Japan: Non-life insurers' improved performance leads to higher financial leverage
Source: Asia Insurance Review | Apr 2017
Japanese non-life insurance groups have reported moderate increases in their financial leverage, to an average 6.1% at 31 December 2016 from 4.5% in March 2016, and interest rate coverage has remained stable, due to improved operating results, according to A.M. Best.
The Best’s Briefing, titled, “Improved Operating Results for Japanese Non-Life Insurers Support Increased Level of Financial Leverage,” states that the three major non-life insurance groups — MS&AD Insurance Group Holdings, Sompo Holdings and Tokio Marine Holdings — saw their profitability improve over the nine months ended December 2016, mainly due to the absence of large-scale catastrophe losses in the domestic market.
In addition, improved underwriting results and growing contributions from overseas insurance businesses offset the decrease in interest and dividend incomes. These major non-life groups have reported premium income and earnings growth from their overseas businesses and the consolidations of recently acquired operations.
Although risk-adjusted capitalisation levels have been negatively affected by the large amount of goodwill from these acquisitions, the groups still maintain strong levels of risk-adjusted capitalisation as a result of reduced investment risk and the issuance of subordinated debt.
A.M. Best expects Japan’s non-life insurance groups to remain active in the debt market to support growth and manage risks. Their diversified businesses should provide stable operating results, which will support sufficient interest coverage.