Despite the global equities market being swept by coronavirus turmoil, Japanese insurers are maintaining financial stability versus market volatility, thanks to their robust balance sheet fundamentals, according to a commentary from AM Best.
The international insurance ratings house states that the credit fundamentals of most Japanese insurers have not seen major material changes, even with the ongoing COVID-19 virus outbreak and global stock markets declining. Domestically, many major insurers in Japan have seen share prices decrease by 30-40% since the year began.
AM Best said that recent share price movements of Japan’s major insurance groups are not significantly linked to their business fundamentals. Instead, the stock price decline is driven mainly by a company’s sensitivity to equity price risk, which stems from the investment allocation and the size of the equity portfolio in comparison to its adjusted capital levels.
Furthermore, AM Best said it has yet to see any significant deterioration in the underlying profits of non-life and life insurers in Japan. Additionally, many domestic insurers maintain capital adequacy ratios and financial leverage ratios that AM Best considers to be conservative relative to global peers, which should enable the companies to withstand adverse market conditions.
“With global financial markets expected to remain volatile over the near to medium term, AM Best’s view of Japanese insurers’ financial strength would be largely subject to the development of oil prices, as well as the evolving nature of the current COVID-19 pandemic, particularly in Europe and the US,” the report said. “A more pessimistic scenario would be the potential emergence of further events, such as a liquidity crisis, or the worsening of the current COVID-19 pandemic situation and the subsequent result of a real and long-term disruption to the global economy.”
