Japanese insurers eye profit from hikes in fire and auto insurance

FY24 profit targets exceeded Jefferies’ forecasts.

The fiscal year 2023 (FY23) results and FY24 outlook of Japanese insurers brought upon a ‘positive’ outlook projection from Jefferies Equity Research. 

Despite the unwinding of cross-holdings, property and casualty (P&C) insurers aim to boost profitability domestically with premium hikes in fire insurance (October 2024) and auto insurance (January 2025). 

Domestic underwriting and international growth are expected to drive share prices. Life insurers (Lifers) have also seen gains due to solid results and rising rates. 

Tokio Marine's valuation appears rich compared to global peers, prompting a downgrade to Hold, with a preference for MS&AD and Sompo over Tokio.

FY24 profit targets exceeded Jefferies’ forecasts, affirming its positive sector outlook. 

Investors now seek further upside drivers:

1. The disposal timeline and scale are clear. Further gains depend on market valuation increases. We estimate reinvestment will largely offset the loss of dividend income.
2. Improved underwriting in fire insurance helped offset auto insurance weakness. Upcoming premium hikes are expected to counter inflation and improve the combined ratio (CoR). MS&AD and Sompo have more room to improve their expense ratio, though Sompo's progress may be slower.
3. Insurers anticipate premium growth overseas. Current forecasts account for slight CoR deterioration due to potential natural catastrophes and volatility, leaving room to exceed expectations if risks are contained. Overall, the sector is now more driven by core insurance business rather than cross-holdings.