The bond floating losses have skyrocketed by eight times, and this Japanese life insurance giant is in trouble!

Source: Wall Street News

Rising interest rates have caused Japanese insurance companies to suffer huge losses on the books, and bonds have become "hot potatoes".

On Monday, May 26, Meiji Yasuda Life Insurance Company announced that in the last fiscal year ending March this year, the book losses (unrealized losses) of their Japanese domestic bonds soared more than 8 times, from 161.4 billion yen to about 1.386 trillion yen (about 9.7 billion US dollars).

Not only Meiji Yasuda, Japan's largest life insurance company, Nippon Life, issued a similar warning last Friday, that the company's Japanese bonds held in the last fiscal year experienced a book loss of 3.6 trillion yen, a surge of triple year-on-year.

The difficulties these insurance giants are not alone. The market plunge caused by Trump's policy has caused life insurance companies across Asia to face billions of dollars in book losses. Faced with increasing inflation, the Bank of Japan reduced its holdings of long-term bonds, resulting in the sale of Japanese long-term bonds.

Japan's ultra-long-term bond prices plummeted last week as the Bank of Japan shrank its scale of large-scale bond purchases and life insurance companies remained reluctant to buy bonds in a volatile market, causing Japan's ultra-long-term bond prices to plummet last week, with both 30- and 40-year Treasury yields climbing to their highest ever levels, despite a decline on Monday.

This poses a challenge for Japanese insurance companies, as these institutions are often the main buyers of ultra-long-term bonds, and they have to match policy payments in decades, so 30- and 40-year Japanese bonds are the best.

What’s even more difficult is that as interest rates rise, insurance companies have to be forced to sell their debts.

On the one hand, if interest rates keep rising, ordinary people will think that insurance policies are not cost-effective and turn funds to financial assets with higher returns. Insurance companies will be forced to use cash to repay customers and can only sell their bonds.

On the other hand, the yields of newly issued bonds in the market are now high, and insurance giants may actively sell low-yield bonds in order to free up funds to buy new bonds with higher returns.

But this could further intensify bond sell-offs in the market, if interest rates continue to rise, leading to more bond depreciation and greater book losses.

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