Sumitomo Life Insurance Co. has adopted a hold-to-maturity approach for portions of its Japanese government bond (JGB) portfolio, aiming to avoid recognising losses on debt securities that have declined in value.
According to an individual familiar with the company’s plans, reported by Bloomberg, Sumitomo Life will retain affected bonds until maturity rather than selling them at a loss, in line with Japanese accounting guidelines that permit such treatment if the insurer formally commits to holding the assets.
This accounting method allows insurers to bypass immediate write-downs when bond prices fall sharply, provided the bonds are not sold before maturity.
However, this approach restricts the insurer’s flexibility, as the bonds cannot be sold unless their market value recovers to the original purchase price.
Japanese life insurers, including Sumitomo Life, have experienced a significant increase in unrealised losses on domestic bonds.
This trend has been driven by rising yields on long-term government securities, influenced by persistent inflation, reduced bond purchases by the Bank of Japan, and expectations of higher fiscal spending.
As of June, the combined unrealised losses on domestic bonds among the four largest Japanese life insurers exceeded ¥9.83 trillion.
“If Japanese interest rates keep on rising, more life insurers may opt to hold bonds to maturity because it makes economic sense to do so,” said Taikei Tabira, strategist at Nomura Securities Co, as reported by Bloomberg.
Sumitomo Life’s financial results for the quarter ending June 30, 2025, illustrate the pressures facing the sector.
The company reported total assets of ¥48.38 trillion, a decrease from ¥48.87 trillion at the end of March.
Ordinary income for the period was ¥1.23 trillion, down from ¥1.36 trillion a year earlier. The insurer posted an ordinary loss of ¥15.33 billion, compared to a profit of ¥67.52 billion in the same quarter last year. Net loss attributable to the parent company was ¥2.08 billion.
Policy reserves and other reserves totalled ¥39.11 trillion at the end of June. Unrealised gains on available-for-sale securities rose to ¥674.75 billion. Comprehensive income for the quarter was ¥10.57 billion, a decline from ¥95.66 billion in the prior year.
Bloomberg analysis indicates that Japanese life insurers could be holding as much as ¥27.2 trillion in super-long bonds valued at least 30% below par, based on market data.
Life insurers collectively held ¥135 trillion in government bonds as of June, with a significant portion classified as super-long maturities.
Sumitomo Life’s decision to hold bonds to maturity highlights a broader trend among Japanese insurers as they navigate a period of rising interest rates and market volatility.
The approach may become more widespread if current conditions persist, as insurers seek to manage balance sheet impacts while maintaining long-term investment strategies.
