Barclays_Japan_Flow_Update_FY23_life_surer_results_

Summary of Japan Flow Update - FY23 Life Insurer Results Industry Overview - The report focuses on the life insurance industry in Japan, specifically analyzing the results of 11 major life insurers for FY23. Key Points and Arguments Investment Strategies - Life insurers reduced risk in H2 FY23 by decreasing holdings in Japanese Government Bonds (JGBs) and foreign bonds, while also shortening the duration of their investments [1][2] - There was a net selling trend in superlong bond investments, with average duration slightly shortened [2][10] - Demand for FX-hedged and unhedged foreign bonds is expected to remain weak due to high hedging costs and a historically weak Japanese Yen (JPY) [2][24] Performance of Securities - Securities in general accounts showed a slight downturn, particularly in domestic and overseas bonds, with unrealized losses in domestic bonds continuing [1][8] - Unrealized profits in domestic equities reached a four-year high, while unrealized profits in foreign bonds improved for the first time in four quarters [1][8] Foreign Bond Investment - Life insurers reduced foreign bond investments while maintaining a broadly unchanged duration [19] - FX hedging ratios decreased from 45% at the end of September 2023 to 42% at the end of March 2024, marking the lowest level since March 2008 [24] Emerging Market (EM) Investments - EM currency assets increased to JPY 1.9 trillion at the end of FY23, driven by an increase in Singapore Dollar (SGD) assets, although this was limited to a single company [3][38] - Life insurers are likely to refrain from aggressive investments in EM assets as long as US yields remain elevated [40] Interest Rate Risk Management - Hedging of interest rate risk in response to new regulations is largely complete, with investments required to neutralize interest rate sensitivity decreasing significantly [33] - Life insurers have been net buyers of superlong bonds in preparation for new regulations set to launch in April 2025 [33] Market Outlook - Superlong bonds are considered relatively attractive and may see dip-buying if interest rate volatility cools [15] - The average assumed investment yield for life insurers is around 1.8%, with many targeting 2% in their FY24 investment plans [15] Currency and Hedging Trends - The utilization of JPY interest rate derivatives indicates a greater concern about rising yields among life insurers [17] - FX hedging ratios for USD and AUD fell, while rising for EUR, reflecting a shift in hedging strategies [24][25] Additional Important Insights - Life insurers have sold off MXN and PLN assets and reduced exposure to CNY, indicating a cautious approach towards certain EM currencies [39] - The overall investment stance of Japanese life insurers is shifting towards a higher concentration in USD-denominated assets [40] This comprehensive analysis highlights the cautious investment strategies of Japanese life insurers in response to market conditions, regulatory changes, and currency fluctuations, indicating a significant shift in their asset allocation and risk management approaches.