Japanese non-life insurance groups are expected to maintain favourable underwriting results both in Japan and overseas markets in the financial year ending March 2026, while the growth in earnings is likely to slow as sales of strategic shareholdings decline according to a non-rating action commentary by Fitch Ratings.
The commentary said the three major Japanese non-life insurers - MS&AD Insurance Group Holdings, Inc. (operating entity, Mitsui Sumitomo Insurance Company, Limited.: IFS A+/Stable), Tokio Marine Holdings, Inc. (operating entity, Tokio Marine & Nichido Fire Insurance Co., Ltd.: IFS AA-/Stable) and Sompo Holdings, Inc. – continued to record strong profits in financial year 2024-25, largely due to the substantial proceeds from the divesture of strategic shareholdings.
These divestures also contributed to improvements in the economic solvency ratio (ESR), as the stocks carry high risk charges under the ESR calculation. The rating agency expects the non-life groups to maintaining strong capital adequacy in the financial year 2025-26, backed by accumulated thick core capital, including retained earnings and capital reserves.
The domestic underwriting results of the three Japanese non-life groups were favourable in 2024-25, with little significant impact from natural catastrophe events. Fitch believes the increased premium rates in the domestic motor business line will gradually improve profitability over the medium- to long-term.
The non-life groups’ overseas operations continued to expand in financial year 2024-25, with North America remaining the main revenue contributor. The weaker Japanese yen against the US dollar also attributed to higher net profits in yen terms.
The commentary said the three non-life groups have divested strategic shareholdings at a pace exceeding initial plans, generating substantial proceeds over the past two years.
Fitch Ratings expects the pace of divesture to slow in the financial year 2025-26, as the outstanding amount decreases.
Tokio Marine Holdings and MS&AD Insurance Group Holdings plan to dispose of all their strategic shareholdings by end-March 2030, while Sompo Holdings aims to sell all by end-March 2031.
The rating agency said higher premiums will support domestic motor business. The three non-life groups’ combined ratio in aggregate improved to 99% by 2024-25, from 101% in 204-23, due primarily to the absence of significant natural catastrophe events. Higher premiums in the motor business line are also likely to improve profitability over the medium- to long-term as many contracts are multi-year.
Continued overseas expansion of the three non-life groups delivered favourable underwriting results in 2024-25. The depreciation of the Japanese yen against the dollar also contributed to profit in yen terms, with North America accounting for the majority of overseas income. The net insured losses from natural catastrophes in the US, which will partly flow into 1QFYE26 results, were at a manageable level.
Fitch Ratings said the solid capital adequacy of the non-life groups’ capital positions, as measured by the economic solvency ratio, either improved or remained strong in 2024-25, underpinned by their accumulated thick core capital and reserves, and the divestiture of stocks, which carry high risk charges. Fitch believes the non-life groups maintain sufficient capital buffers against external shocks in near term.