Japan's life insurers set to buy JGBs in Oct-March, weigh risk returns

Japan Post Insurance

30/10/2024 09:24

By Tomo Uetake
       TOKYO, Oct 30 (Reuters) - Japan's major life insurers
are expected to continue purchasing Japanese government bonds
(JGBs) into the second half of the fiscal year, but the pace and
extent of these purchases will vary as firms strive to balance
risk and return.
    Life insurance companies, some of the country's largest
institutional investors, have long relied on superlong JGBs as
the backbone of their asset management. The strategy appears
unlikely to change in the six months through March.
    Nippon Life Insurance  NPNLI.UL  and Dai-ichi Life Insurance
were among a majority of life insurers planning to increase or
continue to buy JGBs at a steady pace, although demand was
somewhat more prominent among mid-tier firms.
    This trend follows an uptick in JGB yields, which have
become increasingly attractive to life insurers as the Bank of
Japan (BOJ) has begun normalising its ultra-easy monetary policy
this year.
    The firms unveiled their investment strategy updates for the
fiscal year ending in March 2025 in interviews and news
conferences over the past two weeks.
    The yield on the 30-year government bond  JP30YTN=JBTC , a
mainstay of many life insurers' investment strategies, was at
2.2% at the time the companies spoke to Reuters, above major
life insurers' average liability cost level of 1.8%.
    Nippon Life, the country's largest private insurer, has said
it will focus on the superlong government bonds while selling
off lower-yielding bonds.
    But companies indicated that they will buy more aggressively
when yields rise further, anticipating the appeal of super-long
government bonds to increase.
    Dai-ichi Life, the second-largest private insurer and part
of Dai-ichi Life Holdings  8750.T , has set "a rise to 2.5% in
30-year yields" as a guideline for accelerating purchases of the
bond, a view that was in line with other life insurers.
    However, the prospect of yields reaching this level within
the remainder of the fiscal year was seen as uncertain. Nippon
Life and Meiji Yasuda Life  MEIJY.UL  set 2.5% as the upper
limit in forecasts, while some others expected a high of only
2.4%.
    The BOJ is expected to hold short-term interest rates steady
on Thursday, but market players expect another hike could occur
at the end of the year or early 2025.    
    Despite Nippon Life joining mid-tier insurers indicating
more appetite to buy JGBs in the second half of the fiscal year,
Dai-ichi and other large firms were still a bit reluctant given
they have already bought enough bonds to comply with new capital
regulations coming into effect in April.
    Meiji Yasuda Life was among companies planning to consider
diversifying to include other assets as they evaluate return
versus risk. 
    "We will not blindly buy JGBs to meet the new regulations as
we have done in the past few years," said Kenichiro Kitamura,
head of investment planning department at Meiji Yasuda Life.
    "For us, yen bonds are just one portion of global bonds. We
don't rely on JGBs only and will diversify our investments while
maintaining balance."
       

 (Reporting by Tomo Uetake; Writing by Brigid Riley; Editing by
Jacqueline Wong)
 ((brigid.riley@thomsonreuters.com;))