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Japan: Financial markets pose biggest risks to insurers

Source: Asia Insurance Review | Jan 2019

The biggest risks for Japanese insurers will continue to stem from financial markets in 2019, says Fitch Ratings in a new report. 
Insurers are boosting their investment in foreign credit-spread products in the search for yield amid Japan’s ‘super-low-yield’ environment. These instruments include illiquid infrastructure loans, which entail some currency risk. Most major insurers will also maintain their exposure to domestic equities.
Fitch expects underwriting fundamentals to be stable overall. Japanese life insurers continue to focus on steady and profitable protection products, especially the most profitable and moderately growing ‘third’ (health) sector. Non-life insurers are also likely to maintain decent profitability in domestic underwriting, due to stricter premium rates pricing, reinforced by a virtual oligopoly.
The agency expects continued expansion overseas, driven by a saturated domestic market. The four major life insurance groups and three major non-lifers had already started to acquire substantial insurers in the US, the UK and Australia. The major insurance groups are managing foreign subsidiaries adequately, which is positive from the standpoint of diversification and which also serves to mitigate the natural catastrophe risks faced by non-life groups. A 
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