Life is not easy for Japanese insurers: S&P

Our Banking Bureau
11 June 2002

Tokyo: The business contraction and deteriorating financial strength due to low interest rates impacting investment income, and weak equity market has made Standard & Poors (S&P) to give negative outlook for the Japanese life insurance industry.

The global credit rating agency has come to this conclusion after studying the fiscal 2001 results of major Japanese life insurers.

S&P expects the Japanese life insurers to continue cost cutting exercise, reduce the level of risk assets in their investment portfolio, and shift their resources to business areas with greater profit and growth opportunities.

However, given their shrinking business in force and the severe domestic investment environment, the near-term benefits from such efforts will be limited.

"We expect the gap between Japanese life insurance companies to widen, with most players experiencing some weakening in their credit quality, and we do not rule out the possibility of additional failures in 2002," says Tatsuo Kurogi, a credit analyst at S&P.

"Continued flight to quality among increasingly credit-savvy policyholders may also precipitate the exit of marginal players from the market and lead to further consolidation," he adds.