Asset risk rising at Japanese insurers, Moody’s warns

Channels: SAA/ALM, Managers, Risk, Asia

Companies: Dai-ichi Life, Meiji Yasuda Life, Nippon Life, Sumitomo Life

Japan’s four largest insurers reported a a 6.2% increase in profit in the year to 31 March 2019, as additional investments in foreign bonds paid off and offset the ultralow domestic interest rate, according to Moody’s Investors Services.

Foreign assets now accounted for 30.4% of the four firms combined general account assets, compared with 29.2% a year ago.

The rating agency expects Dai-ichi Life, Meiji Yasuda Life, Nippon Life and Sumitomo Life to increase their investments in foreign assets as long as the ultralow interest rate environment continues in the domestic market.

The Bank of Japan has set a negative interest rate of -0.1% since early 2016.

“We expect insurers' exposure to foreign-exchange risk to rise because higher hedging costs are encouraging insurers to increase unhedged portions of overseas investments,” Moody’s noted. “In addition, to offset the high hedging costs, we expect insurers will invest more in higher-yielding corporate bonds than highly rated sovereign bonds. This will increase insurers' exposure to credit risks.”

Adam Leach