AM Best has revised its outlook on Japan’s life insurance market segment to stable from negative, as overall business conditions for the life insurers have improved compared to earlier stages of the COVID-19 pandemic, according to a new AM Best report.

In a new Best’s Market Segment Report, titled, “Market Segment Outlook: Japan 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 persistent challenges remain, including aging demographics and a shrinking working population, stagnant wages and evolving consumer needs. However, AM Best expects insurers’ operating performances in the near term to benefit from some tailwind factors, such as the positive momentum in top line recovery and the possibility of further foreign interest rate increases, as well as a bottoming out of domestic interest rates.

Most life insurers in Japan rely heavily on face-to-face sales distribution; thus, the outbreak of COVID-19 adversely affected life insurance sales given social distancing measures and restrictions on face-to-face sales activities. Although the sales performances of most life companies have yet to recover to pre-pandemic levels, AM Best views the situation has likely to continue improving, aided by an acceleration of digital transformation and new product launches.

“Prospective sales of foreign currency-denominated products are likely to increase in tandem with foreign interest rate increases in the coming quarters,” said Jason Shum, associate director, analytics, AM Best. “Additionally, continued hikes in global interest rates will bode well for life insurance companies in Japan as the prospective investment climate should benefit insurers’ ability to manage risk-adjusted returns and re-investment risk, albeit with generally higher hedging costs.”

Over recent quarters, particularly since the first quarter of 2022, yields of medium- and long-term Japanese government bonds (JGB) have been on a general rising trend. Should domestic interest rates hold up (at least close to current levels), this would provide additional support to the positive momentum in Japanese life insurers’ operating performance metrics, including new business profit margins, value of new business and operating return on embedded value, over the near term.

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 analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 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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Jason Shum Associate Director, Analytics +852 2827 3424 jason.shum@ambest.com

Christopher Sharkey Manager, Public Relations +1 908 439 2200, ext. 5159 christopher.sharkey@ambest.com

Jeff Mango Managing Director, Strategy & Communications +1 908 439 2200, ext. 5204 jeffrey.mango@ambest.com