Fitch: Premium Rise to Support Japanese Non-Life Insurers' Profit
Fitch has revised the rating Outlook for Japanese non-life insurers to stable from negative, to be consistent with the Outlook for the Japan sovereign (Long-Term Local-Currency Issuer Default Rating at 'A'). This reflects the insurers' high concentration of Japanese government bonds in their investment portfolios. The sector outlook remains stable supported by recovery in operating performance and sufficient capitalisation at group levels. The three major non-life insurance groups are: Tokio Marine Group, MS&AD Insurance Group and SOMPO Group.
Non-life insurers expect their combined ratio (written to paid basis), excluding the impact of catastrophe losses in the financial year ending March 2016 (FYE16), to improve to 92% on average from 94.4% at FYE15, largely due to strong demand in fire business lines ahead of the premium adjustment in October 2015. Fitch expects the rise in premium growth in FYE17 to be moderate, reflecting the completion of the pricing adjustments in the mainstay automobile business lines.
However, domestic and overseas catastrophe exposure remains one of the main causes of volatility in operating performance. Fitch believes adequate catastrophe risk management is crucial for non-life insurers as they expand their business overseas to diversify heavily concentrated catastrophe risks in Japan. Their capitalisation is also vulnerable to movements in the equity markets because of their significant stock holdings.