Saturday, July 22, 2017

Interest rate risk hounds Japanese insurers

Traditional Japanese life firms are still exposed to major interest rate risk, warns Fitch Ratings.

According to a report by the ratings agency, life insurers are failing to extend the duration of their assets because of lingering low bond yields in Japan.

To cushion them from interest rate risk, Fitch expects insurers to boost their capitalisation through retained earnings and accumulated reserves.

The agency also expects insurers to keep maintain sufficient capital adequacy ratios for their credit ratings, which is in part supported by their use of hybrid debt.

In turn, hybrid debt is used to make large overseas acquisitions to grab opportunities amid the extremely low global bond yields and investor appetite for such paper.

For the financial year ending March 2017, Fitch noted progress in the economic solvency figures of insurers buoyed by steeper yield curve compared to that in the previous year.

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