Japanese insurers set for agility gains on slash to policy durations

Japanese non-life insurers will buy themselves a heavy dose of pricing flexibility and market agility as they move to slash maximum contract periods in half starting later in 2022, the  Fitch rating agency said in a note to markets.

“The shorter maximum contract period will allow them to adjust premiums more flexibly, reflecting the recent occurrence and severity of natural catastrophe events,”  Fitch analysts said.

Non-life players, chiefly the big three of MS&AD Insurance Group,  Tokio Marine Holdings and  Sompo Holdings, are said likely to increase premiums for property insurance and shorten the maximum contract period from ten years to five from October 2022.

The move on premiums should go straight to margins,  Fitch noted.

The three major Japanese non-life groups have already enjoyed “robust” profitability of late as Covid drove down frequency and the trio got lucky on weather versus prior years,  Fitch noted. Financial markets helped deliver “strong” investment income, chiefly on Yen appreciation.

“ Fitch expects the non-life groups to maintain sufficient capital buffers and economic solvency ratios, assuming natural catastrophe losses remain at a historical average in FYE23,”  Fitch said. Heavy domestic equity exposure in asset portfolios and interest-rate risk on the life side remain challenges.

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