Japan’s non-life insurance industry is expected to maintain a stable outlook, according to a new report from global credit rating agency AM Best. The stability is being supported by stronger profits in the fire insurance segment and tighter regulatory oversight.
In its latest report, “Market Segment Outlook: Japan Non-Life Insurance”, AM Best points to recent regulatory efforts by Japan’s Financial Services Agency (FSA). Over the past 18 months, the FSA has introduced stricter rules aimed at improving governance across the industry. These include closer monitoring of insurance agency networks and stricter action against insurers offering improper incentives to distributors.
While these changes could increase compliance costs in the short term, AM Best believes they will help the industry by improving transparency, encouraging fairer competition, and eventually reducing the cost of acquiring policies.
The industry is also preparing for the Insurance Capital Standard (ICS), which will come into effect in fiscal year 2025. The new rule requires insurers to value their assets and liabilities based on market rates. Though ICS will impact life insurers more heavily, most non-life insurers in Japan are already strengthening risk management systems in preparation.
Chanyoung Lee, Director of Analytics at AM Best, said the reforms will bring Japanese insurers closer in line with global standards, helping them handle economic uncertainties and compete more effectively on the international stage.
The report also highlights progress in the fire insurance segment, particularly in the homeowners market. Insurers have adjusted pricing to better reflect increasing natural disaster risks, which is helping to reduce long-term underwriting losses and improve overall pricing accuracy.
In addition, changes in Japan’s interest rate environment are expected to benefit insurers with large bond portfolios. As the economy shifts away from long-term deflation, improved investment income could further support the sector’s performance in the coming year.
However, the automobile insurance segment continues to face challenges. Rising repair costs—driven by more expensive spare parts and higher labor charges—are putting pressure on profits. This has led to an increase in loss ratios for many major insurers.
Charles Chiang, Senior Financial Analyst at AM Best, noted that this trend has persisted in recent quarters and remains a key issue for the industry.
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