Japanese life insurers have become increasingly reliant on reinsurance in recent years, largely driven by sectors preparing for the new J-ICS solvency regime to come into effect at the end of March 2026, a new report from AM Best shows.
The rating agency said the overall cession rate (as a percentage of the segment’s total premiums) climbed to more than 24% in 2023 and 2024 from just under 10% in 2020.
Cynthia Ang, senior industry research analyst at AM Best, added: “Prior to the implementation of J-ICS, Japanese life insurance companies were increasingly using asset-intensive reinsurance to transfer investment, longevity and insurance risks from the capital-intensive annuity and long-term life insurance segments to third-party reinsurers.
“The maturity and scale of the Japanese life/annuity insurance market make it an attractive opportunity for reinsurers offering asset-intensive reinsurance solutions.”
According to J-ICS, the new economic value-based solvency ratio will reportedly be more sensitive to interest rate fluctuations, errors, asset liability management mismatches and longevity/mortality risk.
AM Best’s report shows that increased transaction volume has led to a sharp increase in reinsurance leverage ratios (reinsurance ceded as a percentage of capital and surplus) for some life insurance companies, with the industry’s overall leverage ratio tripling from 4.8% in 2020 to 14.8% by the end of 2024.
“This trend reflects companies’ increasing reliance on reinsurance to manage risk relative to the company’s own capital base,” the rating agency explained.
Based on market estimates, AM Best said that only 1-2% of active individual life insurance and annuity business will be transferred to reinsurers in fiscal 2023-2024, but transfer volumes are expected to increase as asset-intensive and offshore reinsurance become an increasingly important tool for Japanese life insurance companies.
The company’s report added: “As their use expands, the Japan Financial Services Agency is strengthening supervision of these transactions due to risks associated with private equity participation, asset liquidity and complex cross-border collateral.”
