S&P: Japan Non-Life Insurers ‘Show Improvement in Profits’

A report from Standard & Poor’s Ratings Services concludes that Japan’s top nine non-life insurers recorded ¥173 billion ($1.575 billion) in interim net profits for the first half of fiscal 2007 (ended Sept. 30, 2007), representing a year-on-year increase of 72.2 percent.

“The top nine non-life insurers’ total income from net premiums written decreased slightly, but profits were underpinned by an increase in investment earnings and a turnaround in net income from insurance underwriting,” said S&P’s bulletin announcing the release of the Japanese language report. “Insurance payouts related to large-scale natural disasters continue to be a major risk factor for Japanese non-life insurers.”

However, S&P indicated that the “insurers maintain relatively sound capitalizations.” It considers the outlook on the domestic non-life insurance industry to be stable. “Out of the 16 rated non-life insurance companies, which include the top nine insurers, the outlook on the counterparty credit ratings of 13 of the insurers is stable while the outlook on the remaining three is positive.
“The top nine non-life insurers saw income from net premiums written decline by 0.4 percent year on year, due to a decrease in their mainstay voluntary automobile insurance and fire insurance income. Voluntary automobile insurance was hit by the decline in the average premium per vehicle and stagnant sales of new cars in Japan, while fire insurance saw weakness in over-the-counter insurance sales at banks.”

The top nine Japanese non-life insurers recorded a total net income of ¥13 billion ($118.4 million) in insurance underwriting, “marking an upswing from the ¥20.2 billion ($182.3 million) in underwriting losses recorded a year earlier. This turnaround was attributed to a reduction in the number and impact of natural-disaster insurance claims and a drop in follow-up payments related to the issue of nonpayment of claims.”

S&P also noted that even though some Japanese insurers had posted “subprime loan-related interim losses from revaluation, the scale of such losses is not significant enough to lead to a revision of the companies’ ratings at this time.” After holding interviews with the insurers, S&P said it had concluded that “the total outstanding balance of subprime loan-related investments and the total amount of financial guarantee insurance (including reinsurance), which includes any subprime loan exposure, are limited in proportion to total net assets. The impact of market turmoil stemming from the subprime loan issue will be among the key analytical factors over the coming months.

“Although restructuring and consolidation within the Japanese non-life insurance industry has subsided, new entrants from overseas and outside the industry are beginning to participate in the market in an attempt to take advantage of last year’s revision to the Insurance Business Law and the full deregulation of insurance sales by banks, which is scheduled to take place next month. Additionally, the revision of the Insurance Law (regulations regarding insurance contracts under the Commercial Code) is currently under review by the Legislative Council of the Ministry of Justice. If the law is revised, insurers will be required to amend their policy conditions and re-examine their insurance claim payment processes. Putting such trends in perspective, Standard & Poor’s believes the insurers’ adeptness in achieving higher efficiencies through strategic system investments and reconstructing strategies for product development and sales channels will become key factors in differentiating themselves in terms of future competitiveness.

The full report is available in Japanese on Standard & Poor’s Research Online at: www.researchonline.jp, or via Standard & Poor’s CreditWire Japan on Bloomberg Professional at SPCJ .

An English-language report will soon be available on RatingsDirect, the real-time Web-based source for Standard & Poor’s credit ratings, research, and risk analysis, at: www.ratingsdirect.com. Ratings information can also be found on Standard & Poor’s public Web site at: www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. All Standard & Poor’s research information is accessible for 24 hours after publication on the public Web site.

Source: Standard & Poor’s