Storms ahead for Japan's top life insurers as profits dip

Group insurance policies caused the fall, triggered by changes in mortality tables.

The worst is yet to come for Japan’s major life insurers as they all saw declines in their core profits on aggregate in FY2019 brought about by a revision in mortality tables, according to a Moody’s Investor Service report.

Group insurance policies contributed to the downfall in profits for Dai-ichi Life Insurance, Meiji Yasuda Life Insurance, Nippon Life Insurance, and Sumitomo Life Insurance, reflecting the alteration in mortality tables. This resulted in the contraction in mortality margins.

The decline, however, can be balanced by slashed dividends to group insurance policyholders, thus limiting the impact on insurers’ earnings accumulation.

The four insurers’ annualised net premiums from new policies also decreased primarily due to lower sales in tax-saving products and foreign currency-denominated savings products. Nevertheless, the overall effect was muted as both products are not indicated as key profit drivers, analysts said.

Insurers' in-force ANP had only dipped 0.9%, showing that the insurers' premium base is supported by long duration in-force policies, they added.

The allocation to overseas assets in general accounts surged, showing continued affinity to higher-yielding assets, Moody’s said. Hedging costs have sharply dropped recently and credit spreads have widened, pushing insurers into investing more in high-quality credit investments in the US despite interest rate cuts.

Investment yields could fall to reflect lower-for-longer domestic interest rates and lower dividend incomes, as insurers are also sensitive to impairment losses on domestic and foreign equity investments if there is a significant drop in equity prices, the report said.

Amongst the four insurers, Sumitomo Life has low exposure to domestic equity, whilst Dai-ichi Life has low interest rate exposure, reflected by its narrow duration gap. The economic capitalisation of these two insurers could, therefore, be relatively more resilient to adverse market developments, Moody’s concluded.