Japan’s
Insurance
Market2018

Japan’s Insurance Market 2018
ContentsPage

To Our Clients
Tomoatsu Noguchi
President and Chief Executive
The Toa Reinsurance Company, Limited

1

1. Civil Liability for Automated Driving Systems in Japan
Seiichi Ochiai
Professor Emeritus
University of Tokyo

2

2.	Water Risk in Japan
Taikan Oki
Professor
Integrated Research System for Sustainability Science
The University of Tokyo Institutes for Advanced Study

6

3.	The Evolution of Catastrophe Reinsurance Buying Practices
at Japanese Non-Life Insurers in the Decade to 2018
Isabella Meuli
Vice President
Guy Carpenter Japan, Inc.

16

4. Trends in Japan’s Non-Life Insurance Industry
Underwriting & Planning Department
The Toa Reinsurance Company, Limited

25

5. Trends in Japan’s Life Insurance Industry
Life Underwriting & Planning Department
The Toa Reinsurance Company, Limited

31

Company Overview

38

Supplemental Data: Results of Japanese Major Non-Life Insurance Companies
for Fiscal 2017, Ended March 31, 2018 (Non-Consolidated Basis)

41©2018 The Toa Reinsurance Company, Limited. All rights reserved. The contents may be reproduced only with the written permission of
The Toa Reinsurance Company, Limited.

To Our Clients

It gives me great pleasure to welcome you to our brochure, ‘Japan’s Insurance Market 2018.’ It is
encouraging to know that over the years our brochures have been well received even beyond our own
industry’s boundaries as a source of useful, up-to-date information about Japan’s insurance market, as
well as contributing to a wider interest in and understanding of our domestic market.
In the reinsurance industry, the softening trend of reinsurance premium rates halted to some extent
because of the three massive hurricanes in North America and large-scale forest fires in California in
2017. However, fierce competition is continuing among major reinsurance companies to win contracts.
Moreover, there is a need to respond to changes in international regulations and frameworks
concerning reinsurance and to address issues such as diversification and increasing complexity of risks
inherent in insurance products. Thus, the business environment in which the Toa Re Group operates isundergoing major change.
In these circumstances, the Toa Re Group formulated and initiated in April the “Mission 2020”
medium-term management plan covering three years from fiscal 2018. In “Mission 2020,” our vision is
to become “A reinsurance group that keeps being selected by clients across the world and that isdeveloping together with them by providing optimal solutions.” In the changing business environment,
we will strive to precisely meet clients’ reinsurance needs.
The Toa Re Group will do its utmost to fulfill its mission as a reinsurance company “Providing
Peace of Mind,” as articulated in the ToaRe Mission Statement.
In conclusion, I hope that our brochure will provide a greater insight into the Japanese insurance
market and I would like to express my gratitude to all who kindly contributed so much time and effort
towards its making.

Tomoatsu Noguchi
President and Chief Executive
The Toa Reinsurance Company, Limited1

1.
1. Foreword

2. Current Civil
Liability Incurredin Automobile
Accidents

2

Civil Liability for Automated Driving
Systems in Japan
Seiichi Ochiai
Professor Emeritus
University of Tokyo

The development of automated driving systems has made remarkable progress inrecent years, and progress in Japan is representative. Automated driving systems can be
categorized into several levels, ranging from partial assistance for driving operation to
full driving automation. Japan generally adheres to the Society of Automotive
Engineers (SAE) International J3016 levels 0 to 5. Japan will have a transition period
from around 2020 to 2025 during which automated level 0 to level 4 vehicles will
share the road. (In this paper, “transition period” refers to such a period.)
The Ministry of Land, Infrastructure, Transport and Tourism established aresearch group of experts, and in November 2016 began examining how civil
liability would apply during the transition period. The group met six times andpublished its report in March 2018. The Japanese government incorporated theresults of this report in its “Government Policy Outline for Improvement ofAutomated Vehicles” (the basic policy for promoting and developing automatedvehicles), which was finalized in April 2018. The conclusions of the research group
therefore became the national civil liability policy for automated vehicles.
I was involved in preparing the report as the chairman of the research group. This
paper introduces the key points of the research group’s deliberations on civil liability.

Automobile accidents cause major damage in Japan because of the widespreaduse of automobiles. Human loss, i.e. death and injury, is serious. For example, about
499,000 automobile accidents occurred in 2016. Deaths from automobile accidents
peaked at about 16,700 in 1970, and have consistently trended downward sincethen, but in 2017 there were still 3,650 deaths.
A major development in the legal response to serious automobile accidents
came in July 1955 with the enactment of the Automobile Liability Security Act.
Prior to this act, automobile accident victims demanding damages bore the heavy
burden of proving negligence of the perpetrator. The Automobile Liability Security
Act was enacted to eliminate this burden and in effect assigns no-fault liability tothe perpetrator.
To elaborate, under the Automobile Liability Security Act it is sufficient for thevictim to prove that the damage occurred due to the accident. On the other hand,
Article 3 of the act assigns responsibility to the perpetrator for damages, except in
the case when all of the following three exemption requirements apply: 1) self anddriver did not neglect to pay attention to the operation of the automobile; and 2)
the actions of the victim or a third party other than the driver were either
intentional or negligent; and 3) the automobile had no structural or functional
defects. The practical difficulty perpetrators face in substantiating all three of these
exemption requirements effectively imposes no-fault liability on the perpetrator.
Article 3 of the Automobile Liability Security Act stipulates “liability of theautomobile operator” (the liability of the person who controls and benefits from theoperation of the automobile). It certainly made holding perpetrators legally
responsible much easier for victims. However, the victim cannot receive compensation
if the perpetrator considered responsible lacks the resources to pay damages. In fact,
the Automobile Liability Security Act also takes this problem into account. That is,

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Article 5 of the act requires automobile owners, including the perpetrator, to haveliability insurance, without exception. Compulsory automobile liability insurance
ensures that the victim will certainly receive compensation up to the limits of thisinsurance. At present, compulsory insurance covers a maximum of 30 million yen fordeath damages, 750,000 yen to 40 million yen for residual disability damages
depending on degree, and a maximum of 1.2 million yen for injury damages.
However, liability of the automobile operator covers only human loss caused to
the victim, not property damage (damage caused to objects). Therefore, operators
must also carry voluntary insurance to cover property loss. In addition, operators
should carry voluntary insurance to cover human loss they may cause in excess ofthe maximum compulsory insurance coverage prescribed by the Automobile
Liability Security Act.

3. Key Conclusionsof the ResearchGroup(1) Civil Liability during the Transition Period
As mentioned above, the Automobile Liability Security Act created a two-tiered
structure of liability of the automobile operator and compulsory insurance, which
has significantly facilitated legal remedy for automobile accident victims. However,the question is whether this remedy mechanism will continue to function
satisfactorily during the transition period, i.e., when vehicles of automated level 0 tolevel 4 share the road. This was the central issue for the research group.
Three contrasting opinions about this question emerged in the research group.
The first opinion was that the existing mechanisms prescribed by the
Automobile Liability Security Act can and should remain in force even during thetransition period. This opinion holds that liability of the automobile operator canremain relevant even for level 4 automobiles.
The second opinion was that liability of the automobile operator should remain
in force, complemented by the creation of a new mechanism that calls on
automobile manufacturers and other related parties to pay a certain amount inadvance as premiums for automobile liability insurance.
The third opinion was that liability of the automobile operator should remain
in force, complemented by a newly established legal concept of a “liability of thesystem provider” mechanism that assigns no-fault liability to automobile
manufacturers and other related parties.
The research group discussed these three opinions and concluded that it would
recommend the first. The rationale was that 1) the legal interpretation of “liabilityof the automobile operator” posed no problems even during the transition period
and 2) the existing system should not be drastically overhauled in the transition
period, so maintaining the smoothly functioning Automobile Liability Security Act
during the transition period was appropriate. The research group also decided thatthe second and third opinions required the resolution of numerous issues for themto function smoothly, which would not be simple. Moreover, the research groupconcluded that key countries overseas are not moving toward legal system revisions
that assign liability to automobile manufacturers and other related parties for whenlevel 0 to level 4 vehicles share the road.
3

1. C ivil Liability for Automated Driving
Systems in Japan(2) Ensuring Effective Rights to Compensation from Automobile
Manufacturers and Other Related Parties
The research group also considered whether maintaining the existingmechanisms of the Automobile Liability Security Act would pose any particular
problems during the transition period. The question was how to strengthen theeffective ability of insurance companies that have paid a claim to exercise their rightto compensation from automobile manufacturers and other related parties throughinsurance subrogation, which at present is virtually nonexistent. Vehicles with
automated driving systems, by design, decrease the degree of driver involvement,
and many accidents would likely be attributed to defects in the automated driving
system. However, automobile manufacturers and other related parties would not
bear the responsibility they should for automobile accidents due to such defects if
insurers cannot exercise their right to compensation from those responsible.
Incidentally, Japanese insurers almost never exercise their right to compensationfrom automobile manufacturers because product liability suits must prove that thevehicle was defective. That is extremely difficult under the current situation, andwill be even more difficult during the transition period. The research group
therefore made the following proposals: 1) the installation of an EDR (Event Data
Recorder) or other type of similar device that analyzes automobile accidents toelucidate their cause should be mandatory for vehicles; 2) a study should examine
the establishment of a cooperative framework that enables insurance companies
smoothly to claim compensation from automobile manufacturers; 3) a study should
examine the establishment of institutions to investigate the causes of accidents
during automated driving and the safety of automated driving systems.

(3) Accidents and Damage Caused by Hacking
The spread of automated vehicles raises the prospect of automobile accidents
due to hacking. What is the liability of the automobile operator in such cases?
An accident that results from hacking is an accident caused by a third party (thehacker) who is completely unrelated to the owner. The hacking causes the vehicle tooperate counter to the owner’s intentions. Liability in this situation is consideredsimilar to that of an accident involving a vehicle that has been stolen by an
unrelated third party. Precedent relieves the owner of liability of the automobile
operator for accidents involving a stolen vehicle if the owner’s oversight of thevehicle was not negligent. Similarly, the owner of the vehicle should not be
responsible for an accident caused by hacking.
Incidentally, the Automobile Liability Security Act (Article 72, the latter part ofClause 1) provides for compensation to victims of accidents involving a stolen
vehicle, where the owner bears no responsibility, from a government compensation
fund. An accident caused by hacking is categorized in the same way as one involving
a stolen car, so the government compensation fund should compensate victims ofthese accidents.

4

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018(4) Compensation for Accidents Involving Own Human andProperty Damage
The Automobile Liability Security Act does not apply to own human andproperty damage. The act only applies to third parties involved in accidents, not toautomobile operators.
This gives rise to the issue of revising the Automobile Liability Security Act toinclude own human and property damage resulting from car accidents in its scopeof application.
The research group concluded that the Automobile Liability Security Act
should remain in force during the transition period without drastic revisions. Thatis, voluntary automobile insurance such as personal injury and vehicle coverage areavailable for own human and property damage.

(5) Accidents due to Erroneous External Data including Map andInfrastructure Information or Communication Interruptions
Another question involves accidents that occur because of automated driving
system errors due to erroneous external data such as map and infrastructure
information or communication interruptions.
In the case of maintaining the existing system of liability of the automobile
operator, exemption from liability requires proof that the automobile had no
structural or functional defects as per the third requirement covered in section two
above. Accidents resulting from external data errors and communicationinterruptions raise the issue of whether the accident was the result of a structural orfunctional defect of the vehicle involved.
First of all, automobile manufacturers assume access to external data andcommunications in designing and manufacturing automated driving systems, and somust also assume the high probability that data errors and communicationinterruptions may occur during the operation of the automated driving system.
Automated driving systems cannot ensure safety if they are unable to handle
routinely assumed events, which would make an automated driving system thatcauses accident due to external data errors or communication interruptions a
structural or functional defect of the vehicle.
However, external data errors and communication interruptions may not be a
structural or functional defect if they were impossible to predict using engineeringknowledge and expertise on automobiles during the design and manufacture of
the system.

4. Conclusion

This paper presented the main conclusions of the research group, but they are
only relevant for civil liability during the transition period from around 2020 to2025. Future advances in automated driving technology, the number of automatedvehicles on the roads, and discussions in countries other than Japan may require
profound examination of civil liability for level 5, full driving automation, in thetransition period. Japan will need a new research group to consider this issue in thefirst half of the 2020s.
52.
1. Foreword

6

Water Risk in Japan
Taikan Oki
Professor
Integrated Research System for Sustainability Science
The University of Tokyo Institutes for Advanced Study

On July 5, 2018, the Japan Meteorological Agency held an extraordinary press
conference on the emergency of record-breaking heavy rains in western and easternJapan through July 8 due to the activity of the Baiu (rainy season) front, urging
caution against landslides, floods and inundation. Although that seemed to have leftenough time to evacuate or prepare, the result, however, was a major disaster withmore than 220 casualties or people missing. There could be any number of reasons
why such a tragedy occurred. The torrential rain fell in locations throughout a wide
area from Kyushu to the Shikoku and Chugoku region and the Kinki and Chubu
areas. Because Heavy Rain Emergency Warnings were accordingly issued in multiple
regions, repeatedly as required, perhaps people didn’t sense the urgency of thesituation and didn’t realize that their current location had been pinpointed as
dangerous, making it necessary to evacuate or take other action to avoid danger.
Perhaps normalcy bias caused them to optimistically think that even though torrential
rain was falling, it would stop soon, just as it always had, and thus they were alreadyrunning late when disaster was imminent. Moreover, production activities anddistribution in the disaster areas have been set back due to disruption of thetransportation network in addition to the flooding, and the combined direct andindirect economic damage nationwide should exceed 1 trillion yen.
In recent years, such disasters caused by torrential rain have been striking theJapanese archipelago every year. The Hiroshima sediment disaster occurred in August
2014 in Asaminami-ku and other areas of the city of Hiroshima due to torrential rainmeasured at 101 mm/hour, which caused landslides that killed 77 people anddestroyed 179 residential properties. In September 2015, in a broad area from western
to northern Japan heavy rain that occurred from a typhoon and storm front caused the
Kinugawa River to overflow and break the dykes in Joso, Ibaraki Prefecture, anddamaged an area of about 40 km2, or about one third of the city. Seven people diedand nearly 20,000 residential properties suffered damage, primarily in northern Kanto
and Tohoku. In 2016, Typhoon No. 10 (Typhoon Lionrock), the first typhoon inrecorded history to make direct landfall on the Pacific coast of Tohoku, affectedvarious places in Tohoku extending even to Hokkaido. The typhoon caused the
Omoto River (Iwaizumi-cho, Iwate Prefecture) to flood, resulting in 27 people either
killed or missing and the destruction of more than 500 properties, including theinundation of a group home for the elderly. In July 2017, a Baiu front and Typhoon
No. 3 (Typhoon Nanmadol) affected areas of western and eastern Japan; while
localized torrential rain in northern Kyushu caused 26 deaths and destroyed 98
residential properties.
Has windstorm and flood damage increased, and has anthropogenic climatechange, otherwise known as global warming, driven any such increase? This paper
briefly covers findings to date.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Figure 1: Human and Economic Loss Due to Flooding in Japan – 1875 to 2014 (Using 2005 as a baseline for calculating monetary value)(Billions of yen)
3,500

(People)7,000
Data for 1875 to 2013 from Table-44 “Transitionof Flood Damage from the Meiji Period” on“Statistics of Flood Damage in 2013.” Data for2014 from “Statistics of Flood Damage in 2014.”

3,000

6,000

2,500

5,000

2,000

4,000

1,500

3,000

1,000

2,000

500

1,000

0

0
1875 1880

1890

1900

Flood damage (left scale)

2. Observed
Changes

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010 2014

Number of dead and missing (right scale)Is windstorm and flood damage increasing or decreasing? Figure 1 gives ahistorical picture of human and economic losses caused by windstorm and flooding inJapan. The bar graph indicates that deaths from flooding and storm surge have
gradually decreased since peaking in 1959 with the Isewan Typhoon (Typhoon Vera),
which killed more than 5,000 people. In the 21st century, up until the devastating
heavy rains of July 2018, the heaviest human loss in a single year occurred in 2004
when torrential rain in Niigata and Fukushima, heavy rain in Fukui, and Typhoon
No. 23 (Typhoon Tokage) killed more than 200 people in total, which wassignificantly higher than the death toll from the Niigata Chuetsu Earthquake in thesame year. At the same time, the graph shows that economic loss (using 2005 as abaseline for calculating monetary value) from windstorm and flood damage has
essentially been flat over the past 40 years after averaging out heavy inter-annual
variations, and was lower than the losses from the major typhoons that frequently
occurred immediately after World War Two. One explanation is that disasterprevention facilities have improved and the risk of human life loss was reduced
compared with the era when the disaster prevention social infrastructure was not aswell developed and vulnerability was higher. However, assets have become moreconcentrated in areas that are inherently vulnerable to windstorm and flood damage,which has increased risk exposure and kept economic loss apart from decreasing
significantly.

7

2. W
 ater Risk in Japan

Figure 2: The Relationship between Temperature and Precipitation

Intensity (mm/time unit)

1,000

100

10

1
0

5
1hr

12hr

10
24hr

15

20

25

30

Temperature (C)

Note: Daily mean temperature and 99th percentile precipitation in Japan for hourly, 12 hourly, and 24
hourly temporal scales (Utsumi et al., 2011). Based on AMeDAS raingauge network of Japan
Meteorological Agency.

Are heavy rains and flooding occurring as frequently as ever? Unfortunately, yes –in fact, they are more frequent. Figure 2 shows the relationship between the dailymean temperature and the intensity of the 99th percentile precipitation level in Japanfor hourly, 12 hourly, and 24 hourly temporal scales (Utsumi et al., 2011).
The solid lines in the graph illustrate the slope of the saturation water vapor
pressure, which is the maximum water vapor content that the atmosphere can hold.
The observed intensities rise about 7% for every 1 degree increase in temperature up
to about 10 to 20 degrees, at approximately the same slopes for each of the temporalscales, as the solid lines show. (In this paper, “degrees” refers to degrees Celsius.)
Moreover, observed rain intensities peak at an average daily temperature of around 25
degrees, but 10-minute precipitation records do not exhibit the peak phenomenon. In
other words, Figure 2 shows a clear trend of intense rainfall over short periods onwarmer days, but such rainfall is not likely to continue for long.
For example, the temperature in Tokyo rose by about 3 degrees during the 20th
century. Global warming is thought to account for about 1 degree of the increase, andthe heat island effect the other 2 degrees. Figure 2 does not distinguish between theinfluences of the two, but whether it is due to global warming or the heat island effect,
the likelihood of an increase in the amount of water vapor in the atmosphere rises onwarm days. Evidence indicates this will result in increased rainfall intensity over shortperiods of time. In fact, reports in Japan indicate that the number of days observedwith rainfall of 100 mm or 200 mm or more and hours observed with rainfall of
50mm or 80mm or more have increasing trends (Japan Meteorological Agency, 2012).
Working Group I’s contribution to the Fifth Assessment Report (WGI AR5) of
the Intergovernmental Panel on Climate Change (IPCC) drew no definitive
conclusions about historical changes in tropical cyclones such as typhoons and

8The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018hurricanes because of the uncertainty resulting from inadequacies and changes in theobservation system. However, the frequency and intensity of the strongest tropical
cyclones in the North Atlantic have almost certainly increased. On the other hand,
long-term trends for data since 1950 have not been identified, including the overall
number of typhoons, the number of strong typhoons, or the proportion of strong tototal typhoons.
Extensive reporting on tornados that damaged Tsukuba and other areas in Ibaraki
Prefecture and Tochigi Prefecture in May 2012 and on tornado damage in Koshigaya(Saitama Prefecture) and Noda (Chiba Prefecture) in September 2013 led many
people to believe that tornadoes are occurring more frequently in Japan due to climatechange. It is more likely, however, that official recognition of tornados has increased
because of the installation of a Doppler radar network covering Japan and otherfactors that have allowed the Japan Meteorological Agency to intensify its investigation
into wind gusts since 2007 and to issue tornado warnings from March 2008. Anothermajor factor influencing this perception is the widespread use of cell phones that canshoot video, which has increased the availability of footage for news reporting. In fact,
past and present statistics are not really comparable because of differences in type andmethod of data collected, but certainly up to 30 tornados occurred annually on
average in Japan from 1960 to 1990.
Statistics on the long-term trend of lightning strike damage are not available.
However, a study of days with lightning (Yoshida, 2002) clearly shows a long-term
downtrend during the 20th century in the number of summer days with lightning in
northern Kanto, and an uptrend in the number of winter days with lightning along
the Japan Sea coast.

3. Claims Paid forWind and Flood
DamageJapan tends to concentrate provisions for natural disasters almost exclusively onearthquake damage, including tsunami. This is understandable since earthquakes
involve greater natural disaster risk of human loss than windstorm and flooding. The
Isewan Typhoon (Typhoon Vera) and associated storm surge (the storm with thegreatest human toll) resulted in 5,000 missing or dead as introduced above. In
comparison, several earthquakes resulted in much greater losses: over 100,000 dead or
missing after the Great Kanto Earthquake of 1923; some 6,400 dead or missing after
the Great Hanshin-Awaji Earthquake of 1995; and about 18,400 dead or missing after
the Great East Japan Earthquake of 2011.

9

2. W
 ater Risk in Japan

Table 1: 10 Largest Claims Paid for Earthquake Insurance on Dwelling Risks
Date of Occurrence

Earthquake

Magnitude

Claims Paid
(Billions of yen)

For Reference: Percentage of Households with
Earthquake Insurance When Earthquakes Occurredin Main Prefectures That Suffered Damage
Iwate Prefecture: 12.3% (As of March 31, 2010)
Miyagi Prefecture: 32.5% (As of March 31, 2010)
Fukushima Prefecture: 14.1% (As of March 31, 2010)

1

March 11, 2011

Tohoku Earthquake (Great
East Japan Earthquake)

9.0

1,274.92

April 14, 2016

Kumamoto Earthquake

7.3

375.3

Kumamoto Prefecture: 29.8% (As of December 31, 2015)
Oita Prefecture: 23.1% (As of December 31, 2015)

3

January 17, 1995

Southern Hyogo Prefecture
Earthquake (Great HanshinAwaji Earthquake)

7.3

78.3

Hyogo Prefecture: 2.9% (As of March 31, 1994)

4

April 7, 2011

Miyagi-oki Earthquake

7.2

32.4

Miyagi Prefecture: 33.6% (As of March 31, 2011)

5

March 20, 2005

Western Fukuoka-oki
Earthquake

7.0

17.0

Fukuoka Prefecture: 15.5% (As of March 31, 2004)

6

March 24, 2001

Geiyo Earthquake

6.7

16.9

Hiroshima Prefecture: 14.2% (As of March 31, 2000)

7

October 23, 2004

Niigata Chuetsu Earthquake

6.8

14.9

Niigata Prefecture: 11.2% (As of March 31, 2004)

8

July 16, 2007

Niigata Chuetsu-oki
Earthquake

6.8

8.2

Niigata Prefecture: 13.7% (As of March 31, 2007)

9

April 20, 2005

Western Fukuoka-oki
Earthquake

5.8

6.4

Fukuoka Prefecture: 16.6% (As of March 31, 2005)

10

September 26, 2003

Tokachi-oki Earthquake

8.0

6.0

Hokkaido Prefecture: 15.5% (As of March 31, 2003)

Note: T he total claims paid for The Great East Japan Earthquake is the total amount of claims paid for earthquakes centered in the following areas; (1)off the Pacific coast of Tohoku, (2) Miyagi-ken-oki, (3) Shizuoka-ken Tobu, and (4) Fukushima-ken Hamadori, at 1,311.3 billion yen.
Sources: ‌1. Fact Book 2016-2017, General Insurance in Japan (The General Insurance Association of Japan)
2. Japan Earthquake Reinsurance Co., Ltd. (as of March 31, 2017)

Table 2: 10 Largest Claims Paid for Windstorm and Flood
Claims Paid (Billions of yen)
Name of Disaster

Place

Date

Fire and
Automobile Marine
Miscellaneous

Total

1

Typhoon No. 19 (Typhoon Mireille)

Nationwide

Sep. 26-28, 1991

522.5

26.9

18.5

568.0

2

Typhoon No. 18 (Typhoon Songda)

Nationwide

Sep. 4-8, 2004

356.4

25.9

5.1

387.4

3

2014 Snowfall

Kanto

Feb. 2014

298.4

24.1

—

322.4

4

Typhoon No. 18 (Typhoon Bart)

Kumamoto, Yamaguchi, Fukuoka, etc.

Sep. 21-25, 1999

284.7

21.2

8.8

314.7

5

Typhoon No. 15 (Typhoon Goni)

Nationwide

Aug. 24-26, 2015

156.1

8.1

—

164.2

6

Typhoon No. 7 (Typhoon Vicki)

Kinki

Sep. 22, 1998

151.4

6.1

2.4

159.9

Western part of the nation

7

Typhoon No. 23 (Typhoon Tokage)Oct. 20, 2004

111.2

17.9

8.9

138.0

8

Typhoon No. 13 (Typhoon Shanshan) Fukuoka, Saga, Nagasaki, Miyazaki, etc.

Sep. 15-20, 2006

116.1

14.7

1.2

132.0

9

Typhoon No. 16 (Typhoon Chaba)

Nationwide

Aug. 30-31, 2004

103.8

13.8

3.5

121.0

10

Typhoon No. 15 (Typhoon Roke)

Shizuoka, Kanagawa, etc.

Sep. 15-22, 2011

100.4

10.0

1.9

112.3

Note: Figures are for GIAJ member direct insurers, and do not include foreign insurers or others.
Source: Fact Book 2016-2017, General Insurance in Japan (The General Insurance Association of Japan)

Each of the top ten claims for windstorm and flood damage exceeded 100 billion yen. On the other hand, each of the claims
paid for earthquake damage are comparatively small except for the Great East Japan Earthquake and the Kumamoto Earthquake.
→ In the case of non-life insurance companies, risk related to windstorm and flooding is greater than for earthquakes.
10The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Figure 3: Claims Paid for Windstorm and Flood Damage in Japan
Claims paid1 (left scale)(Billions of yen)800

Number of typhoons2 (right scale)
20

19
745

622
600

14

15

15

17

15
14

14

15

14

13
12
11

12

11

10

400

10

410

9

5

8

324

206

7

140

No Investigation
15

27

88

49
11

8

0

217

No Investigation

173

154

10

9

9
8

200

12

12

11

32

25

5

176

No Investigation
85
25

63

41

23
0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(Fiscal years)
Mireille¥568
billionYancy¥98billionVicki¥160
billionBart¥315
billionTokai heavy rain¥103 billion
Hail loss ¥70 billion

Songda ¥387 billion
Tokage ¥138 billion
Chaba ¥121 billion

Shanshan¥132
billionRoke¥112billionSnowfall¥322
billionGoni¥164
billionNotes: ‌‌1. Data by GIAJ
2. Data by Japan Meteorological Agency
Source: FACT BOOK 2017 (Japanese Version) (The General Insurance Association of Japan)

Associated with these earthquakes, claims paid by non-life insurance companies
totaled 1,274.9 billion yen for the Great East Japan Earthquake; 375.3 billion yen for
the Kumamoto Earthquake in 2016 that directly caused about 50 deaths; and in third
place, 78.3 billion yen for the Great Hanshin-Awaji Earthquake. According tohistorical statistics up to 2017, the amount paid for the 2003 Tokachi-Oki Earthquake(with one person dead and another missing) is in 10th place with claims paid of only
6.0 billion yen.
In comparison, claims paid for windstorm and flood damage totaled as much as568.0 billion yen for Typhoon No. 19 in 1991 (Typhoon Mireille); 387.4 billion yen
for Typhoon No. 18 in 2004 (Typhoon Songda); 322.4 billion yen for snow damage
in 2014; 314.7 billion yen for Typhoon No. 18 in 1999 (Typhoon Bart); and in 10thplace historically, 112.3 billion yen for Typhoon No. 15 in 2011 (Typhoon Roke).
The point is, in terms of claims paid, the damage caused by earthquakes cancertainly be serious but it is less common, while windstorm and flood damage is
oppressively frequent and claims paid can be quite high. Overall, therefore, windstorm
and flood damage is quite serious in Japan.
Moreover, these issues transcend the borders of Japan. The globalization of theeconomy means that natural disasters overseas also have serious impacts on Japan’s
livelihood and economy. Consider also that windstorm and flooding caused roughly
60% of worldwide human and economic loss from all major natural disasters from1980 to 2012.

11

2. W
 ater Risk in JapanThe damage caused by flooding in Thailand in 2011 is symbolic. It affected supply
chains in global manufacturing industries including hard drives and automotive
components, and Japanese non-life insurance companies paid 900.0 billion yen in claims
by Japanese-affiliated companies for flood and related damages. This was significantly
higher than the 600.0 billion yen in claims paid to the corporate sector for earthquakerelated losses in the Great East Japan Earthquake. One result of globalization is thatnatural disasters in other countries are not just other people’s problems.
In the case of the floods in Thailand, opportunity loss caused by the need to stop
operations was greater than losses from direct property damage (including loss ofassets). The two-day shut down of the New York Stock Exchange because of Hurricane
Sandy in 2012 had a similar impact. These opportunity losses are another necessary
perspective on windstorm and flood damage.

4. The Future of
Water Risk in
Japan

It is estimated that flood damage due to inundation in Japan circa 2050 will be in
the vicinity of 4.4 trillion yen to 4.9 trillion yen annually and slope failure damage due
to landslides will be between 490 billion yen and 580 billion yen (Kazama et al.,2009). This may seem excessive compared with the current annual average of about
300.0 billion yen for flood and landslide damages. Estimates of inland flood damage
only (Fukubayashi, 2012) indicate that historical inland flood damage of about 120.0
billion annually could rise to between 140.0 billion yen and 680.0 billion yen
annually at the end of this century given no change in asset density or vulnerability.
The reason for the wide variance in estimates is that those estimates are based on
climate models that are highly dependent on calculations of heavy rain in certain
geographic locations in Japan, which may or may not occur. Therefore, differences inrain intensity and the geographic location of incidental heavy rain will be moresignificant than differences in the volume of greenhouse gas emissions by humans in
the years ahead.
Figure 4: Changes in Probable Precipitation
100

20th century

95

94.8

90
Daily Rainfall (mm/day)

21st century

89.2

85

87.7

84.1
82.1

80

79.5
77.7

75.4

75

73.2
70
65

69.4
66.6
60.9

60
0

100

200

300
Return period (years)

400

500

600

Note: Changes in precipitation rate (ordinate axis) corresponding to return period (abscissa axis) during
the 20th century (orange line) and the 21st century (green line) estimated by fitting probability
distribution functions for annual maximum daily rainfall near Tokyo simulated based on a
general circulation model.
12

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Also, as with previous observations of the relationship between the daily mean
temperature and the rainfall intensity, the maximum value of the water vapor content
in the atmosphere is predicted to increase with global warming, and the intensity ofheavy rain over a short time period is predicted to increase accordingly. In otherwords, torrential rain is likely to occur more frequently. As schematically illustrated in
Figure 4, the 21st century estimate of daily precipitation with 100 year return period(1% probability to occur) of 84.1 mm is only about 10% more than the 20th century
estimate of 77.7 mm, but 84.1 mm corresponds to the heavy rain of 300 year return
period. The change in intensity may seem small at first glance, but the interpretationof extreme phenomena requires careful attention at the point: the changes infrequency may be very significant.
WGI AR5 states about tropical cyclones that maximum wind speed andprecipitation intensity are likely to increase, although the likelihood is high that thefrequency of tropical cyclones such as typhoons will decrease or remain the same.
According to estimates of the high-resolution atmospheric general circulation modelof the Meteorological Research Institute of the Japan Meteorological Agency(Murakami et al., 2012), the maximum typhoon wind speed near the ground will
increase by 10% to 20%. Today, earthquake motion should be the standard forassumed design stress for virtually all buildings. However, a 20% increase in windspeed corresponds to a 40% increase in wind stress, so a fundamental review ofstructural design in consideration of strong winds from typhoons may be necessary.
Regarding the rainy season, WGI AR5 indicates that precipitation will increase
and the monsoon cycle will intensify for the summer monsoon in East Asia, and thatthe extreme value of precipitation is highly likely to increase. In addition, themonsoon will begin a little earlier or at about the same time, but its end will likely bedelayed, resulting in a longer monsoon period. However, the confidence level ofwhether fluctuation in rainfall during the monsoon season will increase in the future is
only moderate, because agreement between models is poor. As a result, how it might
affect water resource management is still uncertain. The need to prepare for further
torrential rain at the end of the rainy season has a higher degree of certainty.
WGI AR5’s description of tornado and thunderstorm changes is limited. Using
results estimated for the mainland United States from changes in the wide area
environment related to tornadoes and thunderstorm intensity, such as convective
available potential energy (CAPE) and wind direction change over the entire
troposphere (shear), WGI AR5 predicts that thunderstorms may gain in intensity ifthey occur throughout the United States east of the Rockies.

13

2. W
 ater Risk in Japan

In Japan, from the relationship between the temperature and the amount of water
vapor in the atmosphere (Utsumi et al., 2011), as discussed above, a simplistic
assumption might be that the intensity of rainfall over short periods will increase as
temperatures rise in tandem with climate change and that thunderstorms will also
increase in intensity; but a report (Yoshida, 2002) that the number of days withlightning in summer decreased in the 20th century in Kita Kanto seems to contradict
this, so it may not be so straightforward.

5. Conclusion

14

While climate change is now progressing, serious changes are still several decades
away. Even without significant climate changes, we have been suffering serious
damages from windstorm and flooding. A key reason for the seeming increased
intensity of natural disasters in recent years is that people are exhibiting an appetite forrisk in how they react and where they live. This is mainly because the population
continues to increase and concentrates in cities while assets expand, and because
disaster prevention systems are not well-prepared yet.
Humans may be able to avoid serious damage by minimizing the emission ofgreenhouse gases (mitigation) and increasing disaster preparedness (adaptation) as
climate change progresses. However, many countries are faced with aging societies(Japan leads the world in this respect) and fiscal constraints tighten year by year,
making it almost impossible to develop new infrastructure that can sufficiently protect
against windstorm and flood damage, allowing people to live safely.
The Great East Japan Earthquake of March 2011 led Japan to introduce a newconcept differentiating two different levels of tsunami to prepare countermeasures –one is infrastructure to protect against tsunami that occur with return period of 100
year or less (L1), and another is for early warning information systems and theevacuation of residents for tsunami that occur with return period such as 1,000 years(L2). For floods, Japan has long guided infrastructure development and land use
implicitly and explicitly, considering worst-case flood countermeasures that exceed
design flood.
However, Japan’s recent financial situation poses difficulties for completing thedevelopment of flood control infrastructure in the near future, to deal with a floodwith return period of 100-200 years. Furthermore, it is concerned that actual safetylevels will decrease further due to climate change. As a result, it may be inevitable forflood safety levels in Japan to fall further.
Fortunately, however, people will have less need to live in areas prone towindstorm and flood damage, and other natural disasters in general, if the population
will continue to decrease. We cannot leave this issue to be guided by market principles
only – the government needs long-term vision in developing policies that build Japanand guide it in addressing issues including habitation in safe areas, together with therealization of energy conservation and comfortable lifestyles, and the formation of
appropriate communities.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Reference
So Kazama, Ayumu Sato, Seiki Kawagoe, 2009:	Inundation Caused by Climate Change and Adaptation in Japan, Chikyu
Kankyo, 14 (2), 135-141.
Japan Meteorological Agency, 2013:
Climate Change Monitoring Report 2012
Naoko Fukubayashi, 2012:	Probability of Water-Related Disaster Occurrence and Risk Evaluation in Japan,
Master’s Thesis in University of Tokyo, p. 70
Hiromu Yoshida, 2002:
	Geographical Distributions and Long-Term Variations of Thunder-Day
Frequencies in Japan, TENKI, 49 (4), 279-283.
Murakami, H., Y. Wang, H. Yoshimura, R. Mizuta, M. Sugi, E. Shindo, Y. Adachi,
S. Yukimoto, M. Hosaka, S. Kusunoki, T. Ose, A. Kitoh, 2012:	Future Changes in Tropical Cyclone Activity Projected by the New HighResolution MRI-AGCM, J. Clim., 25, 3237-3260.
Nakamura, S., and T. Oki, 2018:
	Paradigm Shifts on Flood Risk Management in Japan: Detecting Triggers of
Design Flood Revisions in the Modern Era, Water Resour. Res., in print.
Utsumi, N., S. Seto, S. Kanae, E. Maeda, and T. Oki, 2011:	Does higher surface air temperature intensify extreme precipitation?, Geophys.
Res. Lett., 38, L16708.

15

3.

The Evolution of Catastrophe Reinsurance
Buying Practices at Japanese Non-Life
Insurers in the Decade to 2018
Isabella Meuli
Vice President
Guy Carpenter Japan, Inc.

Ten years ago reinsurance buyers for Japanese insurers were facing a similar set ofproblems to those faced by their counterparts in the rest of the world. The financial
crisis of 2008 had left the reinsurance industry pondering the assets held on its balance
sheet, but at the same time satisfied to find that it had not suffered any of thecatastrophic company failures experienced elsewhere in the financial sector.
Nevertheless there was fall out from the crisis, and the increased cost of capital that
resulted meant that reinsurance rates rose for most buyers in most classes. The decadesince has seen further changes, and in this article we track how they have impacted theJapanese reinsurance market and how it has evolved as a result. Firstly, we will consider
the wider macro-economic environment and its effect on the Japanese reinsurance
market, and secondly, we will review how reinsurance purchasing has evolved over the
past decade. Finally, we will draw some simple conclusions and propose some thoughts
for the future.

1. Impact of Eventsin the MacroEconomic andInsurance
Environments

The global reinsurance market has evolved over the past ten years; and whilstchange is in some sense continuous, identification of the key moments can aid
understanding of the process. The table below gives a simple overview starting withthe financial crisis and ending today.
PeriodKey Factors

Market Features

2008

Financial Crisis

Increased focus on capital preservation
Consolidation of Japanese non-life insurance industry
Japanese insurers look to overseas expansion

2011

Great East Japan Earthquake,
Thai Floods; New Zealand
EQ; Chilean EQ

The Great East Japan Earthquake and Thai floods had asignificant impact on the Japanese reinsurance market. However,
the impact of each natural catastrophe loss in 2011 was limited
to the local market.

2017

HIM Losses

Soft market run halted, with price increases seen at least in theimmediate aftermath. But capital remains abundant.

The macro-economic environment has a large impact on any regional market,
including Japan. The financial crisis and subsequent decline in global stock markets
drove the Japanese insurance market to capitalize on the benefits of consolidation inorder to improve returns. This process involved the end of the six company structure in
the non-life industry and the emergence of the so called “Big 3” groups. At the sametime, slow or no growth in domestic markets led Japanese insurance groups to shift
their growth focus to overseas expansion, a focus which continues to the present day.
The Great East Japan Earthquake of March 11, 2011 and subsequent tsunami
caused a humanitarian disaster and widespread damage. It currently ranks as the mostexpensive in history for insured losses outside of the United States. This loss had adeep impact on the insurance and reinsurance industries and will be looked at in moredetail later in this article. Japanese insurers were also significantly and possibly
unexpectedly affected by the Thai floods later in the same year. 2017 was an extremely

16The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018active natural cat year for the insurance industry, with Swiss Re estimating it to be theworst year on record in terms of insured loss.1 Losses due to HIM had a direct impact
on Japanese insurance groups in a way that would not have been the case in previous
years because of their increased ownership of (re)insurer subsidiaries operating in
global (re)insurance markets. However, at the local domestic level the effect on thereinsurance market was limited to an ending of the soft market that had been enjoyedby buyers in the immediately preceding years.
It appears that global economic growth has stabilized at a high but more volatilelevel. Interest as well as inflation rates continue to pick up in major economies andwhilst the growth backdrop remains favourable on the whole, political risks are likely
to remain a concern for businesses and investors going forward. Despite these facts
and the losses described above, reinsurance capacity has remained abundant and thepredicted hard market has failed to materialise.
1. Source: Swiss Re Sigma No 1/2018

2. The Evolutionof JapaneseReinsurance
BuyingSo much for the context. What are the main themes of the past ten years and how
have they been influenced by the factors referred to above? We identified for study fiveof the key themes of the past ten years, as listed in the table below.
Theme
1.

Amount of catastrophe limit purchased

2.

Evolution of cat purchases

3.

Reinsurance rating levels

4.

“Alternative” forms of capital

5.

Globalisation of Japanese insurance groups(1) Amount of Catastrophe Limit Purchased …… Has Grown
According to a survey conducted by the World Economic Forum in 2017, the riskthat is most concerning to businesses in Japan is natural catastrophe, followed closely bycyber attack risk and fiscal crisis.2 Over the past ten years, both the Great East Japan
Earthquake and to a lesser extent the 2016 Kumamoto Earthquake have served as areminder of Japan’s high exposure to natural catastrophe, leading to sustained demandfor earthquake insurance. This demand has in itself translated into an increased
requirement for earthquake reinsurance capacity, but at the same time the traditionallycautious approach taken by Japanese companies has meant that growth in the insurance
market has been tightly controlled, meaning the reinsurance limit for non-life stockcompanies has grown at only a modest rate. At the same time, there has been significant
growth in the earthquake reinsurance capacity purchased by the mutual (cooperative
insurance) sector, reflecting how attitudes to the original risk have changed since the2011 Great East Japan Earthquake. In an interesting parallel, the size of the national
earthquake scheme has also grown significantly over the same period.
2. Source: World Economic Forum

17

3. T
 he Evolution of Catastrophe Reinsurance
Buying Practices at Japanese Non-Life
Insurers in the Decade to 2018

Figure 1: Earthquake Treaty Reinsurance Capacity Purchased by Japanese Insurers
2009-2018 (Index)
200
180
160
140
120
100
80
60
40
20
0
2009
Non-Life

2010

2011

2012

2013

2014

2015

2016

2017

2018

MutualNote: Capacity purchased in 2009 is used as Index 100.
Source: Guy Carpenter

In contrast, large Japanese non-life stock company insurers have continued tomodestly increase their protection against typhoon risk, based on more accurate
modelling and an ongoing desire to buy capacity to levels consistent against
benchmarks used by international peers.

Figure 2: Typhoon Treaty Reinsurance Capacity Purchased by Japanese Insurers
2009-2018 (Index)
140

120

100

80

60

40

20

0
2009
Non-Life

2010

2011

2012

2013

2014

MutualNote: Capacity purchased in 2009 is used as Index 100.
Source: Guy Carpenter

18

2015

2016

2017

2018

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

In both the earthquake and typhoon cases, the larger size of the postconsolidation non-life groups has meant that the overall deductible level retained by
the market has increased, which has in part dampened any requirement for additional
capacity.

(2) Evolution of Cat Purchases …… Has Rationalised and Diversified
As well as an increasing need for overall capacity, the reinsurance market in Japan
has changed in terms of the coverage in the protections it purchases. In 2009, most of
the capacity bought was in one of four single named peril forms: EQ pro rata; EQ
ELC; EFEI ELC; and Typhoon ELC, and the overwhelming majority of placements
were on an annual basis.

Figure 3: Composition of Capacity 2009 vs. 2018 (Index)
140

120

100

80

60

40

20

0
2009
Comb ELC

Single Peril ELC

2018
Cat Swaps

Cat Bonds

Pro Rata

Note: Capacity purchased in 2009 is used as Index 100.
Source: Guy Carpenter

Move forward to 2018, and buyers have tended to combine all perils wherever
possible, buying single peril covers where necessary to build up protection against peak
exposures once the combined requirement has been filled. At the same time theamount of multi-year protection is now significant, representing well over a quarter of
all capacity purchased, a proportion that looks set to grow in the future. The purchaseof cat bonds has shown the largest percentage growth over the past decade, albeit froma small start point in 2009.

19

3. T
 he Evolution of Catastrophe Reinsurance
Buying Practices at Japanese Non-Life
Insurers in the Decade to 2018(3) R einsurance Rating Levels …… Follow WW Market Trends
Unless There is Good Reason
Pricing in the Japanese cat market has tended to move in line with theinternational market. In Figure 4 below this phenomenon is seen as the ROL indices
move broadly in concert.

Figure 4: Cat Reinsurance Pricing Index 2009-2018
120

100

80

60

40

20

0
2009
JP TY

2010
JP EQ

2011

2012

2013

2014

2015

2016

2017

2018

WW CatSource: Guy Carpenter

Closer examination of the data shows that, whilst the underlying trend is to movein line with the market, individual factors can have an effect, and may be dominant in
the final pricing. Figure 5 below shows pricing for Japanese cat perils at April 1 of eachyear compared to price movements globally at the immediately preceding January 1
renewal.

20

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Figure 5: Year by Year Price Movements by Category 2009-2018
JP EQ: +70%
30%

20%

10%

0%

-10%

-20%
2009

2010

2011

WW

JP TY

JP EQ

2012

2013

2014

2015

2016

2017

2018

Source: Guy Carpenter

It can be seen that in the post-Great East Japan Earthquake renewal in 2011,
Japanese pricing increased whilst WW Cat ROL decreased somewhat. Clearly thetiming of the event (March 11, 2011) had an impact, but the difference in pricing wasmarked. Conversely, Japanese buyers did not face price rises at the 2018 renewal
despite a modest hardening in the global position at January 1.
Pricing for Japanese windstorm remains at or near historic lows, but buyers would
be quick to point out the huge positive profit balances built up by reinsurers over the
past 20 years. It would appear that reinsurers remain keen to write Japanesecatastrophe business and there is a significant oversupply of available capacity.

(4) “Alternative” Forms of Capital …… Have Started to Grow in
Importance
So called alternative capital providers have been slower to enter the Japanesemarket than the U.S. or retro markets. Nevertheless they now provide a small but
significant proportion of the total capacity purchased. Much of this capacity is
focused in the cat bond space, as can be seen in Figure 3 above, and has grown
substantially in the past 10 years. In fact, at over 400% over 10 years, growth in thisarea is the largest of all the types of capacity. Penetration of these capital providers
into the traditional core cat ELC placements has been slower, as typical ROL levels,
which lie in the single digits, have not favoured full collateralisation, whilst at thesame time buyers have preferred to continue to purchase the standard reinstateable
cover provided by rated carriers.

21

3. T
 he Evolution of Catastrophe Reinsurance
Buying Practices at Japanese Non-Life
Insurers in the Decade to 2018(5) Globalisation of Japanese Insurance Groups …… the Approach
to Reinsurance is Evolving
Faced with an aging population, decreasing car ownership and limited
opportunities for growth in domestic markets, Japanese insurance companies havelooked to diversify their businesses through consolidation at home and acquisitions
overseas. Operational efficiencies have been pursued in domestic markets, but overseas
purchases have been significant and the result is that the big three groups now have asignificant proportion of their business sourced from overseas. There are two
implications of these changes for the reinsurance market: one is the fact that a morediversified, larger Japanese company should be able to increase its retentions in many
areas of the world; and the second is that a global approach to reinsurance may
become more desirable. Many of the purchases are relatively recent and the approachto reinsurance is evolving as the new acquisitions are assimilated into the groupstructure. We may expect to see further changes in this area going forward.

3. A Brief Summaryof Past Renewal
Seasons in Japan

Examination of the past decade’s renewal seasons shows the above trends developing.
2009: Buyers’ capacity demands were met despite reductions in capacity arising from thewider global economic environment, although there was no real overplacement.
Movements in exchange rates also restricted some reinsurers’ capacity, particularly thoseusing British pounds as their base currency. Reinsurer pressure for significant rate increases
was dampened by a good year of results from most treaties in all lines. Purchase ofwindstorm capacity increased, although buyers found that it was necessary to pay relatively
enhanced prices to attract this new support, reflecting tighter capacity constraints. This
renewal also saw a move towards combining windstorm and earthquake perils.
2010: A smooth renewal, perhaps easier than previous years, reflecting a generally
softer market. The perception that macro-economic conditions had improved
following the financial crisis meant that some buyers were able to reduce their overall
windstorm limit requirement. This smaller demand combined with a generally
softening global reinsurance market to reduce prices. Placements remained tight,
driven mainly by several mergers amongst reinsurers which served to reduce the overall
capacity available. Total EFEI ELC placed on a standalone basis continued to shrink.
2011: The renewal was proceeding smoothly until the March 11 earthquake.
However, following the event the reinsurance market generally responded in a rationalmanner and buyers were able to renew unchanged capacity for earthquake pro rata
treaties. The picture for ELC buyers was mixed and depended on individual
circumstances. Many of the larger programmes, and particularly the large mutuals,
opted to extend their programmes for up to 3 months through to July 1. Those that
did renew at April 1 saw rate increases of between 15 percent and 50 percent.
Windstorm pricing was also affected by the earthquake with rates increasing between
3 percent and 10 percent. Capacity for this latter line of business remained tight.
2012: This was a complex renewal season for Japanese cedants, impacted by flood
losses in Thailand, the continued aftermath of the March 2011 Great East Japan

22

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Earthquake as well as a hardening trend in the wider reinsurance market. Rates
increased in all property catastrophe and per risk lines. Casualty lines were mixed, but
the general trend was for modest increases. Price increases on earthquake excess of loss
treaties were significant for the second year in a row with increases of 10 to 40 percent
on top of increases seen in 2011, resulting in pricing that was all but double that of
pre-Great East Japan Earthquake levels. Loss free windstorm excess of loss was
impacted by the adverse market conditions, and prices rose. Capacity was still tightbut there was some additional capacity drawn in as a result of the increase in price.
Such additional capacity was offset by reinsurers impacted by adverse foreign exchange
movements, retro constrictions and internal aggregate controls. Thai flood losses
affected the property per risk renewal more than the cat.
2013: No major catastrophes and an increased reinsurer appetite in most lines led to acalmer renewal than in the two previous years. Prices were flat or down a little. Excess
capacity returned to the market for the first time in several years driven by the
weakening of the Japanese yen against major currencies, reinsurers’ desire for growthand increased interest in the Japanese market from alternative forms of reinsurance
capital. Earthquake pro rata treaties continued to benefit from increases to original
pricing. Earthquake excess of loss pricing decreased a little for the first time since theGreat East Japan Earthquake event. The mutual sector purchased increased earthquake
capacity whilst the non-life companies reduced their overall purchase slightly.
Available capacity increased and was able to fill the increase in demand. Windstorm
pricing decreased a little and the total capacity purchased increased modestly. Buyers
started to consider alternative structures such as aggregate ELC.
2014: The soft market returned with greater price reductions achieved than expected.
Competition for market share from reinsurers drove large over placement on many
covers. Company mergers, corporate restructuring, improved cedant balance sheets
and combination of perils in cat covers served to reinforce the perception that demand
was decreasing. There was a general broadening of terms and conditions with a moveby some to a more standard “All Risks” wording, extension of hours clauses andadoption of “sole judge” language. In view of the massive oversupply of capacity, somecedants took the opportunity to realign their reinsurer panel.
2015: Soft market conditions continued with buyers achieving reasonable risk
adjusted and actual price reductions in most main lines of business. Some buyers took
advantage of the favourable market conditions to expand capacity purchased, boththrough new layers and reduced co-reinsurance percentages. Losses from thesnowstorms of February 2014 exerted some influence on pricing at the lower end ofcat programmes but this was balanced by risk adjusted reductions on non-snowstorm
affected layers in the middle to upper regions.
2016: Ongoing soft market conditions meant another smooth renewal for Japanesebuyers. Pricing continued to decrease in nearly all lines of business and capacity
oversupply remained, though there was evidence that this was less than in previous
years. Certain cedants sought increased capacity, which was secured without problem.

23

3. T
 he Evolution of Catastrophe Reinsurance
Buying Practices at Japanese Non-Life
Insurers in the Decade to 2018

As well as risk adjusted savings, there were actual cost savings available for some layers,
reducing the average cost per unit of capacity purchased. Some windstorm layers weretransacted at a price below 2% rate on line, the first time that such pricing had beenachieved in recent years. The large groups now all place a core programme centred on
a combined perils structure. Moreover, the amount of capacity placed via aggregate
excess of loss, cat bonds and multi-year placements all increased. In 2016, we also saw
Japanese buyers taking the first steps to combine domestic exposures into cat
protections covering territories elsewhere in the world.
2017: The soft market prevailed and buyers duly secured risk adjusted rate reductions
in most property lines of business. There was some evidence that the degree of overall
reduction for property lines was less compared to previous renewals. Reinsurer
capacity once again remained high and in fact appeared to increase despite fallingrates. Buyers continued to purchase additional cat limit, secured with few problems.
2018: Despite predictions that international catastrophe excess of loss rates were set tomove upwards as a result of the active 2017 Atlantic hurricane season, prices in Japan
were near flat on a risk adjusted basis. Reinsurer capacity once again remained morethan sufficient to secure placements, with no sign of any market withdrawals. Capacity
increased in light of flat rates, even though prices remain at relatively low levels from ahistorical perspective.

4. Summary

The global (re)insurance market and the Japanese domestic market have been
through a period of change over the past decade. The Japanese market has survived theglobal financial crisis, the number of Japanese non-life groups has decreased to justthree major players, Japan has experienced the largest insured loss outside of the USA
and the wider market experienced significant losses in the 2017 Atlantic hurricane
season. Against this backdrop, the purchasing patterns of Japanese cat reinsurance
buyers have evolved and appear likely to continue to evolve going forward. Whilst
domestic factors will remain important, the wider global market will continue to exert
an influence, and this may be in ways not experienced before as well as via the morepredictable drivers such as large losses. Future areas of focus may for example be
increased trade protectionism and technological advancements. Nevertheless the needfor companies to protect themselves against acts of nature appears unlikely todisappear for the foreseeable future and so it can be expected that the cat reinsurance
market will endure even as its shape continues to change.

GlossaryIn this article, the following
abbreviations are used.
EQ:

earthquakeCat:catastrophe

ELC: excess of loss coverage
EFEI: earthquake fire expenses insurance

Comb: combined
HIM: Hurricane Harvey, Irma and Maria WW: worldwide
JER: Japan Earthquake Reinsurance
24

ROL: rate on line
TY:

typhoon4.
1. The Operating
Environment of
the Non-Life
Insurance Industry

2. Overview of the
Non-Life
Insurance Industry

Trends in Japan’s Non-Life
Insurance Industry
Underwriting & Planning Department
The Toa Reinsurance Company, Limited

The GDP of Japan ranks third in the world and its economy has continued to
grow moderately in recent years. In its economic outlook, the government of Japanestimates that the real GDP growth rate in fiscal 2017 was 1.9%, the rate in fiscal
2018 will be around 1.8%, and the economy will grow gradually in the short term.
At the same time, Japan is faced with a declining birthrate and aging society inthe medium term. The median estimate of the National Institute of Population andSocial Security Research suggests the population will drop by about 30% from its
current level to 88.08 million in 2065, which would inhibit economic growth over the
medium and long term.
“The Action Plan for the Realization of Work Style Reform” was announced by
the council of the Prime Minister’s office in March 2017. Its core framework foraddressing the problems related to Japan’s falling birthrate and aging population iscorrecting long working hours and achieving equal pay for equal work. The objectivesof the action plan are to increase the birthrate and to create an environment that helps
families raise children by making it easier for young people to balance work andchildcare, and to ensure stable employment and improve working conditions throughwork style reform.
Looking at the Japanese non-life insurance market, automobile insurance
currently accounts for about half of net premium income. Its market share is expected
to decrease gradually because of an increase in the number of vehicles equipped withsafety support functions and the spread of automated driving.
On the other hand, corporations must deal with more diverse and complex risks,creating a growing need for new types of insurance including cyber and directors andofficers liability insurance.
While the market is mature, non-life insurers in Japan are creating new markets
by identifying the latest customer needs and providing new products and services tomeet those needs. They are also innovating to raise operating efficiency and speed.
Furthermore, the top three insurance groups are expanding overseas business toachieve sustainable growth.

(1) Status of Non-Life Insurance Companies
Japan’s non-life insurance industry comprises 26 Japanese non-life insurancecompanies that are members of the General Insurance Association of Japan (GIAJ)
and 20 companies that are members of the Foreign Non-Life Insurance Association ofJapan, Inc. (FNLIA). Currently, Japan’s non-life insurance market is an oligopoly inwhich the top three non-life insurance groups (MS&AD Insurance Group Holdings,
Inc., Sompo Holdings, Inc. and Tokio Marine Holdings, Inc.) account for more than
85% of net premium income written by the 26 GIAJ members as a whole.
Japan’s non-life insurance companies have increased operating efficiency sinceliberalization in 1996, and have conducted mergers and business integration since
2000. As a result, the underwriting expense ratio (other than commission andbrokerage) in fiscal 2017 decreased to 15%, compared with 21% for all non-life
companies in the industry for fiscal 1995, prior to liberalization.

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4. T
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Recent trends among the non-life insurance groups are as follows.
MS&AD Holdings operates under a framework of two core non-life insurancecompanies consisting of Mitsui Sumitomo Insurance Co., Ltd. and Aioi Nissay Dowa
Insurance Co., Ltd., which was created through the merger of Aioi Insurance Co.,
Ltd. and Nissay Dowa General Insurance Co., Ltd. in October 2010.
With respect to Sompo Holdings, Sompo Japan Insurance Inc. and
NIPPONKOA Insurance Co., Ltd., were merged into Sompo Japan Nipponkoa
Insurance Inc. in September 2014.
With respect to Tokio Marine Holdings, Tokio Marine & Nichido Fire InsuranceCo., Ltd. was created through the October 2004 merger of The Tokio Marine and Fire
Insurance Co., Ltd. and the Nichido Fire and Marine Insurance Co., Ltd. Tokio
Marine Holdings subsequently integrated its management with Nisshin Fire & Marine
Insurance Co., Ltd. in September 2006.
In January 2018, AIG Japan Holdings merged its wholly owned subsidiaries, AIU
Insurance Company, Ltd. and The Fuji Fire and Marine Insurance Company, Ltd., tocreate a new company, AIG General Insurance Co., Ltd.
In addition to the above, Rakuten, Inc. made Asahi Fire & Marine Insurance Co.,
Ltd. a wholly owned subsidiary in April 2018, and changed the company name to
Rakuten General Insurance Co., Ltd. in July 2018. Rakuten has a wide variety ofInternet businesses and focuses on e-commerce. Rakuten and Rakuten General
Insurance are targeting growth largely by enhancing their lineup of insurance productsthat are compatible with Internet services and partnering with other companies inalliances.

(2) Trends in Business Results of Non-Life Insurance Companies
for Fiscal 2017
Fiscal 2017 results for Japan’s non-life insurance companies were solid. An
overview of the results of the 26 non-life insurers that are members of the General
Insurance Association of Japan (GIAJ) is as follows:
Net premium income in all lines of business increased 71.9 billion yen from theprevious fiscal year to 8,380.6 billion yen, primarily driven by fire and automobile
insurance.
Net claims paid (paid basis) decreased by 90.1 billion yen to 4,702.3 billion yen.
This was due to the huge payments related to the Kumamoto Earthquake in fiscal 2016.
As a result, the loss ratio for fiscal 2017 improved by 1.8 percentage points to 61.5%.
Expenses increased by 52.5 billion yen to 2,735.1 billion yen. The net expense
ratio increased 0.3 percentage points to 32.6%.
Underwriting profit (earned/incurred basis) decreased by 60.3 billion yen to279.8 billion yen due to the impact of typhoons and other natural disasters in Japan.
Ordinary profits, calculated as the sum of underwriting profit and investment profit,
decreased 31.2 billion yen to 812.2 billion yen. After deducting tax expense, net
income increased 63.9 billion yen to 678.3 billion yen because of adjustment of thecorporate tax and other factors.

26

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

The net premium income of the top three non-life insurance groups, including
domestic non-life insurance subsidiaries and overseas subsidiaries, increased overall
due largely to core domestic companies. On the other hand, ordinary profits werelargely impacted by massive natural disasters including hurricanes Harvey, Irma andMaria in the United States from August to September 2017.

3. Recent Non-Life
Insurance
Industry Trends(1) New Product Development(a) Automobile Insurance
In recent years, energetic initiatives have brought together industry, government
and academia to make vehicles with automated driving technology a practical reality.
They are making progress in creating an automated driving system that will enable thedevelopment of vehicles with practical automated driving technology, theestablishment of a reliable framework for quickly assisting victims of accidents
involving automated driving, and clarification of responsibility when accidents occur.
Given these circumstances, as one response to the changing automobile insurance
market, non-life insurance companies are preparing products to insure the risks
associated with automated driving technology up to driver intervention at level threeautonomy (conditionally automated driving). For example, they are providing
insurance for automated driving technology verification and endorsements for
accident victims of automated driving in cases where the driver responsibility of theautomated vehicle cannot be verified immediately.
The objective of non-life insurance companies is to make sure that society issecure and safe through initiatives such as developing products that support theadvance and popularization of automated driving technology. Initiatives include
participating in automated driving technology verification tests at level four autonomy(highly automated driving) and above to enhance the development of optimal
automated driving insurance products for this level of technology.
(b) Cyber Insurance
Companies must deal with major changes in their environment because of thefrequent occurrence of large-scale leakage of personal information over the past several
years and the risks posed by simultaneous cyberattacks such as WannaCry and
NotPetya.
In response, Japan’s major non-life insurance companies have become coreproviders of cyber insurance while also expanding support services for potential clients
including consultation for cyber security, such as information diagnostic services anddrills against targeted e-mail cyberattacks.
Non-life insurance companies are enhancing coverage to cope with the cyber risks
that are becoming increasingly complex.
(c) Sharing Economy
The sharing economy is expanding rapidly in the United States and Europe, andis expected to expand in Japan as well.
In particular, the influx of foreign tourists to Japan for the 2020 Tokyo Olympics

27

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and Paralympics is expected to overwhelm the ability of the existing infrastructure tosupply lodging, transportation and other services. It is expected that companies thatprovide sharing economy services may assist in solving problems.
Japan’s non-life insurance companies are collaborating with relevant organizations
to help sharing industries grow soundly while focusing on the development and sale ofinsurance for the sharing economy, as an emerging business opportunity.
For example, non-life insurance companies are selling products that indemnify
both the individuals providing services and Sharing Economy Association Japanmember companies that are operating service platforms for childcare, housekeeping
and other shared skills and services. These products indemnify the parties against legal
liability assumed during the provision of services.
It is expected that the non-life insurance industry will cope appropriately with the
new risks in the sharing economy as it expands further.

(2) Innovation
The term “fintech,” which has recently come into common use, is also used in theinsurance industry. The insurance industry has also embraced the term “insurtech” torefer to the fusion of insurance and information technology for the development of
the insurance products mentioned earlier and to encourage innovation in theoperations of non-life insurance companies.
Non-life insurance companies collect big data for use in marketing and pricing.
They are also accelerating their operations by using AI to assess claims payment andfor customer service functions such as call centers. Moreover, AI is expected to carryout primary judgment in the region of insurance sales, underwriting, and payment ofclaims in the future.
In fiscal 2017, some non-life insurance companies applied blockchain (distributed
ledger) technology to insurance policies. Many non-life insurance companies also got
together in a consortium to apply blockchain technology to trade operations, and eachcompany conducted demonstration tests. The actual application of blockchain
technology to insurance policies should accelerate procedures, contributing
significantly to growth in sales of insurance policies and international trade byenhancing security and through the provision of related information.

(3) Expansion of Overseas Business
The top three non-life insurance groups have all positioned overseas business as a
growth driver, and have aggressively implemented initiatives such as forming businessalliances with local insurance companies and engaging in M&A.
Figure 1 shows overseas net premium income* for the top three non-life insurancegroups. Over the past several years, overseas net premium income for these insurancegroups has been trending upward, and in fiscal 2017 was about two times that of fiscal
2013. As a result, overseas business accounted for approximately 25% of net premiumincome for the top three non-life insurance groups.
* In this section, “overseas net premium income” shows the total of net premium income from nonlife insurance and life insurance premiums.

28

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Figure 1: Trends in Overseas Net Premium Income for the Top Three
Non-Life Insurance Groups(Percentage of overseas
net premium income)25%(Billions of yen)
3,000

2,500

20%

2,000
15%
1,500
10%
1,000
5%

500

0

0%
2013

2014

2015

2016

2017

(Fiscal year)
Overseas net premium income (left scale)

Percentage of overseas net premium income (right scale)*(Total of the three groups including life insurance)

Source: Calculated by Toa Re using data compiled from the financial results of each of the three groups

Key overseas business developments among the top three non-life insurance groups
and recent trends are as follows:
MS&AD Holdings is concentrating on Asia and the reinsurance business. Mitsui
Sumitomo Insurance acquired the general insurance operations in Asia of U.K. company
Aviva plc in 2004, and is using it as its base for advancing into the ASEAN region. It
also strengthened its reinsurance business in 2016 by completing the acquisition of
Amlin plc of the United Kingdom. Moreover, in December 2017 it enhanced its
presence by acquiring Singapore insurer First Capital Insurance Limited.
Sompo Holdings acquired leading U.K. specialty (re)insurer Canopius Group
Limited in May 2014. In addition, it significantly expanded its overseas insurance
business in 2017 by completing the acquisition of Endurance Specialty Holdings Ltd.
(now called Sompo International). Also in 2017, Sompo Holdings restructured its
overseas business, making Sompo International the core overseas insurance business ofthe group, and selling all Canopius shares to a private equity investor.
Tokio Marine Holdings has developed its overseas operations particularly in Europe
and the United States. It acquired U.K. company Kiln Ltd. and U.S. company
Philadelphia Consolidated Holding Corp. in 2008, then acquired U.S. company Delphi
Financial Group, Inc. in 2012. Moreover, in October 2015 it acquired U.S. specialty
insurer HCC Insurance Holdings, Inc. to further grow its overseas insurance businessthrough diversification and to improve capital efficiency.

29

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Table 1: O verseas Business Development among Japan’s Top Three Non-Life Insurance Groups (2017-2018)
Month/Year

Name of Company

Contents

March 2017

Sompo Japan Nipponkoa Insurance

Completed acquisition of Endurance Specialty Holdings

June 2017

Tokio Marine Asia

Increased shareholdings in Indian non-life insurer IFFCO-Tokio General Insurance

August 2017

MS&AD Insurance Group Holdings

Capital participation in Australian financial group Challenger Limited

December 2017

Mitsui Sumitomo Insurance

Completed the acquisition of Singaporean commercial property and casualty insurer First Capital
Insurance Limited

January 2018

MS&AD Insurance Group Holdings

Completed acquisition of outstanding shares of English closed book life consolidator ReAssure
and issued a third-party allotment of new shares

March 2018

Sompo Holdings

Completed sale of Canopius AG shares

May 2018

Mitsui Sumitomo Insurance

Signed an agreement to acquire shares of Chinese life insurance company
BoCommLife Insurance

June 2018

Tokio Marine & Nichido

Acquired Thailand and Indonesia insurance businesses of Insurance Australia
Group Limited

Source: Compiled from press releases from each company. Company names are abbreviated.

(4) Trends in Regulation by Regulatory Agencies
A major Financial Services Agency (FSA) initiative involves examining economic
value-based evaluation and supervision methods. The FSA has been preparing for the
introduction of an economic value-based solvency regime. The third field test was
conducted in fiscal 2016 and its results were announced in March 2017. The FSA
mentions that introducing the economic solvency ratio into the regulatory regime may
bring unexpected consequences, such as excessively risk-averse behavior among
insurance companies. Therefore, it is preparing for the introduction of the economic
solvency ratio by considering unintended consequences and international trends, andby continuing its examination with emphasis on dialogue with relevant parties.
At present, the FSA has broadened its view of financial administration from “theForm” to “the Substance,” from “the Past” to “the Future,” and from “Element by element
analysis” to “Holistic analysis.” The FSA is considering a major review and improvement of
its stance with the objective of implementing new inspection and supervision that further
contribute to achieving the ultimate goals of financial administration. Items for review
and improvement cover a wide range of regulations, such as governance of the FSA,
quality control, and inspection manuals, as well as organization, human resources, andinformation infrastructure. The FSA is proceeding methodically and systematically toenable specific improvements that are mutual and consistent.

4. Conclusion

30

Japan’s non-life insurance market will mature further due to the declining birthrate
and aging population. Non-life insurance companies will deliver new products andservices by developing new technologies, and will discover new customer needs as aresult of technological advances. They will also innovate to increase operating efficiency
and further expand business overseas with the goal of sustainable growth.

5.
1. Overview of
Economic andSocial Trends

Trends in Japan’s Life
Insurance Industry
Life Underwriting & Planning Department
The Toa Reinsurance Company, Limited

The Influence of the Declining Birthrate and Aging Population on
the Public Healthcare Insurance System and Insurance Products
People are living longer in Japan and the birthrate has not increased, so thenumber of births continues to decline and the population continues to age. Under
these circumstances, the financial condition of the public healthcare insurance system
continues to deteriorate, so the government is now reviewing the system to better
match revenues and expenditures.
All Japanese citizens are required to be enrolled in the public healthcare insurance
system. The system consists of (1) the employee health insurance system that covers
company employees and their dependents, (2) the advanced elderly medical service
system that covers people who are 75 and older, and (3) the national health insurance
system that is available to Japanese citizens other than people covered by (1) and (2)above. Under the social security system, 50% of health care expenditures are covered
through insurance premiums, 40% through public funding, and 10% through copays
from the insured.
Copays for the advanced elderly medical service system are set lower than for theother types of health insurance, and this structure imposes a large burden on publicfunding and insurance premiums. Healthcare expenses for the advanced elderly people
increased at an annual rate of between 1% and 5% for the five years from 2012
through 2016.

Figure 1: Advanced Elderly Medical Service System Expenditures(Trillions of yen)
15.5

15.0

14.5

14.0

13.5

13.0

12.5
2012

2013

2014

2015

2016

(Fiscal year)

Source: Ministry of Health, Labour and Welfare, Health Insurance Bureau, Actuarial Research Div.
“Trend of Medical Care Expenditures”

Two factors are causing the healthcare expenses to increase.
One, the advanced elderly population has increased. People covered by theadvanced elderly medical service system increased by 10% to 16.5 million in 2016

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5. T
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from 14.94 million in 2012. This figure is expected to increase further because Japan’slargest demographic, the baby boomer generation born between 1947 and 1949, will
join the range of the advanced elderly in the first half of the 2020s.

Figure 2: Average Life Expectancy by Gender and Ratio of Advanced Elderly to88

125,000

86

120,000

84

115,000

82

110,000

80

105,000

78

100,000

76

95,000

74
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

(Fiscal year)
Advanced elderly (left scale)

Other (left scale)

Average male life expectancy (right scale)

Average female life expectancy (right scale)

Reference: Ministry of Health, Labour and Welfare
Ministry of Internal Affairs and Communications, Statistics Bureau

32

Average Life Expectancy by Gender (Years)

Population (Thousands)

Total Population
130,000

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Figure 3: Population Distribution by Age
before 1916
1920
1924
1928
1932
1936
1940
1944
1948
1952
1956

Baby boomer
generation
born 1947-1949

1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
1,500

1,000

500

Population (Thousands)
Male population

2016
0 (Year of birth) 0

500

1,000

1,500

Population (Thousands)

Female population

Source: Ministry of Internal Affairs and Communications, Statistics Bureau, “Population Estimates”

Two, per capita healthcare expenditures have been increasing since fiscal 2007. In
particular, per capita healthcare expenditures of the advanced elderly are increasing
considerably and reached around 900 thousand yen in recent years. At the same time,
medical expenditures per incident per insured have also trended upward. The highest
healthcare expenditure in one particular month for one insured person set a record of
106.94 million yen in 2015. Data up to fiscal 2015 show that the number of cases ofhealthcare expenditure exceeding 10 million yen in a particular month for a single
insured rose for two consecutive years and hit almost 500 cases.
Public healthcare expenditures are forecast to increase as society continues to age,while revenue is forecast to decrease due to the declining birthrate. To address thissituation and maintain the public healthcare insurance system, the government is
implementing policies to increase premium income and reduce expenditures.
The declining birthrate and aging population have also affected private insurance
provided by life insurance companies. The standard mortality table was revised in
April 2018 because of the increase in life expectancy, and life insurance companies also
reviewed premiums. At the same time, insurers have also raised the maximum eligible
age so that elderly people can also obtain insurance, and have diversified their productlines with insurance for dementia and long-term care.
Forecasts suggest that the birthrate will fall further while the population continues
to age. Both public and private insurance must address these issues.
33

5. T
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2. Overview ofBusiness Resultsfor Fiscal 2017

The fiscal 2017 business results for 41 life insurance companies are as follows:(1) Total Amount of New Business
During the fiscal year ended March 31, 2018 (fiscal 2017), the total insured
amount of new business decreased by 16.2% to 57.4 trillion yen for individual life
because sales of yen-denominated savings insurance decreased as the asset management
environment deteriorated. The total insured amount of new business decreased by
56.6% to 4.8 trillion yen for individual annuity insurance because the decrease of thestandard valuation interest rate in April 2017 and the deteriorating asset management
environment led life insurance companies to scale back sales of yen-denominatedsavings insurance.

(2) Total Amount of In-force Business
The total insured amount of in-force business for individual life decreased by
1.2% year-on-year to 853.0 trillion yen, which was essentially unchanged from theprevious fiscal year despite the decrease in the total insured amount of new business.
Similar to the trend of total insured amount of new business for individual insurance,
the total insured amount of in-force business for individual annuity insurance
decreased by 2.2% to 105.5 trillion yen.

(3) Premium Revenues and Total Assets
Total premium revenues decreased by 4.0% year-on-year to 33.8 trillion yen due
to reduced sales of yen-denominated savings insurance. Similar to the previous fiscal
year, total assets increased by 1.5% to 381.3 trillion yen due to the increase in foreign
securities.

3. Trends in the Life
Insurance Industry

34(1) L ife Insurance Company Response to the Revision of theStandard Mortality Table
The Insurance Business Act prescribes the standard mortality table (SMT) as afundamental component in calculating the standard policy reserve. The table wasrevised for the first time in 11 years since the 2007 revision. The revision reflected
increased life expectancy and the mortality improvement.
The mortality rate on the revised SMT was reduced as the result of the increase inlongevity, which made life insurance companies consequently reduce premiums for life
insurance products sold on or after April 1, 2018 by up to 20%.
Some life insurance companies have also increased participation in par policies,
sold on or before March 31, 2018. This is a means to distribute additional returns
from the increase in longevity to policyholders, whose premiums were calculated
according to SMT prior to the revision.
On the other hand, although the mortality rate in the revised SMT was also
reflected in health products and premiums for such products were therefore expected
to rise, Japanese life insurance companies have tended to hold premiums on popular
health insurance products steady in recognition of the safety loading from theThe Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

expected morbidity rate that would absorb the increased costs from the mortality rateand in consideration of the impact that higher premiums would have on sales.

(2) Trends among Japanese Life Insurance Companies
Japanese life insurance companies have targeted international expansion in recent
years by acquiring life insurance companies overseas. However, life insurance company
acquisitions are also taking place in Japan.
Nippon Life acquired Mitsui Life in 2015 to flexibly provide products throughbancassurance and agency channels. Furthermore, Nippon Life announced it would
acquire 85% of foreign capital life insurance company, MassMutual Life Insurance
Company (MassMutual Japan) and make it a subsidiary in 2018. MassMutual Japan
entered the bancassurance market in 2004 and had an advantage in providing
products for inheritance and gifts in the high net worth market. Nippon Life will
expand in the agency and bancassurance channels through this acquisition, in addition
to its own core sales representative channel, with the objective of further building its
presence in the Japanese market. MassMutual Japan will be renamed on January 1,
2019 as Nippon Wealth Life Insurance Company Limited.
In addition, the FWD Group acquired AIG Fuji Life Insurance Company, Ltd. in2017 and made it a subsidiary, FWD Fuji Life. The FWD Group is the insurance
business unit of Pacific Century Group, which operates in three key businesses in Asia:
financial services; telecommunications, media and technology; and real estatedevelopment. FWD Fuji Life is expected to leverage FWD’s strength in digitaltechnology in developing new products and improving sales channels.
Japan’s life insurance industry still has not reorganized in a way similar to thedomestic non-life insurance industry, which resulted in three large groups – Tokio
Marine Holdings, MS&AD Insurance Group Holdings, and Sompo Holdings – thathave a major share of the market. Whether major life insurance companies will
integrate further or foreign companies continue to enter Japan’s life insurance market
remains a point of interest.

4. Product Trends(1) More Insurance Products with Wellness Benefits
In recent years, the Japanese life insurance industry has been developing andselling insurance products that give policyholders incentives, such as premium
discounts, for being healthy, so-called “wellness benefits.”

35

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Table 1: L ife Insurance Company Initiatives for Insurance Products with
Wellness Benefits
Company

Product

Summary

Sumitomo Life

Vitality(launched July 2018)

Points for health promotion activities during the year
determine premium discounts in the following year

Dai-Ichi Life

Just
(launched March 2018)

Premium discounts for submitting medical examination
documentation and additional premium discounts forgood health

Tokio Marine& Nichido Life

Aruku Hoken(launched July 2017)

Partial premium rebates depending on the number ofsteps counted by a wearable terminal or smartphone. The
product name means “Insurance for Walkers.”

Sompo Japan
Nipponkoa
Himawari Life

Linkx
(launched April 2018)

Premium is reduced retroactively to the effective date
and the policyholder can receive the difference in cash
as contribution if smoking status, health, or other issues
improve two to five years after the effective date.

Neo First Life
(Dai-ichi LifeGroup)KARADA+plus(launched April 2017)

Premium is calculated using actual age at policy inception,
but is calculated using health age based on medical
examination results and other criteria at the three-year
renewal date.

One of the reasons this trend has gained traction is that Sumitomo Life hascollaborated with Softbank and South African financial services company Discovery toinitiate the Japan Vitality Project in July 2016. Vitality is a traditional insurance policy
with a wellness program rider, which is a mechanism that encourages ongoing healthpromotion activities. The companies collect policyholder data including the results ofpolicyholder health examinations, membership usage at fitness gyms, and datameasured by wearable devices. Depending on the results, policyholders can receive
substantial premium discounts in the following fiscal year. This mechanism also
provides benefits such as discounts on associated products and services. Planned forlaunch in summer 2018, Vitality is expected to attract health-conscious people.
Future development of an array of insurance products with wellness benefits is
expected. In developing these products, insurance companies must gather and analyze
personal health-related data for use in calculating their premium rates. Insurancecompanies are therefore collaborating with companies and academic institutions that
can acquire daily lifestyle information. The development trend of such insurance
products with wellness benefits may significantly influence not only insurancecompanies themselves, but also their partners in industries such as healthcare anddigital technology.

36

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

(2) Diversifying Insurance Needs Due to Social Change
Increasing longevity in Japan is bringing on an era in which people live to be 100.
Japanese life insurance companies are therefore focusing on marketing life insurance
products to insure against such longevity risk.
Tontine annuities have become particularly popular over the past several years.
“Tontine” is a mechanism that increases the annuity benefit paid to living
policyholders by suppressing death benefits. Given the recent increase in longevity andthe need to hedge its risks, some Japanese life insurance companies have developed
enhanced tontine products such as limited payment whole life annuity insurance forpolicyholders with issue age 50 and older.
Long-term care insurance has also become popular with the increase in longevity
and the increase of the population in need of long-term care. Typical long-term careinsurance includes 1) products linked to the public long-term care insurance systemand 2) others subsidizing the payments made to nursing care providers. As thepercentage of the population that requires long-term care is trending upward, it isexpected that long-term care insurance will draw further attention.
In addition to products to hedge longevity risks, the industry is developing
products to resolve social problems in Japan, including infertility treatment. The
Japanese government is implementing policies to support households with married
couples who want to have children in order to reverse the declining birthrate. In thiscontext, the Japanese Financial Services Agency decided to allow private life insurancecompanies to market infertility treatment insurance in 2016. Infertility treatment
represents a major outlay for households, with the cost of treatment until a child isborn estimated at 1 million yen. Hopes are high that infertility treatment insurance
will mitigate this expense, but as yet insurance companies are only offering a limited
range of products. However, insurance companies are expected to develop productsthat address this insurance need, and the Japanese Financial Services Agency has
publicly announced that some insurance companies have started studying productdevelopment for infertility treatment.
As they work toward launching insurance products for new risk, it is difficult forJapanese life insurance companies to estimate future trends for incidence, which is achallenge for them. However, we expect companies to continue diversifying theirproduct lines to address changing social needs.

37Company Overview
ProfileThe Toa Reinsurance Company, Limited (Toa Re), was established in 1940.
With the reinsurance market evolving and clients’ needs expanding, we haverecognized the importance of being able to provide a diverse line of life and non-lifereinsurance products to lead the market as Japan’s primary professional reinsurer.
Toa Re is based in Tokyo with subsidiaries in New Jersey (U.S.A.) and Zürich
(Switzerland). Increasing demand for reinsurance products in Asian countries
prompted us to expand our operations in those regions and establish branch offices
in Singapore, Kuala Lumpur and Hong Kong.
In acknowledgment of Toa Re’s outstanding financial profile, credit rating
agencies, Standard & Poor’s Financial Services LLC, A.M. Best Company, Inc. andJapan Credit Rating Agency, Ltd., have assigned Toa Re ratings of A+, A and AA+,
respectively. As of March 31, 2018, the Toa Re Group boasted total assets of 687.9
billion yen. Net premiums written during the fiscal year ended March 31, 2018,
totaled 237.9 billion yen.

Mission Statement

ToaRe Mission Statement
Providing Peace of Mind
Toa Re aims to realize its mission byworking with society and applying the principles of fairness
and integrity to all aspects of our business
offering long-term, solid support to our clients by supplying
reinsurance products and services that enable themto maintain stable operations
striving to further the interests of our shareholders
and keeping them fully informed at all times
respecting the creativity of our employees and valuing
their contributions
conserving the environment and contributing to
the community

38The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2018

Consolidated
Financial Highlights

Thousands of
U.S. dollars

Millions of yen
2018

2017

2016

2015

2014

2018

Ordinary income¥254,934¥251,462¥245,114¥246,264¥246,820$2,399,604

Net premiums written

237,911

223,749

223,786

208,962

200,655

2,239,373

9,857

14,022

9,655

19,112

10,122

92,7809,191

10,512

5,674

5,805

8,910

86,511

Total net assets

200,550

191,907

180,826

199,334

160,289

1,887,707

Total assets

687,950

698,418

688,242689,631640,539

6,475,432

For the year ended March 31

Ordinary profit	Net income attributable toowners of the parent
As of March 31(Rate: ¥106.24 = US$1)

Net Premiums
Written by Class(Consolidated Basis)(Millions of yen)

Others¥19,268
8.61%

Fire¥65,44229.25%

Fiscal 2016
Life¥70,93131.70%

Total¥223,749

Marine¥8,7303.90%
Personal Accident¥1,8660.84%
Motor¥28,101
12.56%

Liability¥29,40713.14%(Millions of yen)

Others¥18,088
7.61%

Fire¥65,91227.70%

Fiscal 2017
Life¥78,360
32.94%

Liability¥32,791
13.78%

Total¥237,911

Marine¥8,508
3.58%
Personal Accident¥2,2470.94%
Motor¥32,00113.45%

39

Company Overview

Overseas Network

The Toa 21st Century
Reinsurance Co., Ltd.
(Toa Re Europe)

U.K.

Toa Re America(Toronto Branch)●●

Toa Re (Head Office)
● ●

●
●

●

TaiwanHong Kong●●

Singapore
Kuala Lumpur

Toa Re Corporate Member Limited

Locations

Toa Re America(Agricultural Office)

U.S.A.
The Toa Reinsurance Co.
of America (Toa Re America)

Branches
Singapore

50 Raffles Place #26-01, Singapore Land Tower, Singapore 048623
Telephone: 65-6220-0123

Kuala Lumpur

28th Floor, UBN Tower, 10 Jalan P. Ramlee, 50250 Kuala Lumpur, Malaysia
Telephone: 60-3-2732-5911

Hong Kong

Room 801, 8th Floor, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong
Telephone: 852-2865-7581

Subsidiaries

U.S.A.

The Toa Reinsurance Co. of America
177 Madison Avenue, P.O. Box 1930, Morristown, NJ 07962-1930, U.S.A.
Telephone: 1-973-898-9480
The Toa Reinsurance Co. of America (Agricultural Office)18301 Von Karman Avenue, Suite 310, Irvine, CA 92612, U.S.A.
Telephone: 1-949-474-1420

CanadaThe Toa Reinsurance Co. of America (Toronto branch)
55 University Avenue, Suite 1700, P.O. Box 53 Toronto, Ontario, M5J 2H7, Canada
Telephone: 1-416-366-5888

Switzerland

The Toa 21st Century Reinsurance Co., Ltd. (Toa Re Europe)
Vulkanstrasse 106, 8048 Zürich, Switzerland

U.K.

Toa Re Corporate Member Limited
33 Gracechurch Street, London, EC3V 0BT, U.K.
Telephone: 44-20-7082-2591

Representative Offices

40

U.K.

4th Floor of 33 Gracechurch Street, London, EC3V 0BT, U.K.
Telephone: 44-20-7082-2591

U.S.A.

177 Madison Avenue, P.O. Box 1930, Morristown, NJ 07962-1930, U.S.A.
Telephone: 1-973-898-9816

Taiwan4F-2, No. 128, Section 3, Min Sheng East Road, Taipei 10596, Taiwan, R.O.C.
Telephone: 886-2-2715-1015

41

Ratio 5
Solvency Margin Ratio (%)

Ratio 4
Yield on Investments(Realized Gains/Losses) (%)

Ratio 3
Yield on Investments (Income) (%)

Ratio 2
Expense Ratio (%)

Ratio 1
Loss Ratio (%)

Total Assets

Net Profit (Loss) for the Year

Ordinary Profit (Loss)

Underwriting Profit (Loss)

Net Claims Paid

Net Premiums Written

198,237
164,568
7,098,216
6,777,076
61.8
61.2
31.5
31.2
2.04
2.32

Fiscal 2017

Fiscal 2016

Fiscal 2017

Fiscal 2016

Fiscal 2017

Fiscal 2016

Fiscal 2017

Fiscal 2016

Fiscal 2017

Fiscal 2016

657.9

215,542

Fiscal 2016

Fiscal 2016

262,552

Fiscal 2017

701.1

81,799Fiscal 2016

Fiscal 201784,494

Fiscal 2017

3.63

811,476

Fiscal 2016

Fiscal 2016

836,385

Fiscal 2017

4.35

1,469,699

Fiscal 2016

Fiscal 2017

1,500,326

Fiscal 2017

851.6

784.0

2.12

0.76

2.12

2.21

33.5

33.4

59.1

59.2

3,498,264

3,486,669

50,391

15,62075,1885,616

39,531

4,843

648,618

660,699

1,200,525

1,222,017

Aioi Nissay
Dowa

MS&AD Holdings
Mitsui
Sumitomo(Non-Consolidated Basis)

860.9

827.3

3.88

4.56

2.66

3.16

30.8

30.7

60.7

62.0

9,524,466

9,669,833

248,632

253,895

312,436

325,847

116,131

86,6381,179,147

1,225,285

2,116,121

2,144,780

Tokio Marine &Nichido1,325.5

1,321.2

1.17

1.49

1.31

1.39

33.1

33.5

59.0

59.7

417,919414,872

6,579

5,346

9,019

7,574

8,121

5,314

72,93775,185140,118

141,820

NisshinTokio Marine Holdings

677.0

735.1

3.28

2.38

2.20

1.87

32.0

32.3

63.2

64.4

7,568,779

7,688,176

164,401

170,032

230,474

175,220

112,474

94,815

1,242,843

1,272,130

2,165,694

2,168,009

Sompo
Japan
Nipponkoa

Sompo Holdings

875.3

831.5

3.17

2.20

3.26

2.05

24.9

24.8

74.1

70.6

507,469

490,545

11,066

4,987

13,115

5,115

3,770

(1,372)

129,569

131,092

174,970

185,570

Toa Re(Unit: Millions of yen, %)Sources: Each company’s financial statements of fiscal 2017

Supplemental Data: Results of Japanese Major Non-Life Insurance Companies for Fiscal 2017, Ended March 31, 2018

The Toa Reinsurance Company, Limited
6, Kanda-Surugadai 3-chome, Chiyoda-ku, Tokyo 101-8703, Japanh t t p s : / / ww w.t oare.co.jp

Providing
Peace of Mind
The Toa Re Group is a global composite reinsurer that provides

peace of mind to its clients by protecting them from a broad rangeof perils such as catastrophic earthquakes and typhoons, casualty
events, crop damage, mortality and health care.

We at The Toa Re Group aim to be chosen by clients from acrossthe world because of our ability to offer a secure long-term
partnership of optimal solutions and strong financial security.

www.toare.co.jp

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