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Japans insurance companies – in the life segment especially – collectively form one of the many conduits through which the countrys enormous pool of excess household savings flow into Japanese government bonds (JGBs) – but also other asset classes as well. Because of the (near-)zero interest rates and bond yields that will continue to prevail, the unfavourable demographic profile of the country and the slow nominal growth in the economy, we would describe both segments as very mature.
Nevertheless, there are still huge opportunities. The absolute sizes of both the non-life and the life markets ensure that virtually all players can enjoy economies of scale. The leading Japanese companies are taking advantage of their brand names and varied – but formidable – distribution networks to develop new groups of customers or to promote new products. Non-Life companies are extending their reach into life insurance. Life companies are striving to make their products easier to understand. However, there are also opportunities for some foreign companies as well. Most of the foreign groups that are flourishing in Japan have three characteristics: their global businesses are enormous; they have already been committed to the Japanese market for a long period; and they have a competitive advantage in niches or particular products which the leading Japanese insurers cannot match. Nevertheless, we would stress that leading Japanese insurers – in both major segments – are expanding into foreign markets, and often by way of acquisitions.
The earthquake on March 11 2011 presented the insurers with enormous challenges: however, the latest reports of every company highlight how each has moved swiftly to pay the claims and meet the needs of their customers who suffered as a result of this tragedy. As is the case with other industries in Japan, the logistical and organisational strengths of the countrys insurers are formidable. Far less important have been the financial challenges. For the non-life insurers, much of the risks were laid off with Japan Earthquake Reinsurance, with the government and with the global reinsurance industry. The life insurers have extremely high solvency margins and have been easily able to absorb the costs.
As yet, a wildcard for the life segment remains Postal Reform. The legislation that provides for the government to sell down its investment in Japan Post Insurance, and for that company – the largest life insurer in the country – to broaden its activities remains stuck in the National Diet. Depending on the details of how it is implemented, Postal Reform could be an opportunity or a threat for the other life companies.
Click for Report details:Japan Insurance Report Q2 2012