AM Best is maintaining a stable outlook on Japan’s non-life insurance industry, emphasising the sector’s profitable and stable underwriting practices and robust capital base amid financial market uncertainties.
The rating agency highlights insurers’ initiatives to enhance the profitability of the fire insurance line as a significant factor contributing to the stable outlook.
Historically, large-scale catastrophe events have strained the underwriting results of the fire insurance line, leading to heightened reinsurance costs.
In response, major domestic non-life insurers have recognised the need to address the sustainability of their fire insurance products.
Premium rates in the fire insurance line witnessed a notable increase, with direct premiums growing by more than 10% in fiscal year 2022.
Most of Japan’s non-life insurance companies have reported an improvement in premium income across various lines of business over the last 12 months.
Despite the challenges posed by the January 2024 earthquake in Japan, AM Best believes the impact will be manageable relative to the non-life segment’s profit base, as government support is expected to cover most residential losses.
While premium trends and profitability in Japan’s non-life market are anticipated to remain largely stable, AM Best acknowledges the potential for uncertainty in the macroeconomic environment over the next 12 months.
Charles Chiang, senior financial analyst at AM Best, highlights the critical uncertainties arising from risks associated with inflation and foreign exchange markets, both closely correlated with each other.
Persistent higher-than-expected inflation could potentially squeeze the profitability of non-life insurers, driven by increases in insurance claims and labor costs in the short term.
