The Bank of Japan’s adoption of negative interest rates in January is affecting the life insurance market, with sales of some products such as wholelife insurance policies being suspended.
Life insurance companies invest a large portion of premiums collected from policyholders into Japanese government bonds. However, as long-term interest rates are at their lowest ever, it has become difficult for life insurance companies to gain sufficient investment returns, reported The Yomiuri Shimbun.
The negative-rate policy will force life insurers into tough decisions, Nippon Life Insurance President Yoshinobu Tsutsui, who also serves as Chairman of the Life Insurance Association of Japan, said at a recent press conference.
“Very severe conditions will continue for the time being,” he said. With government bond yields on the decline, providers are starting to look at “lowering guaranteed policy yields and ending sales of insurance products,” he said.
Dai-ichi Frontier Life Insurance, a subsidiary of Dai-ichi Life Insurance, has suspended sales of some of its yen-dominated, single-premium wholelife insurance policies. Fukoku Mutual Life Insurance plans to suspend sales of some of its single-premium wholelife insurance products. Other life insurance companies are also considering similar actions.
Moves to raise insurance premiums on new contracts will also likely spread.
Insurers are shifting to foreign bonds, in which higher yields can be expected, for new investments. An increasing number of life insurance companies have also started extending loans in areas in which growth can be expected, such as infrastructure projects.
However, such moves have higher investment risks than Japanese government bonds. An official of Nippon Life Insurance said life insurers’ skills in investments will be tested more than ever.