A recent report by credit rating agency AM Best, indicates a growing trend of Japanese insurers ceding business directly to Bermudian reinsurers or through existing Bermudian-based affiliates, depending on which option is more cost-effective.
According to the report, the implementation of a new capital framework based on the International Capital Standard (ICS) has motivated cedents in Japan to explore offshore asset-intensive reinsurance for capital efficiency reasons.
The ICS aims to create a globally comparable, risk-based measure of capital adequacy for international active insurance groups.
While asset-intensive reinsurance demand in the US is driven by annuity business, the report noted that Japanese companies are ceding less complex products, such as in-force blocks of traditional life business, or leveraging asset-intensive reinsurance for new products’ yield enhancement.
Other factors influencing the shift include Japan’s long-standing low interest rate environment and an aging population. Additionally, Japanese insurers have also grown their morbidity lines of business significantly in recent years, driven by high consumer demand.
AM Best continues to observe greater demand for mortality and morbidity reinsurance solutions across Asia, fuelled by the region’s growing middle class.
The move toward Bermudian reinsurers is seen as a cost-effective solution for Japanese insurers, with some companies that have a high percentage of earnings or premiums from Japan establishing their own Bermuda-based reinsurer.
AloJapan.com