Japan's four major Japanese life insurers have increased their core profit for the six months to 30 September 2018 (which was the first half of the current fiscal year), mainly supported by higher interest margins, notes Moody's Japan K.K.
"The main driver behind continued core profit growth was that insurers were able to improve their interest margin despite low domestic interest rates by increasing exposure to foreign bonds, which resulted in higher interest income" said Mr Soichiro Makimoto, a Moody's vice president and senior analyst.
"Furthermore, favourable economic conditions in Japan pushed up dividend income from domestic equities," added Mr Makimoto.
The four major life insurers referred to in the Moody's report are:
- Dai-ichi Life
- Meiji Yasuda Life
- Nippon Life
- Sumitomo Life Insurance.
However, Moody's points out that investment yields will stay pressured in the current low domestic interest rate environment, because the insurers will continue to maintain meaningful exposure to domestic investments.
The insurers are gradually increasing investments in foreign bonds, in response to the low return on domestic assets. Such a situation increases credit and currency risks.
The insurers' capital positions remain solid, driven by internal capital generation and the issuance of subordinated debt or loans. Moody's also says that during the six months to 30 September 2018, the insurers continued to promote products that are not sensitive to domestic interest rates, with third-sector products and foreign currency denominated products representing two key examples.
Moody's views are set out in its report, "Dai-ichi Life, Meiji Yasuda Life, Nippon Life, Sumitomo Life: Solid core profit growth reflects higher interest margins".