Fitch Ratings has projected that the credit fundamentals of Japanese non-life insurance groups are expected to maintain their resilience throughout the financial year ending in March 2024 (FYE24).
Despite facing profitability challenges in FYE23, the three major insurers in Japan, namely MS&AD Insurance Group Holdings, Inc., Tokio Marine Holdings, Inc., and Sompo Holdings, Inc., are expected to weather the storm and regain stability.
FYE23 saw the profitability of the major Japanese non-life insurers dampened due to weather-related losses resulting from mid-sized natural catastrophes such as hailstorms and typhoons.
Moreover, claims related to “deemed hospitalisations” for the Omicron variant of Covid-19 further impacted their performance.
The average combined ratio of these insurers rose by 6 percentage points year-on-year to 100% in FYE23.
Japanese non-life insurers opted to increase their domestic catastrophe risk retention. This decision was prompted by the anticipation of higher reinsurance expenses from April 2023 onwards.
However, Fitch Ratings anticipates a recovery in domestic underwriting profitability for these insurers, reaching pre-pandemic levels from FYE24 onwards. This projection is based on two significant factors.
Firstly, the Japanese regulator revised the rule on “deemed hospitalisations” in late September 2022, mitigating the impact of Covid-19 claims.
Secondly, the government has gradually eased pandemic-related restrictions since May 2023.
Fitch Ratings assumes that natural catastrophe losses will revert to historical averages in FYE24.
In terms of capital adequacy, Fitch expects Japanese non-life insurance groups to maintain robust levels in FYE24.
These groups have exhibited sufficient economic solvency ratios for their ratings, supported by the accumulation of thick core capital, including retained earnings and capital reserves.
However, Fitch highlights that credit challenges persist due to equity risk stemming from high strategic shareholdings and interest rate risk associated with the life insurance business.
