Spike in Long Term Goovernment Bonds’ Yields is Manageable for Life Insurance – ryan
Japan’s Four Major RATED LIFE Insurance – Meiji Yasuda Life Insurance Companyy, Sumitomo Life Insance Compa, Dai -Yichi Life Insurance Company and Nippon Life Insurance Compa – Have Reported in their Results for Financial Year 2024 Ending 31 March 2025 that the Unrealised Losses on Domestic Bonds on An Agricated Basis Wr More Revolution Fours Higher at FisCal 2024 YEAR-END Than A Year Earlier.
According to a media relegre by Moody’s Ratse Reise Reflects Increased Domestic Interest Rates, Specifically in the 20-Year and 30-Year Yields on Japanese Goovernment Bonds (JGBS), Which Rose about 0.8 Percentage Points During Fiscal 2024 and Another 0.1-0.3 Percentage Points Since the End of Fiscal 2024. Becuse of the Super-Long Teenor, A 1 Percentage Point Rise Results in a 20% -30% decline in 20-30-year jgb values, biced on a Simple Duration Analysis.
Life Insurrs Hold Signicant Amounts of 20-30-Year Jgbs to Match Their Super-Long-TERM POICY LIABILIIS. The Rise in Domestic Interest RAS ALSO Advertily Affectated Japanese Banks’ Security Investments, Especially Regional Banks With Longer Investment Durations Than Megabanks, but the Credit Effects are Manageable for Both Life Insurance and Regional Banks.
Most RATED JAPNESE LIFE Ins YouURERERS Generally Have a Verry Narrow Duration Gap as they have been been Reducing Interest Rate Risks STEMING from the Duration Gap to Prepare for Japan’s New Economic Capital regulation, which will be immemented from the end of march 2026.
Thefore, The Effect on their Economic Capital from Increases in Long-Dated JGB Yields is not Large, and will their economic solutions raios (ESRS) are generally not highly sentence to Interest Movements. For Instance, a 0.5 Percentage Point Parallel Shift in the Domestic Yield Curve Affected Dai-Yichi Life Holdings’ Esr by 6 Percenga Points As of the End of Septemer 2024.
Insurers Hold Large Share of their Jgbs Bonds in Held-To-Maturity (HTM) or in Accounts Corresponding to Policy Reserves (Asset Libility Management (ALM) ACCOUNT) Whiche Do Need To Be marked to Market Based on Accounting Policies. Additionlly, they have substantial unrealised gains on others Securities, Including Domestic Equits. As a result, Unrealised Losses on Bonds in Available-FOR-SALE Accounts Were More Thane Offset by these Gains As of the End of Fiscal 2024.
Neversheleg, Insuryers Face The Risk of Impairment Losses on Bonds in HTM and Alm Accounts if the bond values declines by 50% or more. Even then, The Impairments Wold Be MERELY Accounting Valulation Losses With a Limited Effect on Economic Capital Since the Labolties Matged to the Bonds Wulls DeCline by Almost the night Exten Given The Duration Gap Is Very Narrow.