Japan’s Financial Services Agency (FSA) is reportedly conducting a survey of life insurers to assess potential risks related to the increased use of reinsurance arrangements involving firms backed by global investment companies, according to sources familiar with the matter.
Sources report to Bloomberg that the FSA is requesting information on the scale of such transactions and the specific types of contracts insurers have entered into. The agency is also reportedly reviewing the level of exposure to reinsurers based in Bermuda, a key hub for the global reinsurance industry.
Japan’s life insurance market ranks among the largest globally, with individual life and annuity policies totaling nearly ¥900 trillion (US$6 trillion) in force as of March 2024.
Japanese insurers have increasingly turned to offshore reinsurance solutions to enhance capital efficiency and manage risks associated with an aging population and a mature domestic market.
Estimates from a SOA report suggest that up to 30% of Japan's US$3 trillion liability pool, approximately US$900 billion, could be reinsured, with US$150 billion to US$300 billion potentially entering the market over the next five years, depending on market conditions and insurers’ capital strategies.
Bermuda, for better or worse, has solidified its position as a leading offshore reinsurance hub, attracting insurers globally due to its favorable regulatory environment and robust financial infrastructure.
As of year-end 2021, Bermuda was the largest offshore reinsurance destination for life insurers in the US, with a significant portion of asset-intensive reinsurance business ceded to entities based there.
Reinsurers affiliated with US-based investment firms, including KKR & Co. and Apollo Global Management Inc., have taken on billions of dollars in liabilities from Japanese life insurers. The assets tied to these liabilities have largely been invested in private credit, which tends to offer higher yields but lower liquidity.
These reinsurance structures can also allow life insurers to reduce balance sheet pressures in advance of new capital requirements scheduled to take effect in Japan starting April 1.
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