Assessing Prudential Insurance Regulation in Japan
This article summarizes a podcast episode from “The Standard Formula,” where host Rob Chaplin and colleague Annabel Smethurst discuss the prudential solvency regime in Japan. As the world’s fourth-largest insurance market, Japan is a significant player in the global insurance landscape.
Japan’s attractiveness to reinsurers has grown, and the podcast explores the market’s regulatory evolution, highlighting its increasing openness to foreign participation.
The Japanese Insurance Market
Japan holds a substantial share (5%) of the global insurance market, with premiums reaching $363 billion in 2024. This positions Japan as the fourth-largest market worldwide, following the U.S., China, and the U.K. The market has experienced increased competition with the rise of foreign insurers and new participants in the reinsurance sector.
Regulatory Framework
Japan’s Financial Services Agency (FSA) has been working to align the country’s standards more closely with international frameworks such as Solvency II and the IAIS ICS (Insurance Capital Standard). Foreign insurers operating in Japan must establish a local subsidiary or branch and obtain an FSA license, with reinsurance being a notable exception.
Reinsurance Boom
The past 18 months have witnessed a high volume of reinsurance transactions, particularly between Japanese life insurers and offshore reinsurers, often based in Bermuda. These transactions are fueled by an aging population and the capital-intensive nature of savings-oriented products.
Economic Value-Based Solvency
Japan is in the process of implementing new economic value-based solvency regulations, effective from the fiscal year ending March 2026. These regulations are generally aligned with the ICS but include adjustments tailored to Japanese insurers. This move could further transform the regulatory landscape.
