Nippon Life's capital adequacy amongst strongest of Japanese insurers

The insurer’s core profit margin increased to 13% in 2023 from 11% a year earlier.

Nippon Life’s capital adequacy is amongst the highest of major Japanese life insurers, with expectations of further strengthening, according to Fitch Ratings. 

Its status as a mutual company shields it from shareholder pressures for share buybacks or dividend increases, enhancing its financial stability, it added.

Fitch noted that Nippon Life’s acquisition of a 20% stake in US-based Corebridge Financial could moderately boost its credit profile. It is expected that around 15% of the insurer’s consolidated core profit will come from outside Japan after the deal. 

Nippon Life has earmarked $12.95b (JPY2t) for mergers and acquisitions over its 2025–2027 mid-term management plan, which Fitch suggests could further diversify its portfolio if suitable opportunities arise.

Domestically, underwriting profits began recovering in mid-2023 as pandemic-related restrictions eased, and Fitch projects profitability will return to pre-pandemic levels by 2025.

The insurer’s core profit margin increased to 13% at the end of the financial year to March 2024, from 11% a year earlier, as "deemed hospitalisation" claims related to COVID-19 receded. Pre-tax return on assets also rebounded to 0.9% from 0.4% in the previous year.

Despite its strong position, Nippon Life’s exposure to domestic equities leaves it vulnerable to Japanese stock market downturns, with a risk assets ratio of 141% in 2024—higher than its peers. 

However, Fitch said its relatively modest exposure to US commercial real estate, due to a lack of a substantial US subsidiary, limits its risks in that sector.

Fitch highlighted interest-rate risks from a duration mismatch between Nippon Life’s assets and liabilities, though sensitivity to rate changes has declined significantly from the previous year. The company is steadily narrowing this gap, supported by a moderately rising yield on Japanese yen bonds.

Fitch said whilst Nippon Life faces risks tied to market fluctuations and interest rates, these are manageable relative to its robust earnings and capital buffers.