Japanese insurance companies are increasingly turning to overseas markets and reinsurance transactions to maintain long-term growth, as domestic opportunities remain limited due to a shrinking and aging population and a saturated market.
While premium income has remained elevated since 2021 – driven largely by sales of single-premium savings-type products—traditional life insurance demand continues to weaken.
According to AM Best, new business sales are expected to remain strong, but growth in in-force premiums is projected to be sluggish. Savings-type product sales are sensitive to fluctuations in interest and exchange rates, and they typically offer narrower profit margins, which can limit bottom-line growth.
Despite these constraints, after-tax profitability in Japan’s life sector increased in 2024 and has generally trended upward over the past five years, aside from a decline in 2023.
Japan’s insurance industry, especially the non-life sector, is highly consolidated, and with limited gross domestic product growth, insurers face restricted organic expansion. As a result, many companies are diversifying their revenue streams by expanding into international markets, including the United States, Australia, and other developed economies.
Asset-intensive reinsurance (AIR) transactions have gained traction among Japan’s listed life insurers as a tool for improving capital efficiency and managing interest rate risk. These transactions generally involve ceding large blocks of reserves to reinsurers – often offshore –which introduces counterparty credit risks.
To manage these risks, insurers have adopted strategies such as counterparty diversification, use of collateral, and ratings-based triggers to limit exposure to reinsurer insolvency or recapture events.
Although AIR transaction volumes remain modest relative to total in-force liabilities, the capital freed from these deals can support profitability and help fund growth opportunities. This capital is not necessarily earmarked for mergers and acquisitions but may contribute to broader strategic initiatives. Large insurers are expected to continue leveraging AIR transactions as part of their long-term capital management frameworks.
However, as it continues to grow in popularity, 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.
The FSA is reportedly 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 major non-life insurance groups – Tokio Marine, MS&AD, and Sompo – are positioned to generate additional capital in the coming years by accelerating the divestment of strategic equity holdings.
The companies plan to reduce these holdings to zero over the next five to six years, following orders from the Financial Services Agency. The resulting disposal income is expected to further strengthen the groups’ balance sheets and support future growth.
While international expansion and reinsurance strategies offer diversification and growth potential, they also introduce credit-related challenges. Overseas acquisitions can create execution risk, particularly if integration proves difficult or acquisition premiums are misaligned with long-term value.
AM Best notes that successful implementation depends on insurers maintaining sound risk management practices and disciplined underwriting standards. Insurers that effectively balance growth ambitions with these principles may improve their global business profiles without compromising credit quality.
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