Sumitomo Life's capital remains solid despite solvency ratio decline

Sumitomo Life’s core profit margin increased to 12%.

Japan-based Sumitomo Life Insurance has shown a “very strong” capitalisation, and financial performance, as well as the insurer's exposure to high-risk assets such as domestic equities—a common characteristic amongst its Japanese peers, according to Fitch Ratings.

Sumitomo Life’s core profit margin increased to 12% for the financial year ended March 2024 (FYE24), up from 11% the previous year. 

This improvement was driven by a reduction in claim payments related to “deemed hospitalizations” after the easing of COVID-19-related restrictions in May 2023. 

However, the positive investment spread has stalled, largely due to higher currency hedging costs.

Sumitomo Life’s international businesses are expanding at a faster pace than its domestic operations. International insurance premiums grew by 23% in FYE24, whilst domestic premiums remained flat. 

After acquiring Singapore Life Holdings, the contribution from international units, mainly the US operations, accounted for over 30% of the group’s annualized premium in force.

Sumitomo Life’s capital adequacy remains strong, despite a moderate decline in its consolidated statutory solvency margin to 640% by the end of March 2024, from 679% the previous year, partially due to its international acquisition. 

Sumitomo Life’s exposure to high-risk assets is expected to remain above Fitch’s guidelines for its current rating. 

The company continues to increase its credit risk exposure within its capital buffer to enhance investment yields. 

Sumitomo Life’s interest-rate risk is steadily decreasing due to a narrowing of the asset-liability duration mismatch. 

Fitch views Sumitomo Life’s company profile as favourable, citing its strong market position in Japan’s life insurance sector, diversified business portfolio, and moderate business risk profile. 

Fitch also expects Sumitomo Life to maintain strong capital adequacy whilst gradually improving its investment yields and managing risk exposures.