Meiji Yasuda's Paper Bond Losses Jump Eightfold as Rates Climb

Yahoo

26-05-2025

(Bloomberg) -- Four of Japan's biggest life insurers reported about $60 billion of combined unrealized losses on their domestic bond holdings for the latest fiscal year, underscoring the risks they face as interest rates climb. For now, they aren't overly concerned.
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Meiji Yasuda Life Insurance Co. said on Monday that paper losses on its domestic bond holdings increased more than eightfold to about ¥1.386 trillion ($9.7 billion) at the end of March compared with ¥161.4 billion a year earlier. Sumitomo Life Insurance Co. said unrealized bond losses more than tripled to ¥1.518 trillion.
Combined with equivalent figures announced earlier from Dai-ichi Life Holdings Inc. and Nippon Life Insurance Co., the biggest firm in the Japanese sector, the paper losses come to about ¥8.5 trillion. That's around four times the total a year earlier.
Meiji Yasuda's unrealized bond losses are neutral to its credit quality, according to Toshihiro Matsuo, a director at S&P Global Ratings. 'It holds ample unrealized gains on listed equity, which will be able to absorb realizing bond losses if necessary,' he said.
Unrealized bond losses don't necessarily lead to actual selloffs because insurers tend to hold notes until they mature. Under a new rule, higher interest rates push down the value of both assets and liabilities and don't affect a regulatory gauge of fiscal soundness.
Life insurers tend to be big investors in super-long debt because they need assets to match their liabilities from insurance policies spanning decades. An especially steep selloff in Japan's longest bonds pummeled the companies, as investors grew concerned about falling demand for the debt at a time when the central bank is scaling back huge bond purchases.
Across Asia, life insurers are facing billions of dollars in paper losses from the market rout sparked by reactions to Donald Trump's policies. But Japanese insurers also face risks from a central bank that's looking for opportunities to raise interest rates further. Negative factors like those fueled a tumble in 30-year and 40-year Japanese government bonds that last week saw yields rise to the highest since they were first sold, though they've pulled back on Monday.
There's still 'some distance' until unrealized losses increase so much that writedowns on the value of bonds are needed, Kenichiro Kitamura, operating officer and general manager at Meiji Yasuda's investment planning and research department, said at a news conference. He doesn't expect the surge in super-long Japanese yields to continue.
Sumitomo Life's managing executive officer Nobuji Takao also said the chance of super-long bond yields rising further isn't high considering how much they've gone up already. While the firm's unrealized bond losses have increased, it buys bonds on the assumption they will be held to maturity, so 'we're not that concerned about it,' he said in a news conference.
Last week, Nippon Life's executive officer Akira Tsuzuki said: 'Just because unrealized losses are growing, that doesn't mean something terrible will happen all of a sudden.'
Still, if bonds resume falling, insurers may need to unload some of their holdings even if the declines haven't reached levels where writedowns need to be considered.
The insurers may need to sell bonds, for example, if rising interest rates prompt investors to cancel insurance policies to put their cash in assets with better returns. And the companies might also sell lower-yielding debt to park their funds in bonds with higher coupons.
--With assistance from Joyce Koh.
(Updates with analyst's comments in fourth paragraph.)
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