Japanese insurers predicting growth through reinsurance and mergers and acquisitions

Japanese insurance companies are looking to expand their reach internationally through acquisitions as a result of the stagnant domestic market caused by a shrinking and aging population, a recent report by AM Best revealed.

In 2021, there was a noticeable increase in premium income due to the rise in sales of single-premium savings-type products. However, traditional life insurance products are facing a decline in demand. While new business sales are projected to stay strong, in-force premiums are expected to exhibit slow growth. The sales of savings-type products are influenced by factors like interest rates, both locally and globally, as well as fluctuations in exchange rates. These products tend to have narrow profit margins, limiting the overall growth of Japan’s life insurers. Nonetheless, there has been a significant increase in after-tax profitability in 2024 and a continued rise over the past five years, with a slight dip in 2023.

Moreover, the Japanese insurance sector is characterized by high consolidation, particularly in the non-life segment, and with modest GDP growth, organic growth opportunities are scarce. In light of this, insurers are aiming to diversify their revenue streams by tapping into the growth potential of international markets, including the US, Australia, and other developed economies.

Notably, major non-life insurers are expected to have surplus capital in the near future by divesting their strategic equity holdings quickly after receiving business improvement orders from Japan’s Financial Services Agency. The three key non-life insurance groups – Tokio Marine, MS&AD, and Sompo – have outlined plans to eliminate their strategic equity holdings completely within the next five to six years, resulting in substantial disposal income for these groups, as highlighted by AM Best.

The move towards international expansion and acquisitions is driven by the need to secure long-term growth opportunities as the domestic market reaches a saturation point. With limited growth prospects at home, Japanese insurance companies are increasingly focusing on diversifying their portfolios and revenue streams by venturing into overseas markets where there is more significant potential for expansion and profitability. By leveraging their expertise and financial strength gained from operating in a mature market like Japan, insurers are well-positioned to capitalize on growth opportunities in foreign markets where there is room for development and innovation.

In conclusion, the expansion of Japanese insurance companies overseas is a strategic response to the challenges posed by a mature domestic market and demographic shifts. By seeking growth opportunities in international markets and diversifying their revenue streams, insurers are positioning themselves for long-term success and sustainable growth in the global insurance industry.