Japanese life insurers are focusing on overseas investments and are slowly but surely increasing their exposure to alternative insurance.
Soichiro Makimoto
Moody’s rating
“Insurance companies are gradually increasing their allocations to illiquid private assets such as infrastructure financing and investments, private debt and private equity, primarily in the U.S. market,” said Moody’s Ratings Vice President and Senior Analyst. Soichiro Makimoto said. Asian investors.
Dai-ichi Life Insurance, Japan’s largest listed life insurer with a portfolio of 33.9 trillion yen ($219 billion), for example, is expanding into alternative assets through both fund vehicles and direct venture capital (VC) investments.
Teruki Morinaga
Fitch rating
However, Teruki Morinaga, head of insurance at Fitch Ratings Japan, said the proportion of alternatives in the overall portfolio is still relatively small.
“Even Dai-ichi Life’s allocation to alternative assets was only 6% as of end-September 2023, and given the limited opportunities in Japan, the speed at which Japanese insurance companies are increasing alternative investments is slow. “We continue to maintain the view that it will be slow, and the ability to invest in overseas alternative investments is still under development,” Morinaga said. Asian investors.
risk reduction
Makimoto agreed that the proportion of alternative investments remaining on insurance companies’ investment books will remain small. Still, there are benefits to diversifying across asset classes.
“Through these investments, insurance companies seek higher yields by adding a liquidity premium while diversifying interest rate and equity risks,” Makimoto said.
Kazuyuki Shigemoto, head of investment at Dai-ichi Life, told local media in early May that the bank was indeed allocating capital to alternative investments to reduce risk.
Japanese government bond yields are too low, while foreign bonds have too much currency risk. The company is reducing its holdings of soaring domestic stocks to avoid too much exposure to them.
See also: Japanese life insurance companies remain focused on improving bond yields
As a result, “Dai-ichi Life will target alternative investments, including hedge funds, to reduce risk. Private debt investments will be targeted from this fiscal year starting April 1st.”
Dai-ichi Life CEO Tetsuya Kikuta told the media in April: “We must be cautious and carefully consider the risks.” “But a certain amount needs to be shifted into assets like private credit, private equity, infrastructure and real estate.”
VC for impact
First has already announced several alternative investments for 2024.
In January, Dai-ichi Life Insurance announced a $50 million investment in Prologis Targeted US Logistics Holdings, a U.S. sector-specific logistics fund managed by Prologis, and an investment in overseas sector-specific funds. It was the first time.
We began investing in overseas real estate funds in fiscal 2017 and have since evolved our investment strategies and schemes, focusing on diversifying investments into European and American funds.
Another element of alternative investing is small-scale VC allocations aimed at impact in line with environmental, social, and governance (ESG) frameworks.
In April, Dai-ichi Life invested 100 million yen ($682,000) in Typica Holdings, a Japanese startup that runs an online platform that allows coffee growers and roasters to transact directly.
In March, the insurer also announced two impact investments. The first was a $5 million investment in Rakuten Medical, Inc., a US biotechnology startup that develops and sells medicines and medical devices used in Alluminox therapy (photoimmunotherapy), a type of cancer treatment.
The second investment consisted of 100 million yen ($682,000) in Instalim, a Japanese startup that develops, produces and sells 3D printed prosthetic limbs and related equipment and materials in developing countries.
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