MAY 12, 2020 09:20 AM (EDT)

Best’s Market Segment Report: AM Best Revises Outlook on Japan’s Life Insurance Ind to Negative on COVID-19 Pandemic Fallout


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 Jason Shum
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FOR IMMEDIATE RELEASE

HONG KONG - MAY 12, 2020 09:20 AM (EDT)
AM Best has revised its market segment outlook on Japan’s life insurance industry to negative from stable, citing the growing pressures the COVID-19 pandemic are placing on current and forecast economic conditions in the country.

In a Best’s Market Segment Report, AM Best states that the reasons for the revised outlook factor the global and Japan economies, with each facing probable recessions; the perennial hunt for yield that is increasingly difficult with the combination of interest rate cuts abroad and higher hedging costs; and the greater likelihood of sharp reductions in corporate earnings, which likely will lead to declines in dividend income.

Although the ultimate impact of COVID-19 on the insurance industry remains uncertain, AM Best expects that most major life insurers in Japan will record lower new business premiums and premium income for fiscal-year 2020-2021.

Heightened uncertainty in global capital markets—most recently due to the COVID-19 pandemic—has eroded the appeal of currency-hedged foreign bonds, given steep reductions in interest rates overseas, elevated hedging costs and potential foreign exchange volatility. In addition, AM Best expects that the majority of life insurance companies will see dividend income from equity securities shrink owing to the deterioration in the overall economic and business environment.

Despite the growing pressure on premium revenue and risk-adjusted returns on investments, AM Best believes the potential impact to Japanese life insurers’ core profit—a profitability indicator for the principal business of life insurance companies—will not be significantly negative. AM Best also expects most life insurance companies in Japan continue to maintain very strong risk-adjusted capitalisation, and are likely to withstand the potential impact on capital changes that may result from volatility in the global financial markets.

To access the full copy of the Japan market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=296906 .

To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp .

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.