Asahi Life's profitability improves amid lower claims

Fitch Ratings expects Asahi Life to maintain or improve its capital strength.

Asahi Life’s domestic underwriting operations saw losses in 2022 due to increased hospitalisation claims, dropping the core profit margin to 4% for the fiscal year ended March 2023 (FYE23) from 12% the previous year. However, with the reduction in hospitalisation claims following pandemic-related relaxations and rule amendments in May 2023, profitability is expected to rebound from FYE24. 

The core profit margin improved to 10% in 1HFYE24, up from 4% the previous year.

Asahi Life faced a negative spread of JPY18b in 1HFYE24, up from JPY15b in 1HFYE23, which offset gains from favourable mortality and morbidity rates. 

Rising costs of currency hedging amid high US dollar interest rates are expected to pause the narrowing of the negative spread temporarily. However, a gradual reduction is projected in the mid-term as average guaranteed yields decrease.

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Asahi Life's strong capitalisation and profitability, driven by third-sector (health) insurance, support its ratings and stable outlook. However, its overall company profile is moderate.

Asahi Life's capital adequacy was comfortably within the 'Strong' bracket as of end-March 2023, according to the Fitch Prism Model. 

The regulatory solvency margin ratio was 869% as of end-September 2023, down from 933% at end-March 2023 due to capital build-up despite market fluctuations. 

Fitch expects Asahi Life to maintain or improve its capital strength through solid underwriting performance and ongoing capital growth.

The rating agency also projects leverage to stay comfortably under 30%, supported by capital accumulation and restructuring initiatives.