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June 8, 2009updated 13 Apr 2017 8:56am

Fitch takes a dim view on Japan

In a sweeping appraisal of Japans life insurance industry, rating agency Fitch has downgraded nine of the countrys 23 domestically-controlled mutual and non-mutual life insurers 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

By LII editorial

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.

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.

 

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