Japanese Insurer Sompo to Ramp Up Overseas Credit Investments

Core Viewpoint - Sompo Holdings Inc. is shifting its investment strategy towards higher-yielding overseas credit to enhance profits as traditional business struggles in Japan's mature insurance market [1][5]. Group 1: Investment Strategy - The company is reallocating investment managers from its Japan insurance subsidiary to the US to optimize costs and leverage the same asset managers for private credit and junk bond deals [2]. - Sompo aims to invest broadly in credit assets that offer high profitability and diverse risk-return characteristics, emphasizing the growing importance of asset management for profit generation [3]. Group 2: Market Performance - In the fiscal year ending March 2025, Sompo's total operating revenue increased by 4.7%, driven by an 8.6% rise in overseas revenue, while domestic revenue growth was limited to 1.9% [6]. - The domestic insurance market has seen stagnant growth due to an aging population affecting demand for auto and home insurance products, prompting insurers to seek expansion in international markets [5]. Group 3: Industry Context - The Japanese non-life insurance sector is under pressure from rising natural disasters and repair costs, which threaten the auto insurance business amid significant inflation [9]. - Sompo managed ¥13.4 trillion ($85 billion) in assets as of September last year, the smallest among Japan's top three property and casualty insurers, indicating a potential shift towards riskier but higher-yielding overseas credit will be closely monitored by investors [10]. Group 4: Market Dynamics - The global private credit market has reached $1.7 trillion, with lending spreads narrowing due to increased competition; however, Sompo finds the debt attractive due to wider spreads compared to other credit products and a floating-rate structure that mitigates risks from rising interest rates [11].