Japanese insurers embrace third-sector medical policies to weather ultra low rates

They rose 9% whilst individual annuity policies plunged 56% in fiscal 2017.

Japanese insurers are turning to higher margin protection products as the ultra low rate interest environment is pressuring the profit margins of players in the financial services sector, according to a report from credit rating agency Moody’s.

Annualised net premiums from new third-sector medical policies continued to grow 9% YoY in fiscal 2017 on an aggregate basis. On the other hand, individual annuity policies plunged 56% due to lower guaranteed interest rates for regular premium individual annuities following a reduction in standard interest rates last April.

“This gradual shift to higher margin protection products from yen-denominated savings products will continue and support insurers’ profitability,” Moody’s noted, adding that Dai-ichi and Meiji Yasuda were the most successful as sales of third-sector products rose 22% and 17% respectively.

Japanese insurers have also been turning to overseas markets amidst unfavourable conditions back home pressuring investment yields. Yen depreciation buoyed income from overseas investments, as income flows are usually unhedged.

“The insurers may invest more in unhedged foreign bonds, depending on the foreign exchange rate, but any increase will be gradual because the insurers have limited appetite for currency risks,” the credit rating agency forecasted.