Fukoku Life's solvency ratio expected to reach 300%

Positive investment spread will continue to widen over the next 3-5 years.

Japan-based Fukoku Mutual Life Insurance’s economic solvency ratio may increase to 300% over the next three to five years, driven by continued core capital accumulation, Fitch Ratings said.

Despite financial market volatility, its ratio reached 258% in the fiscal year ended March 2024 (FY 2024), up from 245% a year earlier. 

Fukoku Life also holds substantial excess capital to manage volatility related to its domestic equity exposure, which constituted 13% of its general account as of FY 2024. 

This capital further safeguards against currency and interest rate risks, with the company's foreign bonds being fully unhedged.

The company's performance is bolstered by a stable customer base, particularly among public-sector employees who typically have greater job security. 

Fitch also projects that Fukoku Life's positive investment spread will continue to widen over the next three to five years, following an increase to $410m (JPY60b) in FY 2024 from $280m (JPY42b) in the previous year. 

This improvement is partly attributed to a gradually declining average guaranteed yield, which is expected to support earnings growth. 

The company demonstrated a strong recovery in profitability during FY 2024, with a core profit margin rebounding to 19% from 9% in FY 2024. 

Underwriting profit also saw significant growth, reaching JPY33b from JPY5b the previous year.

Fukoku Life faces interest-rate risk due to the duration mismatch between its assets and liabilities. 

However, Fitch expects the company to further reduce this gap if Japanese yen bond yields continue to rise moderately. The insurer is believed to retain a sufficient capital buffer to absorb interest-rate risk.

($1.00 = JPY147.48)