Japanese life insurers to maintain strong credit in FY2025

Fitch Ratings expects insurers' capital adequacy to stay adequate.

The credit fundamentals of Japanese life insurers will remain strong for the financial year ending March 2025 (FYE25), forecasted Fitch Ratings.

The agency expects insurers' capital adequacy to stay adequate for their ratings, supported by consistent accumulation of core capital. 

Life insurers are anticipated to continue mitigating interest-rate risk ahead of Japan's new regulatory framework, set for implementation from FYE26. 

The statutory solvency margin ratio was a solid 934% at the end of March 2024, slightly down from 955% the previous year.

Fitch forecasts robust profitability in FYE25 due to the easing of pandemic-related restrictions in May 2023, which is expected to boost underwriting performance. 

Strong earnings will also be driven by efforts to reinforce sales forces and agency channels, aiming to revive sales to pre-pandemic levels. 

In FYE24, the combined core profits of nine traditional Japanese life insurers rose by 35% year-on-year to $13.4b (JPY2.1t), largely due to a significant reduction in pandemic-related insured losses.

However, life insurers face significant financial market risks. Potential negative impacts include the flattening of yen bond yields, appreciation of the yen against the US dollar, widening foreign credit spreads, or a crash in the Japanese equity market in FYE25.