Fitch: Interest Rate Risk Main Threat for Japanese Life Insurers

Interest rate risk is likely to remain the primary threat for Japanese traditional life insurers, as a majority of the country's life insurers will be unable to lengthen asset duration due to persistently low bond yields, says Fitch Ratings in a new report.

Fitch expects that Japan's life insurers will aim to secure a buffer against the interest rate risk by continuing to strengthen their capitalisation through retained earnings and accumulated reserves.

The agency also expects Japan's life insurers to maintain sufficient capital adequacy for their credit ratings, partly backed by their continuous issuance of hybrid debt; which is used to make large overseas acquisitions to take advantage of the extremely low global bond yields and investor appetite for yield.

The agency saw an improvement in the economic solvency ratios of insurers that disclosed the ratio for the financial year ending March 2017 (FYE17), helped by a steeper yield curve compared with the previous financial year. Consolidated profits of Japanese life insurance groups are also likely to remain strong, boosted by solid earnings growth from international insurance following some acquisitions of US-based life insurers.