Japanese Insurance: Hard Market Benefits P&C Insurers’ Returns, but Share Prices Look Fair

We lift our forecasts for Japanese insurance companies. Our fair value estimates rise by 19% for Tokio Marine to JPY 2,850, by 9% for MS&AD Insurance to JPY 4,700, by 9% for Sompo Holdings to JPY 6,100, and by 4% for Dai-Ichi Life to JPY 2,700. The changes mainly reflect increases in our assumptions for investment returns, as higher interest rates, the weaker yen, and favorable Japanese equity markets more than offset increased hedging costs. As a secondary factor, the changes also reflect increases in our assumptions for Tokio Marine’s and Sompo’s overseas underwriting returns. Exposure to U.S. commercial real estate, or CRE, is a concern for both Tokio Marine and Dai-Ichi Life, but our forecasts do not assume CRE-related losses would be large enough to derail the overall earnings growth trajectory.