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Positive Japanese P&C outlook affirmed by Moody’s

Japanese P&C (re)insurers received a positive outlook from ratings agency Moody’s when in its latest report it said there was a low to moderate possibility of a ratings action in the next 12-18 months on the sector.

In “Japanese Property and Casualty Insurance Industry Outlook”, Moody’s noted that despite a number of challenges in the near-term, competition for the Japanese P&C industry remained restrained compared to other markets. This factor, coupled with strong capitalisation and improved balance sheets would continue to support current ratings in the medium term, it added.

Nonetheless, the ratings agency also pointed to longer term threats to the Japanese P&C sector, including difficulties associated with maintaining a presence in traditional business areas and the difficulties of creating sustainable expansion in new business areas with adequate growth potential.

According to Moody’s, there is still high concentration in the Japanese P&C insurance market – with the top five companies holding around 80 percent of premium income. The ratings agency observed that this concentration acts as a barrier to entry and restrains excessive competition, adding that it expected the interest rate environment will continue to be benign, and therefore price competition likely to remain moderate as the companies continue to rely on underwriting to post reasonable profits.

Despite high catastrophe payments in 2004-05, this was offset by increased stability in the investment market and companies releasing their catastrophe reserves, concluded Moody’s.

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