Outlook for Japanese insurers stable; negative for banks - Moody’s

Credit rating agency Moody’s outlook for Japanese insurers in 2020 is stable but its outlook for banks and securities companies is negative. This is due to the ultralow interest rates in Japan and an aging and shrinking population.

Moody's Japan said that the extremely accommodative monetary policy in Japan has helped the economy sustain growth but depressed the profitability of financial institutions in the country.

"Our outlook for Japanese banks over the next 12 months is negative, because the banks cannot sustain profits without taking on more risks, in an environment with ultralow interest rates and an aging and shrinking population,” said Tetsuya Yamamoto, a Moody's vice president and senior credit officer.

Small and regional banks will fare worse than their larger peers, Moody’s said.

"Our outlook for Japanese securities companies for 2020 is similarly negative, because of the pressure on the profitability of their core domestic retail business, due to the country's aging population and the intense competition in the sector," said Shunsaku Sato, a Moody's vice president and senior credit officer.

By contrast, life and P&C insurers show solid profit and strong capitalisation, despite challenges.

"As for the insurance sector, our 2020 outlook for insurers is stable," said Soichiro Makimoto, a Moody's vice president and senior analyst. "For life insurers, their underwriting margins - which account for most of their core profits — will stay solid, because the industry retains substantial pricing power for mortality and morbidity products."

With P&C insurers, Moody's points out that the fundamental profitability of their domestic businesses — excluding catastrophe losses — will remain strong, and their capitalisation will continue to be supported by strong internal capital generation and the use of reinsurance.