Japan insurance giants to maintain improved financial performance in FY 2024

Thanks to higher domestic interest rates, diversified investments, and ongoing reforms. 

Japan's leading insurance companies reported higher revenue and profit in fiscal 2023, driven by diversified revenue sources and increased investment income despite inflation and high hedging costs. 

S&P Global Ratings said their capital stability improved due to favorable financial conditions and efforts to reduce market risk, although sovereign rating constraints limit potential ratings upgrades.

Life insurers' performance

The four major life insurers—Nippon Life, Dai-ichi Life, Sumitomo Life, and Meiji Yasuda Insurance—achieved a combined 32% increase in unconsolidated core insurance profits and a 101% rise in consolidated net income. 

This growth was facilitated by reduced COVID-19-related insurance payments, higher interest and dividend income, and strategic investments. Despite high foreign currency hedging costs, the insurers benefitted from rising interest rates, which allowed them to increase guaranteed rates on new policies and improve asset-liability management.

Key points:

• Core insurance profits rose by 32% to $11.16b (¥1.8t).
• Mortality and morbidity gains increased by $2.37b (¥382.6b).
• Interest margins saw a limited increase of $0.17b (¥27.3b) due to hedging costs.
• Major life insurers are reducing interest rate risk and improving capital levels through reinsurance and better asset management.
• There is a focus on diversifying revenue streams, including investments in overseas life insurance companies.

Non-life insurers' performance

The three major non-life insurance groups—Tokio Marine Group, MS&AD Insurance Group, and Sompo Holdings—reported a 142% increase in consolidated net income, driven by reduced COVID-19 and catastrophe-related insurance payments, gains from strategic shareholding sales, and higher earnings from overseas operations. 

However, domestic underwriting profit in non-life insurance declined, necessitating reforms in underwriting operations and business management.

Key points:

• Combined net income grew by 142% to $9.30b (¥1.5t).
• Significant profit contributions from overseas operations and strategic shareholding sales.
• Domestic auto insurance faced higher loss ratios due to increased traffic and repair costs.
• Fire insurance profitability is expected to improve due to premium rate increases and stricter underwriting.
• The non-life insurers plan to divest strategic shareholdings over the next six to seven years to reduce equity risk and stabilize capital levels.

Outlook for fiscal 2024

For fiscal 2024, Japan's major insurers are expected to maintain stable or improved financial performance, supported by higher domestic interest rates, diversified investments, and ongoing reforms. 

Life insurers will likely see continued growth in core insurance profits and investment income, while non-life insurers focus on improving domestic business performance and managing risks associated with overseas investments and natural catastrophes.

($1.00 = CNY161.54)