Japan’s financial regulator is surveying life insurers to examine risks tied to their growing practice of transferring policy liabilities to reinsurers backed by global investment firms, according to people with knowledge of the matter.
The Financial Services Agency is asking life insurers about the scale of the practice and the type of contracts they have in place, the people said, asking not to be identified because the inquiry is private. The FSA is also interested in the concentration of reinsurers operating in the U.K. territory of Bermuda.
The FSA didn’t immediate reply to a request for comment.
Japan is one of the world’s largest insurance markets, with individual life and annuity policies in force totaling almost ¥900 trillion ($6 trillion) as of March 2024.
Reinsurance involves transferring policy liabilities to another insurer to reduce risk. However, in recent years, Japanese life insurers have increasingly entered contracts in which assets underwritten by reinsurance companies are invested to obtain higher returns.
Reinsurers controlled by U.S. investment giants including KKR & Co. and Apollo Global Management are doing deals to manage billions of dollars backing the policies, which they are largely investing in high-yielding, low-liquidity private credit.
The arrangements can also help life insurers free up balance sheets ahead of new capital regulations being introduced in Japan in the fiscal year starting April 1.
Last December, the International Association of Insurance Supervisors pointed to risks stemming from structural changes in the life insurance industry, including an increase in cross-border asset-intensive reinsurance transactions.
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