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Stable Japan life outlook underpinned by strong underwriting: Moody’s

11th December 2019 - Author: Matt Sheehan

Moody’s has assigned a stable outlook for Japan’s life insurers in 2020, as core profits and capital stay strong despite low interest rates.

JapanAnalysts explained that the life sector is supported by strong and stable underwriting margins that will continue over the next 12-18 months.

Capital is also expected to be supported by insurers’ high retention and the issuance of hybrid bonds.

“Underwriting margins – which accounted for around 80% of our rated life insurers’ core profits over the last five years – will remain strong thanks to the industry’s substantial pricing power on both mortality and morbidity products,” said Soichiro Makimoto, a Moody’s Vice President and Senior Analyst.

Moody’s acknowledged that mortality margins will remain on a slow structural decline, but it believes that their impact will be muted by steady gains in morbidity margins, which will offset prolonged low interest rates.


However, investment risks are forecast to rise gradually as insurers seek to boost yields in the challenging interest rate environment.

That said, their risks are likely to be offset by an increase in capital, which will serve as a buffer for potential losses.

With regards to Japan’s aging population, Moody’s expects the impact on life insurers to be mildly credit negative, as insurers are already adopting strategies to mitigate risks.

So far, strategies have involved shifting away from mortality products, and focusing instead on medical and retirement products, as well as gradual overseas expansion.

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