Moody’s: P&C insurance outlook stable

Moody's Japan K.K. says its outlook for the Japanese property and casualty (P&C) insurance industry is stable, because of improved underwriting profitability mainly due to ongoing auto insurance re-pricing; expected improvement in cost efficiency through group reorganisation and improving capitalisation and risk reduction efforts.

"This re-pricing reflects the lingering effects of the modified industry-wide grading system applied since October 2013, and price hikes by individual insurers in the voluntary auto segment," said analyst Eiji Kubo. This improved profitability in the industry's core underwriting risk business will lower the incentives for P&C companies to take higher risks to generate investment profits.

In addition, the accelerated reorganisation of two of the three main insurance groups with high cost structures — Sompo Japan Nipponkoa Holdings, Inc. (Sompo Group, unrated) and MS&AD Insurance Group Holdings, Inc. (MS&AD Group, unrated) — will improve the industry's cost efficiency, affirms the rating agency.

A strong equity market also incentivizes P&C insurers to sell shares to reduce balance sheet risk exposure, says Moody's.

Risk management will continue to be a focus for P&C insurers, especially with regard to catastrophe (CAT) risk.