Japan’s life insurers have increasingly relied on reinsurance in recent years, with the overall cession rate as a percentage of total gross premium written for the segment rising to more than 24% in 2023 and 2024 from just under 10% in 2020, according to a new AM Best report.
According to the report entitled Japan Life Insurers Increase Use of Reinsurance, the implementation of an economic value-based solvency regulation framework is driving the increased use of reinsurance.
The new solvency regime, which is closely aligned with the Insurance Capital Standard, and known as J-ICS, took effect at the end of March 2026. Under the J-ICS, the new economic value-based solvency ratio will be more sensitive to fluctuations in interest rates, lapses, asset-liability management mismatches and longevity/mortality risks.
“Japanese life insurers have been increasingly using asset-intensive reinsurance to transfer investment, longevity and insurance risks from capital-intensive annuity and long-term life insurance blocks to third-party reinsurers ahead of the implementation of J-ICS,” Cynthia Ang, senior industry research analyst at AM Best, said. “The maturity and size of Japan’s life/annuity insurance market make it an attractive opportunity for reinsurers providing asset-intensive reinsurance solutions.”
According to the report, the heightened volume has led to reinsurance leverage (i.e., reinsurance ceded as a percentage of capital and surplus) rising sharply for some life companies, with the industry aggregate tripling to 14.8% at the end of 2024 from 4.8% in 2020. This trend reflects an increasing reliance on reinsurance to manage risks relative to the company’s own capital base. On an individual company basis, AM Best’s analysis showed that Dai-ichi Frontier Life Insurance Co., Prudential Gibraltar Financial Life Insurance and MetLife Insurance K.K. recorded high ratios of reinsurance leverage in 2024, each exceeding 500%.
Per market estimates, just 1-2% of total in-force individual life insurance and annuity business in fiscal years 2023-2024 was ceded to reinsurers, but cessions are expected to increase as asset-intensive and offshore reinsurance becomes an increasingly important tool for Japanese life insurers. As usage widens, Japan’s Financial Services Agency is tightening oversight of these transactions due to risks associated with private equity involvement, asset liquidity and complex cross-border collateral.
