Revenues from premiums received by Japan's 25 life insurance companies increased by 6.3 percent in the fiscal year ending in March, but income growth was lower than had been anticipated.
Officials of the Life Insurance Association of Japan disclosed that insurance premiums, the equivalent of sales of general corporations, totaled $190.7 billion. They complained, however, that the gains amounted to the slowest rate of yearly expansion since 1945.The officials blamed the low increase in revenues in fiscal year 1989 mainly on sluggish sales of single-premium endowment policies that evidently lost their appeal as high-yielding insurance products. But they did not reveal the value of such policies sold during the 12-month term.
Overall life insurance policies sold during the year increased in value by 28.4 percent at nearly $3.6 trillion, accounting for 54.7 percent of total individual insurance policies contracted in the same time frame.
Association executives noted that it was the first time for the proportion of life insurance policies in overall individual policies signed by these same companies to top the 50 percent level.
It was pointed out that sale of variable life insurance policies, investment-oriented life insurance policies whose returns are linked with an underlying portfolio of securities, posted a whopping 38.8 percent jump. The total value amounted to slightly under $71 billion.
Considering life insurance company investments during the fiscal 1989, association officials said total returns on assets held by these corporations climbed by 30.6 percent to just over $70 billion despite drastic declines in stock prices later in the year.
Industry proceeds paid out on single-premium endowment policies grew rapidly, representing 53.5 percent of total insurance proceeds paid during the term and for the first time exceeding death benefits on life insurance policies.
Meanwhile, the companies, faced with the dollar's downswing in value against the yen, are giving serious consideration to more actively hedging their foreign currency portfolios in order to minimize exchange risks involving their massive dollar holdings.
The insurers are expected to increase the ratio of hedging to their overall dollar-denominated assets to 14 percent to 15 percent from the present rate of about 10 percent or so. This is thought likely to place further pressures on the U.S. dollar that already is suffering from the narrowing interest rate gap between the two countries.
Hedging is a currency investment technique used to minimize risks of inventory losses due to price fluctuations by taking equal and opposite positions in holdings. The ratio of hedging to dollar assets of Japan's life insurers, which was 30 percent to 40 percent at its peak, once fell as low as 5 percent to 6 percent during previous times when the dollar sharply appreciated against the yen.
The industry also is beginning to reduce its acquisition of new holdings abroad in consideration of this problem. Japan's eight largest life insurance companies, for example, continued buying up overseas real estate during fiscal year 1989, but the balance of such overseas investments grew at roughly half the rate of the previous year.
The overseas real estate investment balance of these eight big insurers stood at nearly $9.3 billion at the end of the fiscal term, up by 34.3 percent from the year earlier. Yet this rate was only about half the 64 percent figure registered in fiscal 1988.
Still, property investments abroad by these eight corporations remained relatively high in fiscal 1989, totaling almost $2.4 billion. This was off moderately from the almost $2.7 billion recorded the previous term.