Japanese insurance companies are expanding overseas and making acquisitions primarily because the domestic market has matured, with limited growth potential due to a shrinking and aging population, according to the latest report by AM Best.
Premium income has been elevated since 2021, driven primarily by an increase in sales of single-premium savings-type products, but life insurers face stagnating demand for traditional life insurance products.
AM Best expects new business sales to remain strong, but sluggish growth for in-force premiums. Premiums driven by savings-type products sales are typically transient and susceptible to fluctuations in interest rates, both domestically and internationally, as well as changes in exchange rates. Additionally, the profit margin for savings-type products tends to be relatively narrow, which translates into limited growth for the bottom line of most of Japan’s life insurers. Still, after-tax profitability rose notably in 2024 and has been rising the last five years, albeit a slight decline in 2023.
Additionally, the Japanese insurance industry is highly consolidated (especially the non-life industry), with modest GDP growth, which makes organic growth opportunities even more limited, said the ratings agency.
“To maintain long-term growth, insurers are diversifying revenue streams and looking to capture growth opportunities in international markets, particularly in the US, Australia, and other developed economies,” the report said.
Major non-life insurers will likely have more excess capital in the coming years by accelerating the sale of their strategic equity holdings, following the issuance of business improvement orders by Japan’s Financial Services Agency.
“The three major non-life insurance groups (Tokio Marine, MS&AD, and Sompo) have announced plans to reduce their strategic equity holdings to zero over the next five to six years, which will result in sizeable amounts of disposal income to the groups,” said AM Best.