-yielding assets.

Nippon Life has curbed buying JGBs since financial year ended in March 2016, when yields on 20-year and 30-year notes, tenors of choice for life insurers, fell below 1 percent. [JP20YTN=JBTC] [JP30YTN=JBTC]

Nippon Life’s holdings of JGBs stood at 19.26 trillion yen ($180.9 billion) at the end of March last year, down from 19.62 trillion yen a year earlier.

Shimizu said lower promised returns on new policies, 0.4 percent for whole life insurance for instance, allow it to buy JGBs at current yield levels. The yield on 20-year notes is around 0.505 percent.

Still, he said JGB yields remain too low for old insurance policies, which have far higher promised returns. “We are not at the stage yet to fully resume buying JGBs. We will keep shifting money to investments such as overseas assets, credit products and growth areas,” he said.

Shimizu, 57, joined Nippon Life in 1983. He is a certified actuary - a professional with mathematical expertise to calculate risks and probabilities for insurance products.

Nippon Life has become one of the most acquisitive Japanese insurers, making a string of deals at home and abroad recently.

“Our presence in North America and Europe is small. We would like to seek opportunities in these regions,” Shimizu said. “M&A remains an important strategic option.”

Editing by Jacqueline Wong

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