INSURANCE | Staff Reporter, Japan

Capital erosion ahead for Japan life insurers amidst lower premiums

Capitalisation may have improved but headwinds remain.

Capital erosion is still a key risk for major Japanese life insurers even if some benchmarks remained largely unscathed in H1 fiscal 2020, says a Moody’s Investors Service report.

Dai-ichi Life, Meiji Yasuda Life, Nippon Life, and Sumitomo Life all saw their new annualised net premiums (ANP) plunge 43% in H1 FY2020 versus the same period in 2019 due to the disruption in distribution channels, said senior analyst Soichiro Makimoto.

On the other hand, in-force ANPs only dipped 0.7% over the same period, supported by a large number of existing policies with long durations.

"Insurers have largely resumed their sales activities, which should pave the way for higher new ANPs in the remainder of the year, but further disruption to captive sales channels from a resurgence of new cases poses risks," Makimoto added.

Although insurers' core profits rose 1% supported by large underwriting margin, changes in the mortality table, the low interest rate environment, and slashed dividend payments will pressure their profitability. That said, gradually increasing morbid margins will partially offset the pressure.

Insurers' capitalisation improved in H1 FY2020 driven by higher stock prices, tighter credit spreads and the addition of new businesses. However, the insurers have sizable investments in equity and credit instruments, exposing them to a significant stock market correction or widening credit spread, the report concluded.

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