TOKYO -- Japan's insurers could raise premiums on annuities, educational endowment plans and other policies by 10-20% as soon as April 2017 to combat pressure on investment returns from the Bank of Japan's negative interest rates.
Life insurers have already halted sales of single-premium whole-life policies or increased their premiums to cope with negative rates. Price hikes are now under consideration for policies with monthly premiums, which are frequently purchased by younger customers. Premiums for existing policies will be left intact, with the higher rates applying to new contracts.
Insurers set premiums based on factors including death rates, operating costs and anticipated investment yield. Japan's Financial Services Agency calculates benchmark return rates for various policies based on Japanese government bond yields. The reference value for monthly-payment policies will drop for the first time in four years next April, likely falling from 1% to 0.25% if interest rates stay at their current levels.
Though actual premiums vary by policy, a customer's age and other factors, calculations based on the FSA benchmark show prices rising 10-20%. Whole-life policies, tuition insurance, annuities and other savings-type instruments for which a portion of paid-in premiums are eventually paid out will see particularly steep increases.
More than 2.3 million new annuities and education endowment policies are purchased in Japan each year, making up around 30% of all new individual policies.