December 16th, 2008

Financial Catastrophe Hits Japan, Net Income off 67 Percent

Posted at 1:00 AM ET

Mark Shumway, Vice President
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A sagging economy has pushed non-life insurer earnings lower in Japan. After-tax net income for the seven largest companies dropped 67.1 percent for the first half of fiscal year 2008 (April 1, 2008 to September 30, 2008) relative to the same period in 2007-after adjustments for contingency reserve movements.

Rate reductions and a slowing economy has precipitated a JPY100 billion (USD1.1 billion) reduction in net written premium, though net earned premium did grow lightly. Underwriting income fell 63.6 percent on an earned-incurred basis as a result of slightly higher losses in core lines of business and administrative expense growth. For the first half of FY2008, the combined ratio for these seven carriers was 99 percent, compared to 97.3 percent for the first half of FY2007.

Market conditions have had a particularly profound impact on investment income and realized gains in the Japanese market. Investment gains were off 50.7 percent year-over-year. Further, unrealized capital losses on domestic and foreign securities (including U.S. structured fixed income investments) pushed adjusted capital and surplus 12.3 percent lower for the first half of FY2008-and down 26.4 percent from the beginning of FY2007.

Despite these major changes in financial markets, asset allocation did not change substantially in the aggregate. Declines in nearly every other asset category offset partially the JPY1.3 trillion (USD13.5 billion) decline in the carrying value of domestic shares, which dropped 3 percent to 24 percent of cash and invested assets. Fixed income investments increased from 34 percent to 39 percent.

Additional contributors:

  • Christopher Klein, Global Head of Business Intelligence
  • David Flandro, Senior Vice President

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