The capital of Japan’s major insurance companies has become more stable and strengthened due to improved financial conditions such as rising interest rates and insurers’ efforts to reduce market risks, but S&P Global’s ratings of these insurers are more likely to remain stable, the agency said.
This is mainly due to the rating agencies’ sovereign rating on Japan (A+/Stable/A-1) limiting upside for insurers.
S&P Global analyzed that Japan’s major insurance companies achieved increased revenue and profits in fiscal 2023 despite inflation, thanks to diversified revenue streams, rising interest rates and stock prices, and a weaker yen.
The four major life insurance companies are Nippon Life Insurance Company, Dai-ichi Life Insurance Company, Sumitomo Life Insurance Company, and Meiji Yasuda Life Insurance Company. The three major non-life insurance groups are Tokio Marine Group, MS&AD Insurance Group, and Sompo Holdings Group.
During the same period, the four major life insurance companies’ consolidated basic insurance profits and consolidated net profits increased by approximately 32% and 101%, respectively.
The combined consolidated net profits of the three non-life insurance groups increased by approximately 142% and 141%, respectively, after adjusting for reserves, a source of retained earnings.
Analysts say large life insurers may see greater capital stability as an opportunity to boost growth investments and improve long-term profitability.
Life insurers saw a recovery in underlying profits, due in part to lower COVID-19-related claims, but foreign exchange hedging costs remained high, partially offsetting this improvement.
Non-life insurance groups also saw profits increase due to geographic diversification and sales of cross-shareholdings.
Domestically, the groups are focusing on improving the performance of their fire and auto insurance businesses, and analysts say capital growth may be somewhat constrained as they are likely to continue investing in growth and boosting shareholder returns.
Looking ahead to fiscal 2024, S&P Global said it expects rising domestic interest rates and diversification of investment assets to support the core insurance profits of the big four life insurers, although performance will depend on economic conditions.
Analysts concluded that while Japanese insurers’ capital has strengthened, investment and shareholder returns are likely to limit the pace of capital growth.
In fiscal 2024, the profit levels of the three major non-life insurance companies are expected to be supported by revenue diversification and gains from the sale of cross-shareholdings, but they may also be affected by the impact of natural disasters.
