HONG KONG, June 24, 2022— (BUSINESS TEL) –AM Best revises its outlook for the market segment of life insurance in Japan to stable from negative, as the general business conditions for life insurers have improved compared to the earlier stages of the COVID-19 pandemic, according to a new AM Best report.
In the new Best market segment reportentitled “Market Segment Prospects: Japanese Life Insurance”, AM Best notes that most Japanese life insurance companies maintain very strong capital positions and are likely to be able to withstand the potential impacts on capital changes that may result from global financial market volatility. . Several long-term and ongoing challenges remain, including the aging of demographics and the shrinking working population, wage stagnation and changing consumer needs. However, AM Best expects insurers’ operating results in the short term to benefit from some side factors, such as the positive momentum of the recovery of the upper line and the possibility of further increases in interest rates abroad, as well as lower domestic interest rates.
Most life insurers in Japan rely heavily on the distribution of face-to-face sales; thus, the outbreak of COVID-19 adversely affected life insurance sales, given the social distancing measures and restrictions on face-to-face sales activities. Although sales for most companies have not yet recovered to pre-pandemic levels, AM Best believes the situation is likely to continue to improve, helped by accelerating the digital transformation and launching new products.
“Projected sales of foreign currency-denominated products are likely to increase in tandem with rising foreign interest rates in the coming quarters,” said Jason Schum, associate director of analysis, AM Best. “Furthermore, the continued rise in global interest rates will be good for life insurance companies in Japan, as the future investment climate should benefit insurers’ ability to manage risk-adjusted returns and reinvestment risk, albeit generally with higher hedging costs.
In recent quarters, especially since the first quarter of 2022, the yield on medium-term and long-term Japanese government bonds (JGB) has a general upward trend. If domestic interest rates remain (at least close to current levels), this will provide additional support for the positive momentum in the performance indicators of Japanese life insurers, including new business profit margins, new business value and operating return on embedded value, in the near future.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=321116.
AM Best is a global credit rating agency, news publisher and data analysis provider specializing in the insurance industry. Headquartered in the United States, the company operates in more than 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information visit www.ambest.com.
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