(Bloomberg) -- Paper losses on domestic bonds held by Japan’s four major life insurers have more than doubled from the fiscal year ended March as interest rates climbed, though the firms recouped some of the losses since June.
Valuation losses on the debt totaled ¥4.429 trillion ($29 billion) as of the end of September, from ¥2.051 trillion in March, data from the four insurers show. While the current total represents a partial recovery from ¥5.691 trillion in losses in June, the still-deep deficits remain a concern for insurers because they may worsen a gauge of the firms’ ability to pay liabilities.
Japanese government bond yields have jumped this year as the central bank pushed ahead with the first interest rate increase since 2007. That dragged down debt held by life insurers that were accustomed to years of economic stimulus in the form of official bond buying and negative interest rates.
“We’ve never experienced something like this before so our company as a whole is considering what interest rate levels will result in how much unrealized losses,” said Akira Tsuzuki, executive officer of Nippon Life Insurance Co.’s finance and investment planning department. But he said that bond prices are “not close” to falling to levels that would require impairment losses.
Life insurers tend to hold long-term bonds until maturity to match their liabilities, so much of their paper losses will likely have little effect on their earnings for now. The top 4 firms also have solvency margin ratios, a measure of insurers’ ability to pay claims when unexpected events occur, that are well above the 200% level that regulators see as minimally acceptable.
Still, yields on 30-year sovereign bonds, one of the notes popular with insurers, have jumped about 65 basis points this year to around 2.29%, Bloomberg-compiled data show. With swaps markets pointing to a better-than-even chance of the Bank of Japan lifting rates next month, investors are adjusting their portfolios. Japanese insurers are moving to have higher yielding debt in their portfolios, said Mitsuo Masuda, general manager of the investment planning department at Sumitomo Life Insurance Co.
--With assistance from Umesh Desai.
(Adds Nippon Life executive quote. An earlier version of this story corrected Sumitomo Life and total figures.)
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