Asia

Equity market fears for Japanese life insurers

Rating agency Moody’s described the outlook for the Japanese life insurance market as stable despite the fact that life companies are now more vulnerable to weak equity market and as well as to falling interest rates. The latter observation, according to Moody’s applied particularly to the variable annuity product market which guarantees a minimum payout. In addition, new legislation now also limits the aggressive selling of financial products by banks further reducing insurers’ income. However, given the present uncertainty in the equity markets, customers may welcome the minimum guarantee and therefore the sales of such products were unlikely to fall. A number of Japanese insurers have increased their reserves for variable annuities with minimum guarantees over the last year, but Moody’s points that Japanese insurers’ general equity portfolios present a far greater risk. The local equity market fell by 30.0% causing Japanese life insurers to suffer large unrealised losses on their equity portfolios which reduced the size of any financial cushion. Moody’ fears that any further drop in the market could hurt insurers’ financial fundamentals more easily than before and result in negative rating actions.