Profitability of Japanese life insurers to rebound: Fitch

Insurers will see resurgence of overall profitability by 2024.

Japanese life insurers will maintain strong credit fundamentals in 2023, but risks remain in the market, Fitch Ratings reports.

Risks include the potential flattening of the yen bond yield curve, yen appreciation against the US dollar, widening of foreign credit spreads, and the possibility of a crash in Japanese equities. These factors have the potential to negatively impact the insurers' operations.

The ratings agency anticipates a resurgence in overall profitability for Japanese life insurers in 2024.

This will be fueled by the recovery in underwriting profitability following the easing of pandemic-related restrictions by the Japanese government in May 2023, as well as the revision of the "deemed hospitalisation" rule. 

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In 2023, aggregate core profits at the nine traditional Japanese life insurers declined to JPY1.54t (-41% year-on-year) primarily due to significant insured losses resulting from "deemed hospitalisation" related to the Omicron variant of COVID-19.

“We expect the life insurers’ capital adequacy to remain sufficient for their ratings for some time, largely due to steadily accumulated core capital. In addition, most Japanese life insurers are making efforts to reduce interest-rate risk to better cope with Japan's new regulatory regime, which will be introduced in 2025,” Fitch Ratings said.

As of the end of March 2023, the aggregate statutory solvency margin ratio for Japanese life insurers remained at a high level of 955%, slightly lower than the previous year's ratio of 999%.