Japan insurers unwind corporate stakes after misconduct

Major groups plan to cut strategic equities to zero within six to seven years.

Japan’s major nonlife insurers are accelerating the sale of corporate stakes after regulators linked cross-shareholdings to misconduct, freeing capital for overseas expansion and other investments.

“They are forced to sell their strategically held Japanese equities, but not because of the solvency rules,” Teruki Morinaga, director at Fitch Ratings, Inc., said by phone. “It's because of the regulator's order following their misconduct several years ago.”

He said the sale of strategic equities is most evident at Dai-ichi Life and T&D, whilst Japan’s three major nonlife groups — Tokio Marine Holdings, Inc., MS&AD Insurance Group Holdings, Inc., and Sompo Holdings, Inc. — are also reducing holdings following regulatory action over industry misconduct.

The insurers’ cross-shareholdings came under scrutiny after regulators linked previous cartel-like practices with ownership ties between insurers and corporate clients.

The Financial Services Agency issued business improvement orders to major insurers following investigations into inappropriate co-insurance pricing, accelerating the unwinding of those positions.

Toshiko Sekine, a credit analyst at S&P Global Ratings, said major nonlife groups plan to cut strategic equities to zero by fiscal year 2029 or 2030.

“It was more because of governance issues,” he told Insurance Asia by telephone.

Japan’s Insurance Capital Standard, which took effect for fiscal 2025, is also changing how insurers manage investments by measuring assets and liabilities on an economic value basis.

The regime makes capital positions more sensitive to market movements, encouraging insurers to reduce investment risks and better match assets with liabilities.

Analysts said insurers had prepared for the capital regime for years and don’t expect it to drive a broad sell-off of corporate shares. The preparation for the new solvency rule also pushed insurers to reduce equities because of high capital requirements for equities.

The capital rules are having an effect on life insurers’ product choices. Sekine said some are shifting towards variable life insurance and other products that require less capital.

“Both nonlife and life insurers are trying to increase their noninsurance businesses because they are more capital-light and also bring stable fee income,” Sekine said.

Higher interest rates are also supporting life insurers’ earnings and sales of single-premium savings and variable insurance products, S&P said.

Most major insurers had economic solvency ratios of about 200%, giving them room to invest whilst maintaining capital buffers.

A.M. Best Company, Inc. said faster sales of strategic equities are letting nonlife insurers diversify their investments and use excess capital for overseas expansion.

“With this excess capital, Japanese nonlife insurers have been addressing their growth challenges through overseas expansion,” Christie Lee, senior director and head of analytics at A.M. Best, said in an emailed reply to questions.

Lee said acquisitions could diversify insurers’ revenue and profit sources, although integration problems or excessive purchase prices could weaken their credit quality.

Fitch Ratings does not expect widespread financial stress, mergers, or withdrawals among the more than 20 Japanese insurers it rates.

Morinaga said smaller insurers outside its coverage could face greater pressure from the conservative capital regime.