Moody’s Investors Service has downgraded the ratings of eight Japanese life insurance companies. The companies affected are Daido Life, Dai-ichi Life, Fukoku Life, Meiji Life, Mitsui Life, Nippon Life, Sumitomo Life, and Yasuda Life.

The rating agency says that these downgrades and negative outlooks reflect worse-than-expected weakening of the financial conditions of these life insurers, the grim outlook for a quick recovery, and the uncertain prospects for additional external support.

The Japanese life insurance sector has been facing a long-term decline, says Moody’s, stemming from a saturated market that coincided with the deterioration in the economic conditions of the country. Policy-in-force has been declining, precipitated by increases in lapses and surrenders. The number of insurance company failures has been on the rise and surviving industry players have not benefited from a flight-to-quality as policyholders sought investments outside the troubled life insurance sector.

In response to the adverse business environment, the life insurers are actively engaged in strategic and cost cutting initiatives, says Moody’s, including demutualization plans, alliance formations, new product development, and risk assets reductions.

However, Moody’s says, “These actions are unlikely to materially stem the business decline and overcome the structural deficiencies of the industry. These measures often take much time to implement and actual benefits are likely to be modest. In the absence of a significant economic recovery and/or a drastic alteration of the industry structure, the profitability and the financial health of the participants will continue to deteriorate. While the industry woes impact all players, the largest and best-capitalized insurers remain in a superior position to withstand the difficulties given their stronger franchises and greater financial resources.”