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AM Best revises Japan life insurance market segment outlook to stable

24/06/2022 11:44 AM

KUALA LUMPUR, June 24 (Bernama) -- Global credit rating agency, AM Best has revised its outlook on Japan’s life insurance market segment to stable from negative, as overall business conditions for the life insurers have improved compared to earlier stages of the COVID-19 pandemic, according to a new AM Best report.

“Prospective sales of foreign currency-denominated products are likely to increase in tandem with foreign interest rate increases in the coming quarters,” said Jason Shum, associate director, analytics, AM Best in a statement.

“Additionally, continued hikes in global interest rates will bode well for life insurance companies in Japan as the prospective investment climate should benefit insurers’ ability to manage risk-adjusted returns and re-investment risk, albeit with generally higher hedging costs.”

In a new Best’s Market Segment Report titled, ‘Market Segment Outlook: Japan Life Insurance’, AM Best notes that most Japanese life insurance companies maintain very strong capital positions, and are likely to be able to withstand the potential impacts on capital changes that may result from global financial market volatility.

Several long-term and persistent challenges remain, including aging demographics and a shrinking working population, stagnant wages and evolving consumer needs.

However, United States-headquartered AM Best expects insurers’ operating performances in the near term to benefit from some tailwind factors, such as the positive momentum in top line recovery and the possibility of further foreign interest rate increases, as well as a bottoming out of domestic interest rates.

Most life insurers in Japan rely heavily on face-to-face sales distribution; thus, the outbreak of COVID-19 adversely affected life insurance sales given social distancing measures and restrictions on face-to-face sales activities.

Although the sales performances of most life companies have yet to recover to pre-pandemic levels, AM Best views the situation has likely to continue improving, aided by an acceleration of digital transformation and new product launches.

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