AM Best has assigned a stable outlook to Japan’s life insurance industry, citing solid mortality/morbidity profits, a steady investment yield, and strong capitalisation.
The rating agency noted that Japan’s life insurance segment grew by 2.9% in 2019 in terms of annualised premiums from policies in force.
Core profit similarly increased to JPY 3.78 trillion (USD 35 billion) in fiscal-year 2018/19, up from JPY 3.58 trillion in 2017/18.
Overall, analysts believe life insurers in Japan are likely to continue delivering positive operating results over 2019/20 and 2020/21, driven by solid mortality/morbidity profits despite potential volatility in investment spreads.
AM Best expects mortality/morbidity margins to remain large and relatively stable, which should help to support the steady emergence of core profit.
It also expects the exposure to re-investment risk of most life insurers to be limited, given the expected maturity of their investment portfolios.
While the impact of some of geopolitical headwinds like Brexit and US-China tensions appear to be easing, new threats such as the coronavirus outbreak are likely to hurt global economic growth, and could increase the potential for volatility in global capital markets.
This may not only push yields lower globally in 2020, but will make the hunt for yield even more challenging, analysts warned.
Despite these potential challenges, AM Best believes that most of Japan’s life insurers’ maintain very strong levels of capitalisation, and are capable of withstanding adverse market conditions, such as in the event of a severe stock market decline or significant fluctuations in foreign exchange rates.