Japan’s insurance market has taken a battering from ratings agency Moody’s following months of depressed economic conditions.

Following 11 March earthquake and resulting tsunami, the ratings agency said it is maintaining a negative outlook for the Japanese property and casualty insurance sector.

In a new report, the ratings agency said: “The saturated state of the market and the stagnant nature of the economy will continue to pressure the profitability of companies in this sector.”

Moody’s believes that while the losses from the natural catastrophes are manageable, insurers must now replenish their catastrophe reserves.

Moody’s noted that despite the sector’s efforts to increase per unit pricing, an aging and declining population mean the market continues to shrink.

The country has been experiencing lower economic growth as a result of a limited electrical supply, putting pressure on the country’s top-line growth prospects.

Moody’s also noted that while changes to solvency requirements by the Financial Services Agency (FSA) may have a positive impact on P&C insurers, the sector’s exposure to government bonds could negatively affect its ratings if there is a decline in the quality of government bonds.