Moody’s has revised its industry outlook for Japan’s life insurance sector from negative to stable, based on improving capitalization, resilient underwriting profit and a recovering operating environment.
The rating agency believes that these factors will enable insurers to maintain their credit strengths over the next 12-18 months, despite lingering threats from the pandemic.
Additionally, it noted that potential new regulations will promote risk control, while resilience in Japanese insurers’ distribution capacity testifies to strong consumer preference for traditional in-person channels.
“We expect Japanese life insurers to continue generating internal capital supported by their strong pricing power given customers’ preference for captive sales agents and supportive regulations. This will keep the industry’s capitalization strong over the next 12-18 months,” said Soichiro Makimoto, a Moody’s Vice President and Senior Analyst.
The Japanese authorities’ latest clarification of the roadmap for the upcoming capital regime in its report, is expect to help insurers implement more active capital management and undertaking initiatives to improve economic capital.
One common focus across insurers will be the reduction of investment risks, including equity and interest rate risks, Moody’s highlighted
Furthermore, asset composition is expected to gradually shift to credit investments and Japan Government Bonds from equities, as insurers react to the rising focus on economic capital management.
Also supporting the improved outlook is the steady pace of digitalisation in the Japanese life market, which Moody’s believes will support agent sales against the risk of future disruption.
Life premiums are forecast to be steady and well supported by sizable recurring premiums from in-force policies and resuming new business inflows.
