Japan’s life insurance companies are expected to ramp up allocations to foreign bonds by a net 900 billion yen (US$8.1 billion) to as much as 30.87 trillion yen in the current financial year ending March 2022 as they search for better returns, according to estimates by the Life Insurance Association of Japan.
The nine biggest firms, including Japan Post Insurance, Nippon Life, and Dai-ichi Life, are expected increase their foreign bond allocations by a net 45 billion yen, the industry group says.
It says the nine are also likely to raise exposure to Japanese government long bonds, and to alternatives, including infrastructure and private equity funds, in the year to March 2022.
Life insurance companies will have to buy long bonds to lengthen their asset duration in order to meet new capital requirements, Teruki Morinaga, director for insurance at Fitch Ratings Japan, tells Asia Asset Management.
The Japanese government introduced regulations in June 2020 stipulating that insurers have to significantly improve their asset-liability capability and solvency ratios from 2025.
According to Morinaga, whether the life insurers allocate more to foreign bonds will depend on their financial strength, and the bond ratings.
“I expect that AA to A/BBB categories might become the main topic for Japanese insurers,” he says.
Japan’s 42 registered life insurers had 392.9 trillion yen of total assets as of February 28, including 156.55 trillion yen allocated to Japanese government bonds and 29.97 trillion yen to foreign bonds, according to figures from the life insurance group.
