They are discovering that "safe" in government paper and "doesn't lose money" are not the same thing. It's the same lesson Silicon Valley Bank learned a couple years back before collapsing and almost taking the entire US regional banking sector with it. And the illiquidity they might face should a dire need for capital arise would give off echoes of the cash crunch AIG found itself it back in 2008.

Let me explain.

For decades, Japanese life insurers loaded up on long-dated Japanese government bonds to help meet their future insurance obligations. With interest rates pinned near zero, there was not much yield to be had, but the bonds offered predictable payments and the comfort of a government guarantee. Then rates started rising, and the market value of those older, low-yielding bonds started falling. The result is a very large pile of unrealized losses.

At the end of March, Japan's four major life insurers were sitting on roughly ¥14 trillion (almost $90 billion) in unrealized domestic-bond losses, more than 60% above the previous year. Nippon Life also recorded a ¥70 billion impairment.

The distinction between an unrealized loss and a realized one is important. If an insurer can hold a bond to maturity, it can generally collect the promised principal and interest. But if it needs to sell that bond today, the market price is what matters. And the market does not care what you paid for it.