Japanese Life Insurers in Low Interest Rate Environment

[marindependent]

This is a fascinating read for those interested. I am not necessarily attempting to draw parallels with today's environment - mostly offer some historical and financial perspective for those interested.

The article titled Why Japanese Life Insurers Are Still Surviving In a Zero Interest Rate Since 1995 was written by Kenichi Nogami and published in 2016.

Some interesting highlights of the article:

• in the late 1990s "eight companies in total were bankrupted, and three companies stopped selling new business....there are only around 40 companies in the Japan market" (at that time.)
• "1995 there were 16 mutual companies...In 2015, only five mutual companies remain."
• "mutual companies reduced policyholders’ dividend and most of them gave no policyholders’ dividend economically." (Not entirely certain what that means.)

The summation is perhaps one of the most interesting parts: "Based on what I described so far, one might conclude that Japan is not an attractive market for life insurers. It is true that a zero/ negative interest rate is not an easy economical condition. But it is also true that in 2015 there were 42 companies in the Japan life insurance market—including 25 new entries—compared to 30 companies in 1995. What is the reason behind that? Interest rate is not the factor, because it is almost zero in Japan. The main reason is that consumers are buying long duration life insurance to protect them from longevity risk and after retirement risk. Japan has the world’s longest life expectancy...They have grown accustomed to the zero interest rate, and therefore accept low return of saving/investment products."

Thoughts?

 

[tikibarrister]

Are Japanese life insurers required to only invest in Japanese securities or can they buy US treasuries, etc.?