JGB Hidden Losses at Life Insurers Hit 30 Trillion Yen

2026-08-17

Unrealized losses on domestic bonds widen

In a survey by Nikkei of holdings as of end-June covering 14 major life insurers, unrealized losses on domestic bonds at the 13 companies that responded totaled 30.869 trillion yen, up 60% from a year earlier. Unrealized gains on domestic stocks came to 30.0318 trillion yen, up 48%.

Higher rates trigger impairments

The backdrop is the rise in government bond yields. The yield on 30-year government bonds, a key investment for life insurers, stood in the 3.9% range at end-June 2026, about 2.7 percentage points above end-June 2023, before unrealized losses began to widen. Yields have continued to trend higher since July, driven by expectations of additional rate hikes by the Bank of Japan and concerns over government fiscal expansion.

Life insurers hold super-long government bonds to prepare for future policy payouts. If they hold them to maturity, unrealized losses will disappear, but if a bond's market value falls more than 50% below its acquisition cost, it must be impaired. In the April-June 2026 quarter, Nippon Life Insurance booked about 44 billion yen in impairment losses and Meiji Yasuda Life Insurance booked 25.3 billion yen. Some securities bought in the late 2010s, when rates were low, have now reached the impairment threshold as rates rise.

More surrenders and stronger investment income

There is also a risk they may be forced to sell before maturity. Life insurers strictly manage assets and liabilities together through asset-liability management, or ALM, and if the duration of assets matches that of liabilities, the impact is limited because the market value of both falls when rates rise. However, if asset duration is longer than liability duration, net assets shrink, which can hurt financial soundness. If bonds are sold to shorten asset duration, unrealized losses become realized losses.

The biggest concern is a surge in policy surrenders. If customers shift to higher-yielding insurance products or investment trusts amid rising rates and higher stock prices, insurers will need to sell assets to pay surrender benefits. In the April-June 2026 quarter, surrender rates rose at some firms. Sony Life Insurance's surrender and lapse rate was 1.4%, up 0.2 percentage point from a year earlier. T&D Financial Life Insurance, which is strong in bank sales channels, also worsened to 1.56%, down 0.88 percentage point. Yoshihiko Hayakawa, chief financial officer of Sony Financial Group, said closer monitoring of surrender trends is needed more than ever.

On the other hand, earnings in the April-June 2026 quarter were generally solid. Core profit on a standalone basis at the 14 major insurers totaled 951.8 billion yen, up 37% from a year earlier. Twelve of the 14 posted higher profit. Rising rates boosted interest income on bond holdings, while dividend income from stocks also increased.

To lift investment income further, each company is switching into higher-yielding bonds. Major life insurers with large equity holdings can more easily offset losses on sales of low-yield bonds with gains on stock sales, but many mid-tier and smaller insurers hold little or no stock. Differences in investment skill could widen the earnings gap going forward.

Enjoyed this article? Share it with your network!