Japan insurers’ foreign deals may force hybrid debt issuance

Fitch said most insurers built capital buffers through earnings and hybrid debt.

Major players such as Nippon Life, Dai-ichi Life, and Tokio Marine are expected to continue acquiring foreign insurers this year to bolster their global standing, particularly in the US market.

Fitch Ratings anticipates that these Japanese insurers will continue to issue hybrid capital to maintain their solvency following these international deals.

Fitch Ratings has maintained a "neutral" outlook for Japan's life and non-life insurance sectors for 2026, citing strong capital levels and healthy profit margins. 

Despite volatile financial markets, traditional life insurers reported a robust solvency margin ratio of 879% as of September 2025, according to Fitch Ratings’ APAC Insurance Outlook 2026 published in December.

A significant regulatory shift is underway as Japan implements a new economic value-based solvency regulation, known as J-ICS, at the end of March 2026. 

Fitch reports that most insurers are well-prepared for this change, having built up capital buffers through retained earnings and the issuance of hybrid debt. 

To improve capital efficiency, some firms with weaker positions have also begun using asset-intensive reinsurance.

Financial market risks are currently considered manageable. Life insurers have successfully reduced interest-rate risks by accumulating "super long" Japanese government bonds to better match their assets with their long-term liabilities. 

Additionally, customer surrender and lapse rates are expected to stay low as policyholders remain focused on the protection benefits of their insurance. 

In the non-life sector, companies plan to fully sell off their strategic Japanese equity holdings over the next four to five years following regulatory guidance, a move viewed as a credit positive.