Sumitomo Life said to take step to avoid marking bond losses

The Osaka-based insurer is taking advantage of guidelines for bond investors when prices move sharply

Sumitomo Life Insurance is taking an unusual step to avoid writing down losses on its debt assets, promising to never sell them while they are in the red, according to a source familiar with the matter.

The Osaka-based insurer is taking advantage of guidelines for bond investors when prices move sharply. When there’s a 50 per cent or more tumble in the market value of a bond from its acquisition price with no prospect of recovery, the drop in the debt’s value must be booked as a loss, according to Japanese accounting standards.

But if the insurer declares to an accountant that it will hold a bond until maturity unless it rebounds to its purchase price, it does not have to record losses on the debt, according to those guidelines.

Sumitomo Life judged that holding bonds until maturity to earn interest and recover the principal makes more economic sense than selling them at a loss, said the source, who asked not to be identified discussing private matters. The insurer has not said how much of its bond holdings will be taken out of the market in this manner.

Sumitomo Life declined to comment on specific accounting steps, but said by e-mail that there are not any problems with its financial soundness.

The company added that it has conducted stress tests to prepare for significant interest rate hikes and is making all efforts to manage risks. BLOOMBERG