COVID-19 will strain Japanese insurers' profitability in 2020, warns Moody's

Japanese insurers Mitsui Sumitomo Insurance, Sompo Japan Insurance, Tokio Marine remained profitable in the fiscal year 2019 despite recording high levels of natural catastrophes. However, Fitch expects the coronavirus pandemic to weigh on their profitability in 2020.

Financial results released by Japan's top three property and casualty (P&C) insurers suggest solid premium growth, profitability and capitalisation, although these results do not fully capture the broad impact from the coronavirus outbreak, which began to have an impact on Japan in February 2020.

Fitch noted that the three insurers' realistic net profit rebounded from a drop in the previous fiscal year, and they continued to benefit from their use of reinsurance programs to manage their catastrophe risk.

According to the report, the economic solvency ratios (ESRs) also remain high and within their respective target ranges, supported by continuous internal capital generation and efforts to reduce holdings of domestic stocks.

"The three insurers reported solid premium growth, driven by premium rate hikes made in 2019, widened coverage on existing auto policies and stronger sales of packaged insurance products to small-to-medium sized enterprises (SMEs)," said Soichiro Makimoto, a Moody's vice president and senior analyst.

Fitch expects insurers to be challenged in maintaining growth and profit momentum in their results for the remainder of 2020.

"However, looking ahead, we expect the coronavirus-led downturn will weigh on profitability through slower or even contracting premium growth, reduced investment income and increased claim payments, such as from event cancellation insurance and business interruption insurance, but we expect the overall impact to be manageable," added Makimoto.