Japan's P&C insurers ‘not defensive' despite underwriting losses

Prices are still being tempered to secure profits.

Japan’s P&C insurance sector has not been defensive for the past six months despite limited direct underwriting losses, as it is still normalising pricing to secure profitability in the domestic segment, according to a Jefferies report.

After that, domestic earnings are likely to be injected into overseas businesses. On the other hand, estimated investment losses are likely to be larger than underwriting losses.

The market has recovered since end-March, and in April both Sompo and MS&AD announced buybacks on the back of steady medium-term profit outlooks. However, the market is still likely to raise expectations as long as the fixed income and equity markets both hold up, the report explained.

Tokio Marine was underwhelming between April and May due to a larger than expected decline in capital ratio in end-March and the fact that it skipped buybacks. But its capital ratio is rebounding and earnings concerns should decline, which should result in a recovery in share price.

MS&AD still enjoys recovery and growth in its overseas business in the medium term but has been somewhat curbed by the pandemic. For Sompo, market confidence in the medium term should rise as the economy recovers, Jefferies concluded.

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