With an aging population at home, Sompo Holdings—one of Japan’s top three P&C insurers—will be eager to maintain the momentum it has gained from an increase in overseas profits.
Sompo International’s adjusted profit for the third quarter was $860 million, while the company’s underwriting income was $518 million higher. This news follows a push by parent firm Sompo Holdings, based in Tokyo, for rapid international expansion.
As pointed out by Sompo COO Mikio Okumura pointed out in a report from 2023, one obvious reason why Sompo needs its foreign business to thrive and expand is Japan’s population demographic pressure.
If the third-largest P&C insurer in Japan wants to achieve sustainable development, it needs to confront a “harsh reality,” Okumura warned.
“We need to take these demographic changes to heart and not remain stuck in a business model that assumes a steadily growing population and economy, as has been the case in the past,” explained Okumura, who is slated to become Sompo CEO at the end of March.
The chief operating officer specifically identified a growth risk due to the “strongly correlated” nature of the company’s property and casualty insurance (P&C) business with population.
Managing Japan’s Population
For both the government and businesses in Japan, the population decline and falling birth rate are major causes for concern.
In 2022, more people died than were born in Japan in 2022. According to the AP, there has been a steady decline in the nation’s population of the nation, which stands at 125 million, according to the AP.
If deaths continue to outpace births, the population will decline by another 17% by 2050 and by 31% by 2070, according to forecasts.
For this information, we consulted the CIA World Factbook in 2023.
After reaching four in 2000, the projected ratio of working-age persons to older individuals by 2050 is a meager 1.4. The government is projected to have challenges balancing lower tax income levels with increased demand for healthcare and wellness support, as well as a smaller population, potentially reducing product and service demand.
Some companies are already seeing the impact of Japan’s changing demographics is already starting to show up for some companies.
The property and casualty insurance industry may be slow to feel the effects of an aging population and declining birth rates, but others are already seeing the pinch.
This trend is affecting nearly every industry, according to Insurance Business interviewee Leonard Schoppa of the University of Virginia’s Department of Politics.
Schools and other organizations catering to young people and young adults have been the first to face this problem, according to Schoppa. “Their company’s customer base has shrunk to half of its former size.”
According to Okumura’s 2023 research, Sompo has been eyeing the Japanese nursing care industry for potential expansion. The company has surpassed all competitors in terms of nursing home rooms as it strives to stay ahead of the curve caused by the aging population.
JCIE USA senior advisor Kim Gould Ashizawa claims that Sompo’s global initiatives are part of a “wider trend” of companies seeking foreign expansion to counteract population decline.
Reasons why the Japanese government expects the birth rate to decline
There are a lot of moving parts that are making things worse for the Japanese government and corporations.
The nation shared the United States’ experience with a baby boom in the decades following WWII. After this, the birth rate declined for a long time.
According to reports, the decline in births is caused by high housing costs, financial instability, and a work culture that values long hours and after-hours parties.
Labor rates among laboring women are higher than in the United States, and women are also working more after giving birth.
Women are less likely to desire several children if they perceive that their spouse is not helping out with childrearing and housecleaning, according to Ashizawa. This finding is not surprising.
According to Ashizawa, a “major shift” is necessary to significantly alter the course, despite the fact that Japan is executing policies like tax rebates and a reconsideration of immigration.
