Analysts at Fitch Ratings believe that the profitability of the nine traditional nine Japanese life insurers is likely to be stable in the financial year ending 2023.
The rating agency notes that underwriting results for this group in FYE22 were moderately worse than in FYE21, due mainly to the Covid-19 health insurance claims.
Yet robust investment income, backed by the positive impact from yen depreciation, supported profitability in FYE22, Fitch added.
The group’s core profit increased to JPY 2,619 billion (up 11%) for the most recent full-year period, and the positive investment spread continued to increase – up by 48% to JPY 1,193 billion.
Fitch continues to maintain a stable outlook on the Japanese life sector based on the expectation that key credit metrics will remain resilient, with stable rating expectations over the next 12 to 24 months.
Additionally, it says capital adequacy has remained sufficient for the ratings, due mainly to accumulated core capital, including retained earnings and capital reserves such as contingency reserve and price-fluctuation reserve.
And Fitch also views mortality losses due to the pandemic as likely to remain small, considering that the number of deaths per population in Japan has been much lighter than in the US and Europe.
However, the Omicron variant revealed that lifers’ health insurance products have the feature which tends to pay the insurance graciously when “deemed hospitalisation” occurs for mild cases, meaning underwriting results might continue to be moderately constrained in FYE23 if the same pattern recurs.
Furthermore, Fitch points out that financial markets worked rather favourably for Japanese life insurers in FYE22 via a steepened bond yield, yen depreciation, and a resilient equity market.
But it did add that a clear negative impact to results in the sector may be caused if bond-yield flattening, yen appreciation, and/or falling equities were to recur.