Japan's big life insurers confirmed a gradual improvement in their financial health on Monday, reflecting a stronger economy and a healthier Japanese financial system. Most of the biggest life insurers, including leader Nippon Life Insurance Co which has 45 trillion yen ($416.4 billion) of assets, reported slight improvements in their solvency margin ratios at the end of March compared with six months earlier. The ratio is a key gauge of financial health that weighs capital and reserves against potential risks.
The top insurers are not listed, but together they hold 180 trillion yen of assets - roughly the size of Italy's economy - and the recovery in the sector mirrors a similar improvement in the health of Japan's long-troubled banks.
Earlier this month, Japan's top seven banks posted a combined net profit of over 700 billion yen ($6.48 billion) for the year to March, putting the banking sector in the black for the first time in four years.
The big insurers are still struggling to rebuild their financial health after a decade in which their investment returns have taken a battering from falling Japanese stock prices and paltry bond yields that are the lowest in the developed world.
Their woes have been exacerbated by shrinking demand for life insurance policies because of a rapidly ageing population.
The solvency margin ratio at Nippon Life, whose assets are almost twice the size of the Swiss economy, stood at 975.2 at the end of March, up from 927.9 at the end of September.
But Asahi Mutual Life Insurance, Japan's sixth-largest life insurer and one of the weakest, said its solvency margin ratio was virtually unchanged at 570.3 percent from 570.2 percent.
Just two years ago, Asahi's ratio fell as low as 360 percent. At 200 percent, Japanese regulators would issue a formal warning to improve operations.
A fall in Japan's Nikkei share average to a two-decade low of around 7,600 in April 2003 left several of the biggest players, which have more than 10 percent of their assets invested in stocks, teetering on the brink of failure.
Since then, the insurers have been pruning their sales forces to save costs, cutting equity investments to reduce risk and moving into new fields such as medical care insurance to make up for shrinking demand for traditional policies.
A recovery in Japanese stocks has also helped. The Nikkei average gained 8 percent in the six months to the end of March, taking it to around 11,700.
Partly as a result, Moody's Investors Service upgraded the financial strength ratings of the top eight life insurers earlier this year to an average rating of Baa2.
Analysts, though, say many problems remain for the big insurers despite their stronger financial health.
Low returns on investments have left many insurers with a "negative spread" between their income and guaranteed annual payouts on policies that average between 3 and 3.5 percent.
The top three insurers, including Nippon Life, Dai-ichi Mutual Life Insurance Co and Meiji Yasuda Life Insurance Co, made an average return on their assets of just over two percent in the year to March, their earnings results showed. "We're expecting low interest rates in Japan to weigh on our investment results again this year," Sadao Kato, managing director at Nippon Life told reporters, adding that the current yield on 10-year Japanese government bonds of close to 1.2 percent was "abnormally low."
The life insurers generally hold bonds to maturity and like to lock in higher coupons as interest rates rise.
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