Sumitomo Life strong despite investment pressures: Fitch Ratings

Its underwriting profitability recovered, with core profit margin at 12%.

Sumitomo Life Insurance is expected to have further reductions in interest-rate risk as yen bond yields gradually rise, according to Fitch Ratings.

Interest-rate risk, stemming from the mismatch between assets and liabilities, is decreasing. Sensitivity to a 50-basis-point change in interest rates fell to 1% of the company’s embedded value in fiscal 2024, down from 3% the previous year. 

The insurer still holds a strong capital position and solid financial performance, yet it faces some risks tied to high-risk assets like domestic equities. 

Sumitomo Life's underwriting profitability has shown signs of recovery, with its core profit margin improving to 12% in the fiscal year ending March, up from 11% the previous year. 

This improvement is partly due to reduced claims after Japan lifted its COVID-19 restrictions in May 2023. 

However, investment returns remain under pressure, particularly from rising currency hedging costs.

The company's international operations are growing faster than its domestic business. Premiums from international units increased by 23% in fiscal 2024, whilst domestic premiums were flat. 

International premiums now represent over 30% of the company's total after its acquisition of Singapore Life Holdings. 

Fitch expects contributions from the international sector, particularly from its US operations, to continue to grow.

Sumitomo Life's capital adequacy remains strong, though it saw a slight decline in its solvency margin, which fell to 640% by March 2024 from 679% the previous year, partly due to the Singlife acquisition. 

Despite this, Sumitomo Life remains exposed to high-risk assets. Its risky-asset ratio was estimated at 151% by March, and its allocation to Japanese government bonds was particularly high, with sovereign investments at 412% of capital.

Sumitomo Life's business profile remains strong, with a sizable market position and a diversified business portfolio. Its overseas operations, mainly through its US subsidiary Symetra Financial Corporation, contributed 14% of the group’s adjusted core profit in fiscal 2024.