In a sweeping appraisal of Japan’s life
insurance industry, rating agency Fitch has downgraded nine of the
country’s 23 domestically-controlled mutual and non-mutual life
insurers. Fitch has also assessed all nine companies as having
negative outlooks.
One of the major factors influencing the
rating actions is what Fitch termed its increasingly negative view
of the exposure of the Japanese life insurance industry to equity
risk.
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The rating agency stressed that the decline in
the benchmark Nikkei equity index over the last 18 months has
significantly impacted the insurers’ balance sheets and reversed
the capital strengthening recorded over the previous four
years.
“The ongoing volatility of equity markets
continues to pressure companies, most of whom have seen previous
unrealised gains on long-held equity portfolios turn to unrealised
losses,” noted Fitch.
The Nikkei Index is currently down just over
50 percent from its July 2007 peak despite recovering some 40
percent since the low reached in November 2008.
In addition to its equity concerns, Fitch is
also concerned over the medium-term prospects for the Japanese
economy which is now subject to forecasts considerably more
pessimistic compared to six months ago.
“A prolonged economic slowdown will stunt
premium growth, maintain downward pressure on investment returns
and may result in increased surrender-and-lapse experience for the
life companies,” explained Fitch.
