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Press Release: S&PGR: Japanese Insurers' FY2016 Results Meet Expectations

14 Jun 2017 4:49 am
 
 
The following is a press release from Standard & Poor's: 
 
TOKYO (S&P Global Ratings) June 14, 2017--The operating performance of Japan's 
major life and non-life insurers generally came in within expectations as they 
reported mixed results for fiscal 2016 (ended March 31, 2017), S&P Global 
Ratings said in a Japanese-language report published today. The four major 
life insurers we rate saw declines in their total unconsolidated core 
insurance profit and net income. They are Nippon Life Insurance Co., The 
Dai-ichi Life Insurance Co. Ltd., Sumitomo Life Insurance Co., and Meiji 
Yasuda Life Insurance Co. On the other hand, the total net income of the three 
major non-life insurance groups--Tokio Marine Group, MS&AD Insurance Group, 
and Sompo Holdings Inc.--continued to grow, both on an unconsolidated and 
consolidated basis. 
 
Overall, life insurers saw their core insurance profits drop. Despite a 
decrease in accumulation of minimum guarantee reserves for variable annuity 
insurance products due to higher prices of domestic shares, lower investment 
return rates dragged down core insurance profits. Coupled with shrinking 
investment gains, that weighed on their net income. 
 
The profits of the three non-life insurance groups rose because the 
profitability of their domestic non-life insurance businesses continued to 
improve. They also got a boost from a decrease in incurred losses from natural 
disasters and profit contributions from newly consolidated overseas 
subsidiaries. 
 
Meanwhile, the capital levels of both life and non-life insurers received 
support from an increase in unrealized gains from securities due to stronger 
domestic stocks and a series of issuances of hybrid capital instruments under 
favorable funding conditions. 
 
More than a year has passed since the Bank of Japan introduced its negative 
interest rate policy. It is now becoming clearer that the ultra-low interest 
rate environment has weighed on the major life insurers' efforts to build up 
capital by accumulating retained earnings. Their core insurance profits and 
returns on assets have been under downward pressure, although revisions in 
their product strategies--including sales reduction and price hikes, and 
shifting their investments to foreign securities with relatively higher 
yields--have somewhat mitigated the negative effects. Furthermore, in addition 
to interest rate risk, the life insurers face rising currency risk as the 
proportion of foreign-currency denominated assets in their investment 
portfolios expand. Accordingly, fluctuations in financial markets, including 
swings in stock prices, are a risk factor for their financial risk profiles in 
our credit analyses of those insurers. 
 
As for the major non-life insurance groups, their profitability and capital 
levels are likely to remain stable, in our view. Profitability in auto 
insurance, a mainstay of Japanese non-life insurance businesses, has largely 
improved in recent years. In fiscal 2016, it improved to approximately 90%, as 
measured by their combined ratio (net loss ratio plus net expense ratio). We 
thus believe that it is unlikely to improve further. We believe their key to 
growth could lie in other areas. These include continued profit contributions 
from overseas businesses and synergy effects from overseas subsidiaries in the 
areas of specialty insurance product development and asset management. 
Compared with life insurers, the major non-life insurance groups are less 
exposed to interest rate risk, because their business portfolios are 
diversified into life and non-life insurance businesses. However, their large 
equity portfolios leave their capital susceptible to swings in stock prices. 
In addition, given the increasing weight of their overseas businesses, we view 
enhancement of enterprise risk management (ERM) for diversified and 
complicated risks as an important factor in our analysis. 
 
The full report is available in Japanese on S&P Global Research Online at 
www.researchonline.jp. An English-language report will be available to 
subscribers of RatingsDirect at www.globalcreditportal.com and at 
www.spcapitaliq.com. Ratings information can also be found on the S&P Global 
Ratings' public website at www.standardandpoors.com; under Ratings in the left 
navigation bar, select Find a Rating. Members of the media may reserve a copy 
by e-mail at tokyo.pressroom@spglobal.com or by phone at (81) 3-4550-8411. 
 
Primary Credit Analyst: Reina Tanaka, Tokyo (81) 3-4550-8587; 
                        reina.tanaka@spglobal.com 
Secondary Contacts: Eiji Kubo, Tokyo (81) 3-4550-8750; 
                    eiji.kubo@spglobal.com 
                    Yoshie Honna, Tokyo (81) 3-4550-8468; 
                    yoshie.honna@spglobal.com 
                    Kentaro Mukoyama, Tokyo (81) 3-4550-8775; 
                    kentaro.mukoyama@spglobal.com 
 
 
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(END) Dow Jones Newswires

June 14, 2017 00:49 ET (04:49 GMT)
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