Coronavirus puts Japanese insurance sector under pressure

Pedro Gonçalves
Coronavirus puts Japanese insurance sector under pressure

Japanese insurers are set to face greater risks from movements in financial markets such as interest rates, equities, credit-spread products, or currencies, according to a report by Fitch Ratings.

It is expected that Japanese insurers will experience a meaningful negative impact from the spread of coronavirus and the fears of a global recession which have led to volatility in global financial markets, according to the analysis from the credits ratings agency.

This is due to increasing investment risks in Japanese insurers' exposure to foreign credit products, currency risks and/or exposure to domestic equities, and through worsening asset and liability management (ALM) risks caused by a further flattening of the yield curve amid the sizeable ALM duration mismatch in most Japanese life insurers' balance sheets.

However,  Fitch said the majority of Japanese insurers' ratings is unlikely to change. The ratings agency also said Japanese insurers should experience minimal explicit insured losses.

Fitch expects potential direct net insured losses from medical insurance at Japanese insurers due to COVID-19 to be limited because the Japanese government bears almost all coronavirus-related medical costs in Japan by law.

The agency believes other relevant net insured losses in popular medical insurance products would be small as claim payments for hospitalisation costs would be minimal due to the structure of typical medical insurance products in Japan.

Mortality losses due to the outbreak are also expected to be small, due to the low number of fatalities in the country, which was less than 10 as of March 09.


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