The focus of the Japanese property/casualty industry on the domestic market will continue to pressure earnings in the foreseeable future, according to a report issued by Moody’s Investor Services.
Moody’s said that it remains negative on the Japanese P/C market because of its limited scope of products that focus almost exclusively on the domestic market.
The report — titled Japanese Property and Casualty Insurance, Outlook remains negative — explains that auto insurance accounts for just over 50 percent of Japan’s insurance market while fire insurance accounts for another 20 percent.
Growth in those personal lines businesses has been driven by economic and population increases that are both currently in decline, Moody’s argues.
“[T]he Japanese economy is facing difficulties and the population stagnating, while the P/C market nears saturation – issues that have also negatively affected the commercial insurance business,” the report adds.
Currently, the Japanese insurance market is dominated by the “three majors” including Tokio Marine & Nichido, Sompo Japan and Mitsui Sumitomo.
The report adds that the large Japanese P/C insurers have announced their intentions to expand internationally to drive growth but their heavy reliance on equity investments (as has as 20 percent to 30 percent of their investment portfolios) have thwarted those plans.
“Because of domestic market saturation, the Japanese insurers have focused on strengthening their overseas P/C business, although we have seen no significant moves in this direction recently, partly because of the negative pressure on the insurers’ capital bases due to drops in the equity market,” the report said.
