Nippon Life sees benefits from rising rates, market diversity

Revenue and profit for FY 2024 are projected to decline.

Nippon Life stands to benefit from rising domestic rates and further market diversification, potentially improving its credit quality, CreditSights said in a note. 

This could narrow the bond trading gap with AIA, currently at a 40 basis point difference in their most recent Tier 2 issuances, though AIA continues to have stronger growth and profitability prospects.

Total premiums, including direct insurance and reinsurance income, increased to $14.07b (¥2,070.2b) in the first quarter of 2023 (Q1 2023), reflecting a 7.3% year-on-year (YoY) rise. 

This growth was driven by higher sales from Taiji Life and Nippon Wealth Life. Core profit surged by 57.3% YoY to $1.22b (¥179.5b), primarily due to higher income from interest and dividends and reduced FX hedging costs. 

Insurance profit rose by 9.4% YoY to $0.76b (¥111.5b), whilst investment profit saw a substantial 407.6% increase, reaching $0.45b (¥66.5b). However, quarter-on-quarter figures reveal some challenges, including a decline in premiums and interest income, coupled with higher claims. 

Revenue and profit for FY 2024 are projected to decline, suggesting that the strong YoY growth may not be sustained.

Nippon Life’s balance sheet remains solid, with a consolidated solvency margin ratio (SMR) of 1,004.1% at the end of Q1 2024, slightly down from 1,025.7% in the previous fiscal year due to increased goodwill and investment risk from subsidiaries. 

The Economic Solvency Ratio (ESR) held steady at 223%, down slightly from 224% in March 2024. A 4 percentage point increase in ESR, driven by new business value and bond issuance, was offset by changes in economic assumptions and investment fluctuations. 

Overall, the Q1 2024 performance demonstrates moderate growth in premiums and strong investment returns. 

Whilst significant increases in net profit and core profit are bolstered by investment results, these gains are expected to level off as the year progresses. 

Nippon Life's financial stability remains robust, supported by a high solvency margin ratio and stable ESR, which are well above the minimum requirement and internal targets, and comparable to peers like Dai-ichi Life and Meiji Yasuda.

($1.00 = ¥0.0068)