Japan’s major insurance companies are set to continue their improved financial performance into fiscal year 2024, bolstered by higher domestic interest rates, diversified investments, and ongoing reforms.
Financial Performance in FY 2023
In fiscal 2023, Japan’s leading insurance firms reported increased revenue and profit. This growth was fueled by diversified revenue sources and higher investment income, despite challenges posed by inflation and high hedging costs. S&P Global Ratings noted an improvement in capital stability due to favorable financial conditions and risk-reduction efforts, although sovereign rating constraints limited potential ratings upgrades.
Life Insurers’ Success
The four major life insurers—Nippon Life, Dai-ichi Life, Sumitomo Life, and Meiji Yasuda Insurance—achieved significant financial gains in FY 2023. Their combined unconsolidated core insurance profits rose by 32%, and consolidated net income surged by 101%.
Key factors driving this growth included reduced COVID-19-related insurance payments, increased interest and dividend income, and strategic investments. Despite the high costs of hedging foreign currency, rising interest rates enabled these insurers to increase guaranteed rates on new policies and improve asset-liability management.
Key Points:
- Core insurance profits increased by 32% to $11.16 billion (¥1.8 trillion).
- Mortality and morbidity gains rose by $2.37 billion (¥382.6 billion).
- Interest margins saw a limited increase of $0.17 billion (¥27.3 billion) due to hedging costs.
- Major life insurers are mitigating interest rate risk and enhancing capital levels through reinsurance and improved asset management.
- There is a strategic 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. This growth was 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, prompting the need for reforms in underwriting operations and business management.
Key Points:
- Combined net income grew by 142% to $9.30 billion (¥1.5 trillion).
- Significant profit contributions came 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.
- 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 FY 2024
Looking ahead to fiscal year 2024, Japan’s major insurers are expected to maintain stable or improved financial performance. This outlook is supported by higher domestic interest rates, diversified investments, and ongoing reforms.
Life insurers are likely to continue seeing growth in core insurance profits and investment income. Non-life insurers will focus on improving domestic business performance and managing risks associated with overseas investments and natural catastrophes.
Exchange Rate Note:
($1.00 = ¥161.54)
