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Japanese Life Insurers: Stepping Strongly into '24
Pramod Shenoi - Head of Asia-Pacific Research
Trung Tran - Analyst, Insurance
EXECUTIVE SUMMARY
- Japanese life insurers report a significant increase in core profits and net income after tax, benefiting from lower pandemic-related claims and an improved investment environment with higher interest rates and a weakened yen.
- In a year of mixed growth for Japanese life insurers, Nippon Life’s substantial premium growth stands out, with some peers experiencing modest increases or declines in FY23.
- Strategic acquisitions were in the spotlight as Nippon Life acquired a stake in Corebridge and Sumitomo Life purchased Singlife, reflecting a focus on overseas market growth in the face of domestic market saturation and demographic headwinds.
- The industry demonstrates financial strength with strong solvency ratios far above regulatory requirements, reflecting a well-capitalised sector to manage market risks and the transition to a new economic solvency framework.
- Looking ahead to FY24, we expect the Japanese life insurers to deliver stable or slightly improved core profits, and to maintain their solid financial strength that will allow them to manage potential market volatility and regulatory changes.
- Among Japanese life insurers’ dollar bonds, we prefer NIPLIF 30NC10 ’04/34, DAIL PerpNC ’07/26 and ASAMLI PerpNC ’01/31.
RELATIVE VALUE
Among Japanese life insurers’ dollar bonds, we prefer NIPLIF 30NC10 ’04/34, DAIL PerpNC ’07/26 and ASAMLI PerpNC ’01/31. On Nippon Life, the NIPLIF 30NC10 ’04/34 trades at a spread of G+162 bp. This spread is considerably wider than a comparable AIA bond (AIA 10Y ’04/34 at G+125 bp), which we think should be tightened to a spread differential of 20 bp to better reflect Nippon Life’s robust capital structure and the low extension risk of the bond.
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