Japanese life insurers' credit fundamentals are expected to remain robust in the financial year ending March 2026 (FYE2026), says Fitch Ratings.
Fitch forecasts that Japanese life insurers’ capital adequacy will be sufficient for ratings in the near future, primarily due to the steady accumulation of core capital and hybrid capital issuance.
The global credit rating agency also anticipates minimal direct impact from fluctuating government bond yields, as yen-denominated liabilities and bonds are both recognised at book value using amortised costs under Japan’s generally accepted accounting principles.
Fitch assesses the impact of further increases in yen bond yields as likely to remain limited, partly because the economic value of insurance liabilities will decrease more rapidly than the value of yen bonds when the bond yields rise.
Additionally, the surrender and lapse rate of Japanese traditional life insurers remained stable at 4% in FYE2025 (FYE2024: 4%), despite rising bond yields, as life insurance policies in Japan are not typically purchased for yields.
Fitch further expects major Japanese life insurers to continue acquiring foreign life insurance or Japanese non-insurance companies to facilitate further growth, as the expansion of profitable protection life insurance products is likely to peak within the next decade due to the country’s gradually contracting population.
Japanese life insurers are actively issuing hybrid capital despite strong capital adequacy, to uphold credit ratings when executing significant international mergers and acquisitions or when facing unexpectedly volatile global financial markets.