Japan Post Insurance (JPI), despite its recent much-sought-after public listing, is unlikely to change the Japanese life insurance industry in the foreseeable future, according to Fitch Ratings.
JPI shares rocketed by 55.9% in their trading debut on the Tokyo Stock Exchange on 4 November from the initial public offer price of JPY2,200 (US$17.86) a share. Only 11% of its total shares were sold by the government in the IPO. The shares were 30 times over-subscribed by non-Japanese institutions, and 10 times over-subscribed by Japanese retail investors. The IPO raised more than JPY140 billion.
JPI vs Nippon Life Insurance
Fitch notes that JPI had total assets of JPY85 trillion at end-March 2015, larger than the JPY62 trillion of Nippon Life Insurance, the largest private life insurer in Japan. However, the value of policies in force at JPI was JPY43 trillion at end-March 2015, much smaller than Nippon Life’s JPY168 trillion. Also, JPI’s core profit margin in the financial year ended 31 March 2015 was 8.7%, compared with around 15% for most major Japanese private life insurers.
JPI has been more focused on savings-type life insurance products, which tend to have low profitability in Japan, mainly due to low interest rates. Most private Japanese life insurers have enjoyed decent profitability mainly because of their effective focus on more profitable protection products, especially those in the third sector (health insurance).
Stricter regulations than private life insurers
JPI now has to comply with stricter regulations than private life insurers because it is state-controlled. For example, the policy value for each of JPI policyholder is capped at JPY13 million, while there is no restriction for private life insurers. As long as such restrictions remain, it is unlikely JPI will become a real threat for private life insurers in Japan over the foreseeable near future, said Fitch.
However, Fitch expects these restrictions on JPI to be loosened in the future, especially when the government reduces its stake further. This would intensify the competition between JPI and private life insurers.