Auto cover premium gains and consolidation benefits could raise Japanese property and casualty (P&C) insurer profits, according to a report by Moody’s Investors Service.

The latest price increases for auto, which accounts for half of non-life insurance, should contribute to premium growth in the next year to 18 months, it says.

“Despite these price rises, we expect demand for motor insurance to remain resilient because we expect organic support from new vehicle sales amid a recovering economy.

“This will extend the recovery in overall non-life premiums since 2010 and is in line with our stable outlook on the industry.”

Insurers should also benefit from switching to a risk-based vehicle pricing model, which will reduce discounts from next month, Moody’s says.

Japan’s top three P&C insurance groups account for about 87% of net premiums written, and Moody’s says consolidation benefits are still being realised.

MS&AD Insurance Group and NKSJ Group will achieve efficiencies and cost reductions as they further rationalise and integrate their subsidiaries.

The leading trio – the third is Tokio Marine – plan to reduce combined ratios to 95% in two to three years through pricing and efficiencies, from an average of 105% in the year to March 31, Moody’s says.

Prime Minister Shinzo Abe’s measures to revive economic growth could also raise housing and durable goods purchases, and would be positive for premiums.

“If growth remains elusive Japan’s P&C companies would continue to face the persistent credit challenges associated with a low-interest-rate, deflationary environment,” the report says.

Planned increases to Japan’s consumption tax in the next two years could also affect the outlook.