Japanese life insurers pivot to offshore M&A as domestic market peaks

Fitch forecasts major life insurers will hold enough capital to secure ratings through March 2027.

Major Japanese life insurers are projected to continue buying foreign insurance companies to drive growth, as the domestic market for profitable protection-type policies is expected to peak within the next few years due to Japan's shrinking population. 

Instead, earnings growth will increasingly depend on wider investment margins, which are being lifted by the rising yen bond yields, Fitch Ratings said in a report.

Japanese life insurance companies are also expected to maintain strong financial foundations through March 2027.

Fitch Ratings forecasts that the insurers will hold enough capital to support their current credit ratings. 

This financial strength is measured under a new regulatory system that took effect at the end of March 2026. 

Fitch attributes this stability to a steady build-up of core capital and the issuance of hybrid financial instruments.

Movements in Japanese government bond yields are expected to have a minimal direct impact on the insurers' capital and earnings. 

Under Japanese accounting rules, both yen-denominated liabilities and bonds are recorded at book value using amortised cost. 

Furthermore, when bond yields rise, the economic value of insurance liabilities falls faster than the value of the bonds themselves, limiting the negative impact.

Despite rising bond yields, customer cancellations remained stable. The rate of surrendered and lapsed policies was 4.6% in the financial year ending March 2026, up slightly from 4.3% the previous year. 

Fitch noted that consumers in Japan do not typically buy life insurance products for investment yields, which helps keep these rates steady.