Japanese life segment stands strong as firms maintain solid capital positions: AM Best

Several tailwind factors improved overall business conditions.

Most Japanese life insurance companies maintain very strong capital positions and are likely to be able to withstand the potential impacts of capital changes that may result from global financial market volatility, credit rating agency AM Best said.

Though several long-term and persistent challenges remain, including ageing demographics and a shrinking working population, stagnant wages and evolving consumer needs, AM Best said it expects insurers’ operating performances in the near term to benefit from some tailwind factors, such as the positive momentum in top-line recovery and the possibility of further foreign interest rate increases, as well as a bottoming out of domestic interest rates.

Japan’s life insurance industry suffered heavily because most life insurers rely on face-to-face sales distribution. Social distancing measures and restrictions on face-to-face sales activities however put a huge toll on sales. Despite most life companies having yet to recover to pre-pandemic levels, AM Best predicts the situation has likely to continue improving, aided by an acceleration of digital transformation and new product launches.

“Prospective sales of foreign currency-denominated products are likely to increase in tandem with foreign interest rate increases in the coming quarters. Additionally, continued hikes in global interest rates will bode well for life insurance companies in Japan as the prospective investment climate should benefit insurers’ ability to manage risk-adjusted returns and re-investment risk, albeit with generally higher hedging costs,” said Jason Shum, AM Best’s Associate Director of Analytics.

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