Page 34 - Digital Edition SIRC Supplement

MARKET REPORT - JAPAN

Current challenges, opportunities
and dynamics of Japan

Mr Tomoatsu Noguchi, President and Chief Executive of Toa Re, shares about the
solid results of non-life insurers, the overseas expansion in search of growth, and the
increasing role of reinsurance in the promotion of ERM in Japan.

Business results of non-life insurers for FY2014 through a merger that will establish a new company, AIG
Fiscal 2014 results for Japan’s non-life insurance companies General Insurance in July 2016 or later.
were solid. An overview of the results of the 26 non-life Thus, the non-life insurance industry is promoting increased
operating efficiency through mergers, functional consolidation
insurers follows.
Net premium income in all lines of business increased to and cost reductions. At the same time, the industry is seeing
JPY8,083.1 billion (US$67.59 billion), up JPY311.8 billion initiatives to secure profits from new sources through business
from the previous fiscal year, due to factors including higher collaboration with non-insurance companies. In addition, non-
premium income from automobile insurance due to the effect of life insurers are targeting increased earnings by investing in
revised premium rates and the increase of household insurance growth areas other than domestic non-life insurance, including
premium. the life insurance business and overseas operations such as
On the other hand, the loss ratio improved by 1.8 percentage those discussed below.
points to 62.3%. Despite an increase in payout of claims
associated with heavy snowfall in the Kanto region, claims paid Expansion of overseas business
due to natural disasters decreased in fiscal 2014 and automobile The Japanese non-life insurance market is not likely to expand
claims paid decreased as a result of fewer automobile accident significantly, due to the low birth rate and ageing of society.
claims. Expenses rose by JPY96.8 billion to JPY2,605.8 billion Non-life insurers are therefore expanding their business base
because higher premium income had led to increased agency in overseas markets that are expected to grow. The top three
commissions. non-life insurance groups have positioned overseas business
Net expense ratio decreased slightly by 0.1 percentage as a group growth driver, and are aggressively implementing
points to 32.2%. The underwriting result improved by JPY277.7 initiatives such as forming business alliances with local
billion to an underwriting profit of JPY143.3 billion, because insurance companies and engaging in M&A.
premium income increased and loss ratio improved. Major Figure 1 shows overseas premium income for each of the
non-life companies enjoyed better combined ratios compared groups. Since 2012, overseas net premium income for the top
with the previous year, reflecting profit for the year. three non-life insurance groups has been trending upward,
Investment profit was solid, increasing JPY48.9 billion to and fiscal 2014 overseas net premium income was over twice
JPY644.0 billion. Although an environment of low interest rates that of fiscal 2010. In addition, the overseas businesses of the
continued, a weaker yen and high stock prices contributed to top three groups are now reaching close to 20% of total net
the solid investment profit. premium income.
As a result of the above, results for both underwriting and The medium-term management plans of the top three
investment were strong, supporting an increase in ordinary non-life insurance groups target overseas business expansion
profits of JPY332.2 billion to JPY746.8 billion. While the through M&A and organic growth, giving rise to expectations
reduction of the corporate tax rate resulted in the reversal of for further growth overseas.
deferred tax assets, net income increased JPY164.5 billion
year-on-year to JPY378.8 billion.
Figure 1: Overseas Net Premium Income for the Top Three Non-Life Insurance Group

Trends in the non-life industry Overseas Net premium income Percentage of overseas net premium
Overview (JPY Billions) income
The integration of four companies in 2010
– Mitsui Sumitomo Insurance with Aioi 2,000 20%
Nissay Dowa Insurance, and Sompo Japan
Insurance with NIPPONKOA Insurance – 1,500 15%
began a cycle of business integration that
established an oligopoly in Japan’s non-life 1,000 10%
insurance market. As of 31 March 2015,
the top three non-life insurance groups 500 5%
(MS&AD Insurance Group Holdings,
Tok io Ma r i ne Hold i ngs, a nd Sompo 0 0%
Japan Nipponkoa Holdings accounted for FY2010
approximately 85% of net premium income FY2011 FY2012 FY2013 FY2014
for the industry as a whole.
SOMPO HOLDINGS Tokio Marine Holdings MS&AD Holdings Percentage of overseas net premium income
In addition, AIU Insurance Company *(total of the three groups including life insurance)
and The Fuji Fire and Marine Insurance
Company of the American International Source: Toa Re
Group are integrating their businesses

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