Ratings agency Moody’s has upgraded its outlook for Japan’s property and casualty sector and the life insurance industry to stable from negative.

Moody’s expects underwriting profits to recover as the industry improves pricing strategies and reduces costs.

It says insurers are turning around auto pricing and should achieve a total business combined ratio of 95-97% in coming years.

The industry is also lowering its cost ratio by integrating IT systems and reallocating staff.

High-risk assets are being sold, particularly Japanese stocks, and insurers are investing outside Japan to diversify their underwriting and market risks.

Moody’s says downside risks come from offshore expansion, large catastrophe loss and policyholders quitting auto insurance because of the price rises.

“Moody’s also continues to assume weak domestic demand growth for insurance and low investment returns,” it says in a report on the sector.

The agency has upgraded the outlook for life insurers due to a continuing stable business environment and their focus on prudent strategy.

Moody’s says surrender and lapse rates continue to improve as insurers focus on retaining policyholders.

Profitable products related to medical, cancer and nursing care are growing, offsetting the fall in profits from traditional death cover.

“Insurers are seeking to increase revenue by seeking new markets overseas and developing new domestic products, to offset pressure from strong domestic competition,” Moody’s says.