MARCH 20, 2020 08:03 AM (EDT)
Best’s Commentary: Japanese Insurers Continue to Grapple With Global Market Volatility
|Jason Shum |
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FOR IMMEDIATE RELEASE
HONG KONG - MARCH 20, 2020 08:03 AM (EDT)
Despite the recent global equities rout, insurers in Japan remain financially stable to weather market volatility given their robust balance sheet fundamentals, according to an AM Best commentary.
The new Best’s Commentary, titled, “Japanese Insurers Continue to Grapple With Global Market Volatility,” states that in AM Best’s view, the credit fundamentals of most insurers in Japan have not changed materially, even with the ongoing COVID-19 virus outbreak and the recent declines seen across global stock markets. Domestically, the share prices of most of Japan’s large insurance groups have decreased by 30-40% from the start of the year.
In AM Best’s opinion, the recent share price movements of the major insurance groups do not have much in relation to the business fundamentals of Japan’s major insurance groups. Instead, the stock price decline is driven mainly by a company’s sensitivity to equity price risk, which stems from the investment allocation and the size of the equity portfolio in comparison with its adjusted capital levels.
Despite the recent economic slowdown, AM Best has not seen any signs of significant deterioration in the underlying profits of non-life and life insurance companies. In addition, most domestic insurers maintain capital adequacy ratios and financial leverage ratios that AM Best considers to be conservative relative to global peers, which should enable the companies to withstand adverse market conditions.
With global financial markets expected to remain volatile over the near to medium term, AM Best’s view of Japanese insurers’ financial strength would be largely subject to the development of oil prices, as well as the evolving nature of the current COVID-19 pandemic, particularly in Europe and the US. A more pessimistic scenario would be the potential emergence of further events, such as a liquidity crisis, or the worsening of the current COVID-19 pandemic situation and the subsequent result of a real and long-term disruption to the global economy.
AM Best will continue to monitor the development of these events, and will assess any impact arising on rated insurers in Japan.
To access a copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=295586 .
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.