Japan’s Financial Services Agency Evaluates Reinsurance Exposure
The Financial Services Agency (FSA) of Japan is reportedly conducting an in-depth survey of life insurers in the country to evaluate potential risks associated with the growing use of reinsurance strategies involving entities backed by global investment firms, according to sources familiar with the matter.
Sources indicate to Bloomberg that the FSA is gathering data on the volume of such reinsurance deals and the specific types of contracts insurers have engaged in. Moreover, there is a reported focus on assessing exposure levels to reinsurers operating in Bermuda, a significant hub for the international reinsurance market.
Japan’s life insurance industry ranks among the largest worldwide, with individual life and annuity policies amounting to nearly ¥900 trillion (approximately US$6 trillion) as of March 2024.
Given the demographic challenges of an aging population and a saturated domestic market, Japanese insurers have increasingly turned to offshore reinsurance solutions to enhance capital efficiency and manage associated risks.
According to estimates from a Society of Actuaries report, up to 30% of Japan’s US$3 trillion liability portfolio, equating to about US$900 billion, could be reinsured. This could mean US$150 billion to US$300 billion might enter the market over the next five years, contingent on market conditions and insurers’ capital strategies.
Bermuda, recognized for its favorable regulatory climate and robust financial ecosystem, has emerged as a leading offshore reinsurance hub, drawing insurers globally.
By the end of 2021, Bermuda had become the largest offshore reinsurance destination for US life insurers, with a considerable share of asset-intensive reinsurance businesses ceded to entities based there.
Reinsurers linked with US-based investment firms, such as KKR & Co. and Apollo Global Management Inc., have absorbed billions in liabilities from Japanese life insurers. The assets associated with these liabilities are primarily invested in private credit, which offers higher yields but presents lower liquidity.
These reinsurance structures can also assist life insurers in alleviating balance sheet pressures ahead of new capital requirements set to commence in Japan on April 1.
