S&P Says Japan Insurers Under Pressure

NU Online News Service, July 7, 11:22 a.m. EDT?Japanese non-life insurers remain under severe pressure despite improving performance in fiscal year 2002, New York City-based Standard & Poor's Ratings Services said.

S&P said the carriers face difficulties despite cutting operating expenses and the absence of losses caused by large-scale natural disasters in the last fiscal year.

A report, "Industry Report Card: Japan's Non-Life Insurers," finds overall profitability remains weakened by a deterioration in investment performance, mainly due to falling stock prices.

"A substantial improvement in the business and investment environment is not likely in the short term, and the outlook for the credit quality of the overall industry remains negative," said Runa Ichihari, S&P's analyst in Tokyo and the author of the report.

"Expense ratios have declined in general, as insurers continue to aggressively reduce costs and reorganize agent networks," she continued in her statement. "However, a drop in profitability from asset investment activities continues to threaten overall profitability."

Non-life insurers' capital bases, which had been regarded as relatively solid in the Japanese financial sector, have also shown signs of erosion, said S&P.

Although industry-wide consolidation has subsided, a new phase of price competition in auto insurance and other core businesses is likely, S&P continued.

"The crucial factor for stable profitability continues to be underwriting based on prudential risk management, in addition to cost reductions," Ms. Ichihari said.

The report is available on S&P's RatingsDirect, web site, at www.ratingsdirect.com.

Last month, Moody's issued a report on Japanese property-casualty insurers, giving them an "A" rating overall. Moody's cited the companies' "solid financial fundamentals and sound profitability" that is due to its concentration of business in automobile and property insurance. However, the rating service cautioned that Japanese companies did not have the resiliency of American and European companies should they suffer severe losses.

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S&P Says Japan Insurers Under Pressure

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