AM Best Maintains Stable Outlook For Japan's Non-Life Insurance Industry

KUALA LUMPUR, May 14 (Bernama) -- Global credit rating agency, AM Best has maintained a stable outlook on Japan’s non-life insurance industry, supported by improved profitability in the fire insurance segment and tighter regulatory oversight aimed at driving market reforms.

In its latest report titled “Market Segment Outlook: Japan Non-Life Insurance”, AM Best noted that Japan’s Financial Services Agency (FSA) has increased regulatory scrutiny over the past 18 months, introducing stricter governance requirements for insurers.

In a statement, the credit rating agency said these include enhanced oversight of agency networks and the elimination of improper distributor incentives.

While the new measures may temporarily raise compliance costs, they are expected to enhance transparency, improve acquisition cost efficiency, and promote fair competition over the long term.

“AM Best expects that the regulatory shift will lead to increased transparency and comparability for Japanese non-life insurers with global counterparts under similarly advanced regulatory frameworks,” said AM Best director of analytics, Chanyoung Lee.

The report also highlighted the upcoming implementation of the Insurance Capital Standard in Japan’s fiscal year 2025, under which assets and liabilities will be measured at market value. Although this solvency regime will primarily affect life insurers, most non-life companies have already bolstered their risk management systems in preparation.

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To mitigate underwriting volatility in fire insurance — exacerbated by a rise in the frequency and severity of natural catastrophes — insurers have introduced pricing reforms to better reflect actual risk exposure and reduce potential losses.

On the investment front, a more favourable interest rate environment, driven by a shift in policy from deflation control to inflation management, has benefitted non-life insurers holding substantial bond portfolios. This trend is expected to support investment income over the next 12 months.

However, the automobile insurance segment remains under pressure due to rising repair and labour costs, with loss ratios trending upward for major insurers, according to AM Best senior financial analyst, Charles Chiang.

-- BERNAMA