HONG KONG: AM Best is maintaining a stable market segment outlook on Japan’s non-life insurance segment, as domestic insurers record profitable underwriting performance despite significant catastrophe losses. However, according to a new AM Best report, the recent consumption tax hike and ongoing global trade tensions could create pressure on the insurance companies operating in the country. A new Best’s Market Segment Report, titled, “Market Segment Outlook: Japan Non-Life Insurance,” states that AM Best expects that more taxes will be imposed on various underwriting and operating expenses for most of the domestic insurance companies. These taxes could lead to a rise in combined ratios and a decline in underwriting profit for the market. Underwriting results generally deteriorated in fiscal-year 2018-2019 due to catastrophe events, but insurers still achieved profitability. Along with the underwriting resilience, the stable outlook factors in insurers’ premium rate adjustments that are likely to mitigate the negative impact of the consumption tax hike. Solid risk-adjusted capital positions, which weather financial market volatility, also are a key factor supporting the stable outlook. Japan ranks as one of the world’s largest export economies, with an export value of over USD 700 billion. While its economy has continued to perform well, ongoing trade tensions between or with some of its major trading partners may threaten demand. This could lead to a decline in exports or logistics transactions, which could aggravate already soft demand for cargo and shipping insurance. The ongoing China-United States trade war has been a significant source of volatility for global financial markets. A preliminary trade deal has yet to be signed, but represents a first step on the road to reconciliation. One major concern for domestic non-life insurers has been their investment allocations, a high percentage of which are composed of high-risk assets, such as local stocks and foreign securities. The solvency margin, which represents the level of real net assets available for regulatory solvency purposes, amounted to JPY 13.4 trillion (approximately USD 124 billion). In addition, total solvency margin in excess of the regulatory minimum requirement of 200% amounted to JPY 10 trillion (approximately USD 92 billion), which suggests that there is a significant amount of excess capital available to cushion against market volatility. Overall, most companies are actively seeking to mitigate any potentially negative impacts from these headwinds, primarily through premium rate adjustments, cost-cutting initiatives and investments in technology to improve operational efficiency and profitability.