OREANDA-NEWS. Fitch Ratings believes that the IPO of Japan Post Insurance Co., Ltd. (Japan Post Insurance) is unlikely to change the Japanese life insurance industry in the near future. The agency, however, believes Japan Post Insurance will become a stronger competitor for Japanese private life insurers over the medium to long term.

The shares of Japan Post Insurance were listed on the Tokyo Stock Exchange on 4 November 2015, following a decade-long political effort to privatise the Japan Post Group. Investors now own 11% of Japan Post Insurance.

Japan Post Insurance had total assets of JPY85trn at end-March 2015, larger than the JPY62trn of Nippon Life Insurance Company (Nippon Life), the largest private life insurer in Japan. However, the value of policies in force, a proxy for death protection, at Japan Post Insurance was JPY43trn at end-March 2015, which is much smaller than Nippon Life's JPY168trn. Also, Japan Post Insurance's core profit margin in the financial year ended 31 March 2015 was 8.7%, compared with the around 15% of most major traditional Japanese private life insurers.

Japan Post Insurance has been more focused on savings-type life insurance products, which tend to have low profitability in Japan, mainly due to the low interest rates in Japanese yen-denominated fixed-income markets. Most private Japanese life insurers have enjoyed decent profitability mainly because of their effective focus on more profitable protection products, especially those in the third sector (health insurance), which is expanding moderately.

Japan Post Insurance now has to comply with stricter regulations than private life insurers because it is state-owned. For example, the policy value for each of Japan Post Insurance policyholder is capped up to JPY13m, while there is no restriction for private life insurers. As long as such restrictions remain, it is unlikely Japan Post Insurance will become a real threat for private life insurers in Japan over the foreseeable near future.

However, Fitch expects these restrictions on Japan Post Insurance to be loosened in the future, especially when the government reduces its stake further. This would intensify the competition between Japan Post Insurance and private life insurers. Fitch will continue to monitor the impact that deregulation of Japan Post Insurance will have on the credit profiles of private life insurers.