S&P Reports Japan’s Non-Life Insurers Still ‘Under Severe Pressure’

Standard & Poor’s has issued a report on Japan’s non-life insurance industry, which concludes that although underwriting performance has improved, they remain “under severe pressure” due to the continued weakness of the world’s equity markets.

S&P said that the results for the fiscal year 2002 had produced “cuts in operating expenses” and that there had been no “losses caused by large-scale natural disasters.” The rating agency observed, however, that “overall profitability remains weakened by a deterioration in investment performance, mainly due to falling stock prices.”

S&P analyst Runa Ichihari, the author of the report, stated, “A substantial improvement in the business and investment environment is not likely in the short term, and the outlook for the credit quality of the overall industry remains negative. Expense ratios have declined in general, as insurers continue to aggressively reduce costs and reorganize agent networks.”

She also noted that “a drop in profitability from asset investment activities continues to threaten overall profitability.” Non-life insurers’ capital bases, which had been regarded as relatively solid in the Japanese financial sector, have also shown signs of erosion.

Although industry wide consolidation has subsided, a new phase of price competition in auto insurance and other core businesses is likely. “The crucial factor for stable profitability continues to be underwriting based on prudential risk management, in addition to cost reductions,” Ichihari concluded.

S&P said that the study, “Industry Report Card: Japan’s Non-Life Insurers,” is available on RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com.