Moody's Japan K.K. has revised its outlook for the Japanese life insurance industry to stable from negative.

This change mainly reflects Moody's expectation of a continuing stable business environment and insurers' focus on prudent business strategy.

Moody's will explain in more detail its outlook for the Japanese life industry in a new report, "Japanese Life Insurance Industry: Outlook Revised to Stable." to be published shortly.

The change in outlook to stable takes into account the improving trends evident in the business overall and the sector's investment portfolios.

In particular, Moody's first notes that surrender and lapse rates for policies continue to improve, reflecting the stronger efforts of insurers in Japan to focus on retaining existing policyholders.

Profitable third-sector products -- those related to medical, cancer and nursing care -- continue to grow, mitigating the decrease in profits from traditional death coverage products. This development reflects Japan's changing demographics.

Secondly, insurers continue to generate stable core profits, supported by stable mortality and morbidity gains and a decrease in their negative spread burdens. Moody's believes this stable trend will continue for coming years.

Thirdly, insurers continue to emphasize conservative investments through shifting risky assets to what they perceive as safer assets and through reducing the duration gap between their assets and liabilities.

Finally, Japanese insurers continue to manage retention of capital to meet higher capital and solvency requirements by accumulating retained earnings or through issuing subordinated tools, which are according to regulations considered as capital.

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 notes that new businesses and overseas investments will diversify operations and profit sources, but will also be accompanied by varying levels of risk. Accordingly, prudent management and sophisticated risk controls are required, and insurers need to reflect such approaches in their business strategies.

Moody's industry outlooks reflect the rating agency's expectations for fundamental business conditions in the industry over the next 12 to 18 months.