Life insurers may hike premiums next April as interest rates drop

Kyodo

Life insurers will consider raising premiums for new contracts next April amid declining interest rates and tougher business conditions, sources said.

Insurers will be required to increase policy reserves, which could hit profitability, when the base interest rate set by the government is lowered. The rate, which insurers use as a yardstick for determining investment yields to policyholders, is expected to drop to 1.0 percent in October from 1.5 percent now.

The premium hike is expected to be larger for such contracts as endowment policies, whole life insurance and annuity products.

When the government last cut the base interest rate in 2001, the premiums for some life insurance products were raised by over 10 percent.

The Financial Services Agency sets the base rate based on financial market conditions such as the average yield on newly issued 10-year Japanese government bonds over the past three years.