Japan Life Insurers’ Financial Outlook Remains Positive
Japanese life insurers are expected to maintain robust credit fundamentals in the financial year ending March 2026 (FYE2026), according to a report by Fitch Ratings. The global credit rating agency forecasts that Japanese life insurers’ capital adequacy will remain sufficient for their current ratings in the near future. This optimism is primarily attributed to the steady accumulation of core capital and hybrid capital issuance.
Fitch anticipates that the impact of fluctuating government bond yields will be minimal due to Japan’s accounting practices. Both yen-denominated liabilities and bonds are recognized at book value using amortized costs. The agency assesses that further increases in yen bond yields will have a limited impact, as the economic value of insurance liabilities will decrease more rapidly than the value of yen bonds when bond yields rise.
The surrender and lapse rate of Japanese traditional life insurers remained stable at 4% in FYE2025, consistent with the previous year’s rate. This stability is attributed to the fact that life insurance policies in Japan are not typically purchased for their yield.
Fitch expects major Japanese life insurers to continue acquiring foreign life insurance companies or Japanese non-insurance businesses to facilitate further growth. The expansion of profitable protection life insurance products is likely to peak within the next decade due to Japan’s gradually contracting population.
Despite strong capital adequacy, Japanese life insurers are actively issuing hybrid capital to maintain their credit ratings when executing significant international mergers and acquisitions or facing unexpectedly volatile global financial markets.
