Japan’s life insurance industry is experiencing a resurgence as the economy emerges from its prolonged stagnation, commonly referred to as the “lost decades,” according to a recent report by Swiss Re.After years of ultra-low interest rates, the Bank of Japan’s recent rate hike—though modest—marks a symbolic turning point. It is the first increase in 17 years and signals a shift toward more favorable conditions for life insurers.Japanese insurers are now benefiting from rising interest rates, which help narrow the gap between investment returns and policy guarantees. This supports improved profitability and renewed growth in life savings and annuity products.
China Faces Growing Pressure from Negative Spread
In contrast, China’s life insurance sector is grappling with a worsening “negative spread” problem. Since 2020, investment yields have fallen by over 300 basis points, dropping to 2.16% in Q1 2024.This decline has severely impacted profitability. Swiss Re estimates that net profits in China’s life sector fell by nearly 20% year-on-year in 2023, primarily due to lower investment returns.Unlike their Japanese counterparts, Chinese insurers have limited access to foreign investments, restricting their ability to boost yields through international diversification.
Challenges and Strategic Shifts for China
John Zhu, Chief Economist Asia Pacific, and Yaxin Chen, Economist at Swiss Re Institute, noted that Chinese insurers must adapt by
- Shifting focus toward protection products such as life, medical, and critical illness insurance
- Improving underwriting and risk management in mortality and morbidity lines
- Leveraging demographic trends and low insurance penetration to drive new premium growth
Zhu emphasized
A more applicable lesson for China would be that Japan’s insurers also shifted their product mix towards protection-type policies, such as traditional life insurance and medical or long-term care insurance, to better meet the needs of an ageing populationHe addedSome of China’s challenges are even more urgent: its population is already shrinking, while Japan’s only started to decline in 2009, when it was already rich in per capita terms
Reforms and Future Outlook
Both countries are pursuing structural reforms. Japan’s focus on corporate governance has contributed to strong stock market performance, including gains in the Nikkei 225. For China, continued financial reforms could enhance productivity and improve capital allocation in the insurance sector.Despite current headwinds, China’s relatively low life insurance penetration—compared to Japan in the 1980s—offers significant long-term growth potential.
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