Japanese life insurance companies are experiencing a significant increase in policy surrenders, driven by rising interest rates and the introduction of the New NISA (Nippon Individual Savings Account) program in 2024. This program has shifted household funds from traditional savings products like insurance towards investment trusts, creating a sense of crisis among insurers. From January to May, the total amount of "surrender benefits" paid to policyholders reached ¥6.02 trillion (approximately $38.2 billion), marking a 39.1% increase year-on-year and the highest level since 2020.
In response to these outflows, major life insurers are accelerating hikes in their assumed interest rates, which are the investment yields promised to policyholders. Meiji Yasuda Life Insurance, for instance, plans to raise the assumed interest rate on its level-premium savings insurance by 0.2 percentage points to 1.6% in August. Sumitomo Life Insurance Company set an industry high of 2.25% for its single-premium whole life insurance in July, a move quickly followed by Meiji Yasuda and Nippon Life Insurance. These actions aim to make insurance products more competitive by effectively lowering premiums.
The rising long-term interest rates, while beneficial for increasing guaranteed yields on new policies and offering larger death benefits, also present a double-edged sword for financial institutions. The market value of bond holdings, such as Japanese government bonds, declines as market interest rates rise, leading to expanded "unrealized losses." As of the end of fiscal year 2025, regional banks had approximately ¥5 trillion (approximately $31.7 billion) in unrealized losses on yen-denominated bonds, and shinkin banks and credit cooperatives had about ¥4 trillion (approximately $25.4 billion), both up roughly ¥1 trillion from the previous fiscal year. This risk materialized with Wakkanai Shinkin Bank requiring a ¥20 billion (approximately $126.9 million) capital injection due to massive valuation losses on its bond holdings.
