AM Best Sustain Stable Outlook On Japan Non-Life Insurance Market, Despite Challenges Ahead
AM Best Remains Stable On Japan Non-Life Insurance Market, Despite Challenges Ahead
In light of recent successful underwriting results and the likelihood that carriers will continue to post solid earnings in the face of anticipated economic challenges, AM Best has maintained its stable market sector prognosis for the Japan non-life insurance segment.
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Although some company areas still experienced pressure, Best’s Market Segment Report, “Market Segment Outlook: Japan Non-Life Insurance,” states that Japan’s economic recovery continued in the fiscal year 2021.
The ongoing conflict between Ukraine and Russia, rising commodity prices, the significant possibility of an economic slowdown in a number of Japan’s trading partners, the emergence of the COVID-19 pandemic both domestically and abroad, and other factors are all expected to have a significant negative impact on the Japanese economy over the coming 12 months.
However, despite expectations of strong underwriting profitability, AM Best is of the view that underwriting results for most major domestic non-life insurers will retreat moderately for the fiscal year 2022.
AM Best Sustain Stable Outlook On Japan Non-Life Insurance Market, Despite Challenges Ahead
While the rating agency expects premium revenue to increase, mainly driven by fire, personal accident and other specialty insurance, it is probable that underlying underwriting profit will contract from a higher loss ratio for voluntary automobile insurance.
“Given the underwriting risk profile of most domestic non-life insurers–which is skewed toward voluntary automobile and fire insurance–AM Best considers the earnings base of Japan’s non-life insurance companies to be sustainable,” said Jason Shum, associate director, of analytics, AM Best.
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Furthermore, despite rounds of rate revision in October 2019 and January 2021, AM Best noted that most leading non-life insurers plan to raise fire insurance premiums further in late 2022, to reflect the emerging claims experience from large-scale catastrophe events, such as typhoons Faxai and Hagibis in 2019.
Given the increase in catastrophe occurrences in recent years, most major non-life companies in Japan recognize the need to raise the profitability and sustainability of their fire insurance products. Other than transferring some of the reinsurance cost hikes to policyholders, several major insurers have also sought to improve their understanding of the potential impact of climate risk.
AM Best Sustain Stable Outlook On Japan Non-Life Insurance Market, Despite Challenges Ahead
Best also highlights that non-life insurance companies in Japan continue to contend with investment challenges amid the volatile domestic and global capital markets. Leading domestic non-life insurance companies such as Tokio Marine & Nichido Fire, Sompo Japan, Mitsui Summitomo and Aioi Nissay Dowa typically hold one-fifth of their investment assets in domestic stocks, while more than one-third is allocated to foreign securities.
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However, as the majority of domestic non-life companies have very strong capital positions, the solvency capital of the Japanese non-life insurance segment, which represents the level of real net assets available for regulatory solvency purposes, remains very large compared with the regulatory capital requirement.
Meanwhile, a recent report from GlobalData suggests that Japanese life insurers face a series of tough challenges over the next five years because of the country’s aging demographic and economic factors.
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