OREANDA-NEWS. Fitch Ratings expects Japanese life insurers to further increase their investment allocation to high-grade foreign bonds with stricter currency hedging, as Japanese bond yields have fallen to extremely low levels after the Bank of Japan adopted negative interest rates in January 2016, the agency says in a new report.

Fitch expects Japanese life insurers to maintain positive investment spreads, but further expansion of positive spread may stop due to stalling Japanese-yen based investment income growth.

The agency also expects insurance underwriting profits to remain flat over the next few years. Some major Japanese life insurers have acquired US-based medium-sized life insurers to generate growth and diversify risks. Such overseas operations are becoming important drivers of growth.

The capital adequacy of Japanese life insurers is likely to remain sufficient for their credit ratings, as long as the yen's appreciation and domestic equity-market decline do not become more serious.