Japan’s
Insurance
Market2021

Japan’s Insurance Market 2021
ContentsPage

To Our Clients
Masaaki Matsunaga
President and Chief Executive
The Toa Reinsurance Company, Limited

1

1. 	Trends in Solvency Regulations in Japan and the Response among Insurance Companies
Nobuyasu Uemura, Ph.D.
Professor, Faculty of Commerce, Fukuoka University

2

2.	Climate Change: The Situation in Japan and Impact on Non-Life Insurance
Toshio Koshiba
Manager, Senior Consultant, Risk Assessment Section, Corporate Planning Department
MS&AD InterRisk Research & Consulting, Inc.

7

3.	Influence of Short-Term Climate Variability on Climate Change and its Possible
Implications for Risk Quantification
Kazuhiro Tsubono, MSc., Hongyuan Li, Ph.D., Oriol Gaspa Rebull
Aon Japan Reinsurance Solutions Analytics

21

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

31

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

38

Company Overview

44

Supplemental Data: Results of Japanese Major Non-Life Insurance Companies for Fiscal 2020,
Ended March 31, 2021 (Non-Consolidated Basis)47©2021 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 have the opportunity to welcome you to our brochure, ‘Japan’s
Insurance Market 2021.’ It is encouraging to know that over the years our brochures have been wellreceived 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 ofour domestic market.
During fiscal 2020, the year ended March 31, 2021 the insurance and reinsurance industries
have been encountering a substantially changing business environment. For instance, insurance
needs and risks have been rapidly diversifying and changing amid developments that include
evolution and growing prevalence of digital technologies, frequent occurrences of natural disasters
associated with climate change, and demographic trends in the form of a decreasing birthrate andan aging population. Meanwhile, the COVID-19 pandemic has greatly affected our world in avariety of ways, having weighed on the global economy as well as people’s work and lifestyles.
Amid these circumstances, the Toa Re Group has drawn up TEAM TOA 2023, our new
medium-term management plan, which launched in April 2021. Under TEAM TOA 2023, we aim
to achieve sustainable growth in step with our clients and society by providing optimal solutions
and services to our clients amid an increasingly changing environment. The respective entities andsections of the Group will rally together in carrying out various initiatives to achieve such targets.
Everyone at the Toa Re Group will do their utmost to ensure that the Group consistently fulfills
its mission as a reinsurance company “Providing Peace of Mind,” as articulated in the Toa Re
Mission Statement. We look forward to your ongoing support going forward.
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 muchtime and effort towards its making.

Masaaki Matsunaga
President and Chief Executive
The Toa Reinsurance Company, Limited1

1.
1. Economic ValueBased Solvency
Regulations inJapanTrends in Solvency Regulations in Japanand the Response among Insurance
Companies
Nobuyasu Uemura, Ph.D.
Professor, Faculty of Commerce, Fukuoka University

Japan’s Financial Services Agency (FSA) is currently preparing for the
introduction of economic value-based solvency regulations. Although theseregulations are for Japan-based insurers, the FSA plans to implement new
regulations for all Japan-based insurers in 2025 in line with the schedule for the
introduction of the Insurance Capital Standard (ICS).
Economic value-based solvency regulations are designed to accurately elucidate
the financial status of insurance companies through the integrated assessment ofassets and liabilities on an economic value basis (fair value basis). In many countries,
including Japan, current insurance accounting uses acquisition cost or a similar
metric to value reserves, which account for the majority of insurance company
liabilities. However, regulations based on current accounting are unable toaccurately reflect the soundness of insurance companies.
In Japan, an FSA panel composed of knowledgeable members of the insurance
industry started investigation into the introduction of economic value-based solvency
regulations in 2006. The panel published its recommendations in 2007. Subsequently,
the economic environment changed as a result of the global financial crisis of 2008
and the negative interest rate policy of the Bank of Japan. In June 2020, the FSA
Council of Experts (with different participants to the earlier one that publishedrecommendations in 2007) proposed the direction of the introduction of regulations.
Figure 1: Economic Value-Based Solvency Regulations

Economic Value-Based Economic Value-Based(Fair Value-Based)(Fair Value-Based)
Liabilities
AssetsEconomic
Value-Based
Solvency Margin

Change = Risk

Economic Value-Based
Quantification of Risk

Compare Both ( = ESR: Economic Solvency Ratio)
Source: Chart created by the author

Chart created by the author

While Japan was considering the introduction of economic value-based
solvency regulations, the International Association of Insurance Supervisors (IAIS)
was developing the Insurance Capital Standard (ICS) for internationally active
insurance groups. The ICS also uses the market-adjusted valuation approach basedon economic value. As a key member of the IAIS, the FSA is also considering the
introduction of criteria similar to the ICS for domestic regulations.
In addition, IFRS 17 “Insurance Contracts,” an international accounting
standard for insurance contracts, is finally about to come into force after more than
20 years of consideration. IFRS 17 is similar to economic value-based solvency
regulations in that it measures insurance liabilities on an economic value basis.

2

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

However, IFRS is voluntary rather than compulsory in Japan, and the FSA does notplan to review the insurance accounting standards used for supervision. Therefore,
even after the introduction of economic value-based solvency regulations in 2025,
insurers will continue to report their financial results based on current accounting
standards, except for companies that have voluntarily applied IFRS.

2. Features of Japan’s
Insurance Market

A brief overview of Japan’s insurance market is helpful in understanding trends
in solvency regulations in Japan.
Traditional products are still the core of the Japanese life insurance market.
Here, “traditional” means that future cash flow is determined at the effective date ofcontract. Due in part to the impact of low interest rates, sales of yen-denominatedsavings products have been low in recent years, and many life insurance companies
mainly offer protection-type insurance products with a term of about 10 years.
However, when interest rates were relatively high (until the mid-1990s), insurancecompanies aggressively pushed ultra-long-term, high-interest-rate products thatoffered advantageous returns to policyholders, such as whole life insurance andindividual annuity insurance, in addition to fixed-term protection-type insurance
products. Consequently, many policies with high interest rates from that time arestill included in insurance company liabilities. Life insurance companies have been
lengthening the maturities of assets by purchasing ultra-long-term government
bonds since the 2000s, but the mismatch between assets and liabilities still remains,
and the decline in interest rates is putting pressure on the soundness of life
insurance companies.
Table 1: Balance of Policy Reserves by Policy Year (Dai-Ichi Life Insurance)(Million yen; %)Policy YearEnd ofFiscal 2019

Proportion

Expected Interest
Rate

Until Fiscal 1980

565,820

2.5%

2.75% - 5.50%

Fiscal 1981 - Fiscal 1985

1,098,107

4.8%

2.75% - 5.50%

Fiscal 1986 - Fiscal 1990

4,331,989

18.9%

2.75% - 5.50%

Fiscal 1991 - Fiscal 1995

4,018,926

17.5%

2.75% - 5.50%

Fiscal 1996 - Fiscal 2000

1,431,383

6.2%

2.00% - 2.75%

Fiscal 2001 - Fiscal 2005

1,498,915

6.5%

1.50%

Fiscal 2006 - Fiscal 2010

2,675,261

11.7%

1.50%

Fiscal 2011 - Fiscal 2015

4,700,871

20.5%

1.00% - 1.50%

Fiscal 2016 - Fiscal 2019

2,638,437

11.5%

0.25% - 1.00%

Total

22,959,709

100.0%

Table created using data from Dai-Ichi Life Insurance Annual Report 20203

1.	Trends in Solvency Regulations in Japan andthe Response among Insurance Companies

Around 2000, medium-sized life insurance companies went bankrupt one after
another. These bankruptcies were a result of a sharp fall in asset prices and interest
rate levels due to the collapse of the bubble economy; these companies had
aggressively sold products featuring advantageous returns with high interest rates
during the bubble economy. Improper management also increased the risk ofbankruptcy. Regulators may not have been able to prevent the companies fromgoing bankrupt even if economic value-based solvency regulations had been inplace, but at least they would have been able to identify unsound companies earlyon.
The Japanese non-life insurance market generates more than 50% of premiumincome from automobile insurance, which is renewed annually. This makes non-life
insurance companies less susceptible to interest rate fluctuations than life insurancecompanies. However, Japanese non-life insurance companies are exposed to the riskof large-scale natural disasters such as earthquakes and typhoons. They also holdmany equities of large companies for the purpose of maintaining insurance
contracts, not for investment purposes, so fluctuations in share prices can easily
cause significant changes in the solvency margin ratio.
In addition, major non-life insurance companies have become international
comprehensive insurance groups through mergers and acquisitions. Japan’s threemajor insurance groups have a 90% share of Japan’s non-life insurance market.
Further, the risk profiles of all groups are becoming more diverse and complex
because they are exposed to many kinds of risk, such as interest rate risk in the life
insurance business and the operational risk of overseas insurance companies due totheir diversification.
The three major insurance groups – Tokio Marine Holdings, Inc., MS&AD
Insurance Group Holdings, Inc., and Sompo Holdings, Inc. – and the Dai-ichi Life
Insurance Group are designated as “Internationally Active Insurance Groups”
subject to ICS.

3. Features of the
New Solvency
Regulations

4

The new solvency regulations presented by the 2020 Council of Experts domore than just embrace economic value-based thinking. Their three-pillar approachis another feature.
The first pillar is solvency regulation in a narrow sense based on quantitative
criteria, the second pillar is risk management and supervisory review, and the third
pillar is disclosure. This approach is not novel, as it is already incorporated in the
Basel regulations for banks and Solvency II, the EU’s insurance supervision
regulations. The elements that make up these three pillars are also alreadyincorporated in current Japanese insurance administration.
However, the content of solvency regulations differs greatly depending on thedesign of the relationship between the first pillar and the second and third pillars. At
present, no decision has been made about the extent to which the first pillar will
employ the insurer’s own internal model, so companies will adhere to the criteria of
the standard model. If the first pillar is made very strict, the second and third pillars

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

will become less important. It will make adhering to the criteria set by theauthorities based on the standard model an effective risk management tool for
insurance companies. That said, one criterion alone cannot control all of an
insurer’s management risks, and that kind of regulatory design can even undermine
the soundness of insurers.
The Council of Experts believes that encouraging insurers to manage their own
risk is important, and proposes that the first pillar should be the one with thegreatest common denominator, so to speak. As a result, the standard model criteria
are less sensitive to risk and may sacrifice some of the benefits of incorporating
economic value-based assessment. For the second pillar, however, the Own Risk andSolvency Assessment (ORSA) report and other data the authorities already requestfrom insurance companies every year can be used to confirm insurer soundness.
Dialogue between authorities and insurance companies based on such data willencourage companies to voluntarily improve their own risk management.
Furthermore, the third pillar, which centers on insurers’ disclosure, involves
discipline from market participants. The new solvency regulations do not simply
require insurers to adhere to quantitative standards, but ensure soundness withproper regulatory design built on multiple pillars.

Prudential Policy Based on the Three Pillars• Pillar 1 (solvency regulation): establishes a common standard of asolvency ratio and a framework of supervisory interventions, whichfunctions as a backstop to protect policyholders.
• Pillar 2 (risk management and supervisory review): covers risks thatare not fully captured in Pillar 1 and establishes a supervisory
review on insurers’ risk management frameworks that facilitate
enhancement of their risk management practices.
• Pillar 3 (disclosure): facilitates dialogue between insurers andexternal stakeholders that improves corporate governance andenhances discipline in insurance companies through external
scrutiny.
Source: FSA Council of Experts announcement, June 20205

1.	Trends in Solvency Regulations in Japan andthe Response among Insurance Companies

4. Response among
Insurance
Companies

6

In closing, here is a brief overview of the response among Japan’s insurancecompanies.
Published material indicates that many Japanese insurers have already adopted
some form of internal control based on economic value. The listed insurance groups
define their economic solvency ratio (ESR), a key indicator that compares the
economic value-based solvency margin to risk quantified based on economic value,and publish their ESR and its numerator and denominator for use in their dialogue
with analysts and investors.
The extent to which ESR is important to management is not necessarily clear,with the exception of some listed companies. The commitment to ESR seems tovary from company to company. However, companies are certainly struggling withthe gap between profit indicators and current solvency criteria, which are based on
current accounting standards, and economic value-based internal control inmanaging risks, especially interest rate risk. The introduction of economic valuebased solvency criteria that are consistent with their internal control will facilitaterisk management.
ESR is considered more variable than current solvency criteria due to changes inthe economic environment and financial markets. It will take on a greater role as aregulatory indicator rather than as an insurer-related internal control indicator. In
particular, authorities will use ESR as the basis for intervening in management when
an insurer’s ESR fails to meet an adequate solvency level as defined by authorities,
so insurers are likely to suppress risk and increase solvency even more than they do
now. This fact reflects the trend over the last few years for insurers to fully satisfy
the current solvency margin regulation at a high level, but still continue to borrowexternally using subordinated debt, etc. Some insurers are also suppressing interest
rate risk.
However, as mentioned above, the new solvency criteria will not overly rely on
the first pillar, but will also emphasize the second and third pillars. Insurers will
therefore need to communicate their risk-taking strategies to the authorities andexternal stakeholders more clearly.
Soundness is not a license to take risk freely. Insurers must take risks to generate
returns, but only risks they are reasonably capable of taking on. Mutual insurancecompanies must fully consider what their members, who are policyholders, want ofmanagement with regard to how a company takes on risk.
For example, a company with extensive equity holdings must demonstrate its
capabilities as an investor and the ability to generate returns that outperform themarket. This would also clarify management responsibilities. I believe the newsolvency regulations will likely require greater risk-based management among
insurers.

2.
1. Introduction:
Article Thesis andStructure

2. The Relationshipbetween Climate
Change and
Non-Life Insurance

Climate Change: The Situation in Japanand Impact on Non-Life Insurance
Toshio Koshiba
Manager, Senior Consultant, Risk Assessment Section, Corporate Planning Department
MS&AD InterRisk Research & Consulting, Inc.

Alarms have been going off about global climate change for many years. In
Japan, major disasters resulting from massive typhoons and heavy rains in 2018 and2019 and record-high temperatures over the past several years have made theJapanese public increasingly concerned about and aware of the realities of climatechange.
Various studies have investigated climate change, and the Intergovernmental
Panel on Climate Change (IPCC – created by the United Nations Environment
Programme and the World Meteorological Organization) and other organizations
have predicted the increase in temperature. The general view in the non-life
insurance industry is that claims paid will increase if climate change intensifies.
This article examines climate change circumstances based on various
meteorological data, with a focus on the past and present rather than forecasts forthe future, and considers the impact on non-life insurance. Due to timing issues,
this article mainly covers circumstances up to 2020.

First, I would like to summarize the relationship between the damage caused byongoing climate change and the expected increase in the risk of non-life insurance
claim payments. The general view is that climate change will more likely lead to anincrease in natural disasters due to intensified weather.

(1) Flooding
Precipitation increases when the amount of water vapor in the atmosphere rises
due to higher temperatures, which causes river flooding and inland flooding andmay increase the risk of flooding damage.

(2) Wind damage
Higher air and seawater temperatures may mean that a higher number oftyphoons will approach the coast of Japan and make landfall without losing
intensity, which increases the risk of damage caused by powerful winds.

(3) Storm surge
Increased risk of coastal storm surge can be put down to two factors. The first isrising sea levels related to the higher temperatures that are causing Arctic andAntarctic ice to melt. The second factor is rising sea levels related to the drop in
atmospheric pressure and the strong wind that blows the sea surface, both of which
are associated with increased likelihood of strong typhoons, as mentioned in (2)above.
In fact, as shown in Table 1, seven of the ten highest claims paid totals fromwind and flooding damage in Japan have occurred in the past 10 years, which
underscores the social mission of non-life insurance companies.

7

2.	Climate Change: The Situation in Japanand Impact on Non-Life Insurance

Table 1: Major Claims Paid Due to Wind and Flooding Damage1
Rank

Disaster Name

RegionDate1Typhoon No. 21, 2018
(Typhoon Jebi)

Osaka, Kyoto, Hyogoand elsewhere2

Typhoon No. 19, 2019
(Typhoon Hagibis)

3

Claims Paid (Billion yen)
Fire

Motor

Marine

Total

September 3-5, 2018

936.3

78.0

53.5

1,067.8

East Japan

October 6-13, 2019

518.1

64.5

−

582.6

Typhoon No. 19, 1991
(Typhoon Mireille)

Nationwide

September 26-28, 1991

522.5

26.9

18.5

568.0

4

Typhoon No. 15, 2019
(Typhoon Faxai)

Kanto

September 5-10, 2019

439.8

25.8

−

465.6

5

Typhoon No. 18, 2004
(Typhoon Songda)

Nationwide

September 4-8, 2004

356.4

25.9

5.1

387.4

6

Heavy Snowfall, February
2014

Mainly Kanto

February, 2014

298.4

24.1

−

322.4

7

Typhoon No. 18, 1999
(Typhoon Bart)

Kumamoto, Yamaguchi,
September 21-25, 1999
Fukuoka and elsewhere

284.7

21.2

8.8

314.7

8

Typhoon No. 24, 2018
(Typhoon Trami)Tokyo, Kanagawa,Shizuoka and elsewhere

September 28October 1, 2018

294.6

11.5

−

306.1

9

Heavy Rain, July 2018

Okayama, Hiroshima,
Ehime and elsewhere

June 28-July 8, 2018

167.3

28.3

−

195.6

10

Typhoon No.15, 2015
(Typhoon Goni)

Nationwide

August 24-26, 2015

156.1

8.1

−

164.2

Source:General Insurance Association of Japan: Fact Book 2019-2020 - General Insurance in Japan P. 78. The figure of “total” does not equal the
total of individual items due to rounding.

3. Historical
ClimateComparison andNatural Disaster
Scale in JapanThe following uses recorded meteorological data and insurance claims paid data
for an historical climate comparison from various perspectives to consider the
impact of climate change and the scale of natural disasters.

(1) Is Climate Change Occurring?
Following is an historical comparison for seven perspectives on whether climatechange is occurring.
A. C omparison of Temperatures 100 Years Ago (1920) and Temperatures
Now (2020)
Past records are available on the Japan Meteorological Agency website. Table 2
is a comparative summary of Tokyo temperatures for 1920 (100 years ago) and2020 using a number of familiar data points rather than just the historical annual
averages used for many articles on climate change.

8The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Table 2: Comparison of Tokyo Temperatures for 1920 and 2020 (Degrees Celsius)
1920

2020

Average temperature

14.2

16.5

Single-day high (highest)

32.5

37.3

Single-day high (lowest)

1.3

6.5

Single-day low (highest)

25.0

28.0

Single-day low (lowest)

-4.3

- 2.1

Days with a lowest temperature
below 0°C

60

6The largest number of days with alowest temperature below 0°C in thelast 10 years was 22

Days with a lowest temperature at or
above 25°C

1

27

The fewest number of days with alowest temperature at or above 25°C
in the last 10 years was 10

Days with a highest temperature at or
above 30°C

38

54

Days with a highest temperature at or
above 35°C

012Comments

The lowest single-day high in the last 10
years was 36.1°C

While the fewest days with a highest
temperature at or above 35°C in the last
10 years was 2, the figure for each of thepast three years was 12 days.

Note: Table uses data from the Japan Meteorological Agency website.

The table simply compares a single year in the past with a single year in thepresent. However, items in red highlight major differences, not just in 2020 but also
over the past 10 years. The figures may be something of a shock for Tokyo
residents, and underscore the significant differences in weather between 1920 and2020.
At this point, many readers presumably are thinking that urbanization has an
impact as well as climate change. Data from the Japan Meteorological Agency’s
website indicate that the average temperature in Japan increased 1.24°C over the
100 years through 2019.2 The figure is calculated using data from 15 locations
where the influence of urbanization is small. Table 3 is a comparison between 1920
and 2020 in Hikone,* one of the fifteen locations referred to above, using the samedata points as Table 2. Hikone is in Shiga Prefecture, which is located far from thesea and is close to the central part of Japan.
* The comparison uses Hikone instead of Iida, Nagano Prefecture, which is in a similar location far
from the sea and close to the central part of Japan, because the measurement location in Iidachanged sometime between 1920 and 2020.

9

2.	Climate Change: The Situation in Japanand Impact on Non-Life Insurance

Table 3: Comparison of Hikone Temperatures for 1920 and 2020 (Degrees Celsius)
1920

2020

Average temperature

14.0

15.8

Single-day high (highest)

34.1

36.3

Single-day high (lowest)

1.7

2.6

Single-day low (highest)

25.3

28.2

Single-day low (lowest)

-4.5

-1.4

Days with a lowest temperature
below 0°C

50

7

The largest number of days with alowest temperature below 0°C in thelast 10 years was 37

Days with a lowest temperature at or
above 25°C

1

27

The fewest number of days with alowest temperature at or above 25°C in
the last 10 years was 13

Days with a highest temperature at or
above 30°C

57

53

Days with a highest temperature at or
above 35°C

012Comments

While the fewest days with a highest
temperature at or above 35°C in thelast 10 years was 1, the figure for eachof the past three years was 11 days.

Note: Table uses data from the Japan Meteorological Agency website.

Overall, the differences in Hikone seem to be smaller compared to Tokyo, but
the items in red highlight large differences.
Therefore, the data suggest that the rise in temperature is just as pronounced in
Hikone, where the effect of urbanization is comparatively smaller, than it is inTokyo, which is affected by urbanization.

10

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

B. Years with Extremely High and Low Temperatures
Table 4 summarizes highest temperatures in Japan by year and location.3
Table 4: Ranking of Highest Temperatures in Japan (through 2020)
Rank

Prefecture

Location1

Shizuoka

1

Recorded Temperature
°C

Date

Hamamatsu

41.1

August 17, 2020

SaitamaKumagaya

41.1

July 23, 2018

3

Gifu

Mino

41.0

August 8, 2018

3

Gifu

Kanayama

41.0

August 6, 2018

3

Kochi

Ekawasaki

41.0

August 12, 2013

6

Shizuoka

Tenryu40.9

August 16, 2020

6

Gifu

Tajimi40.9

August 16, 2007

8

NiigataNakajo40.8

August 23, 2018

8

Tokyo

Ome

40.8

July 23, 20188

Yamagata

Yamagata

40.8

July 25, 1933

Note: Table uses data from the Japan Meteorological Agency website.

The data indicate that seven of the top ten highest temperatures were in the past
three years, underscoring the striking upward trend in temperature in recent years.
Next, Table 5 summarizes lowest temperatures in Japan by year and location.
Table 5: Ranking of Lowest Temperatures in Japan (through 2020)
Rank

Prefecture

Location

1

Kamikawa region, Hokkaido

2

Recorded Temperature
°C

Date

Asahikawa- 41.0January 25, 1902

Tokachi region, Hokkaido

Obihiro- 38.2January 26, 1902

3

Kamikawa region, Hokkaido

Etanbetsu- 38.1February 17, 1978

4

Shizuoka

Mount Fuji

- 38.0February 27, 1981

5

Souya region, Hokkaido

Utanobori- 37.9February 17, 1978

6

Kamikawa region, Hokkaido

Horokanai- 37.6

February 17, 1978

7

Kamikawa region, Hokkaido

Bifuka- 37.0February 17, 1978

8

Kamikawa region, Hokkaido

Wassamu- 36.8January 25, 1985

9

Kamikawa region, Hokkaido

Shimokawa- 36.1February 17, 1978

10

Souya region, Hokkaido

Nakatonbetsu- 35.9January 24, 198511

2.	Climate Change: The Situation in Japanand Impact on Non-Life Insurance

The data indicate that lowest temperatures ranked 3 to 10 have occurred since1970. Of note, observation began in 1976 or later for most locations. Lowest
temperatures for these locations do not appear from the 1990s onward in Table 5,
which also suggests a rise in temperature in recent years. To illustrate this trend,
Table 6 summarizes lowest temperature rankings for Tokyo and Hikone, withobservations going back before 1900.
Table 6: Ranking of Lowest Temperatures in Tokyo and Hikone (Degrees
Celsius and Year)
Rank

Hikone (from 1893)

Tokyo (from 1875)

1

-9.2

January 13, 1876

-11.3

January 27, 1904

2

-9.1

January 14, 1885

-10.0

January 6, 1923

3

-8.6

January 24, 1927

-9.3

January 6, 1938

4

-8.6

January 12, 1876

-9.2

January 13, 1907

5

-8.4

January 13, 1881

- 9.1

January 29, 1933

6

-8.2

January 9, 1918

- 8.9

February 17, 1896

7

-8.2

January 21, 1885

- 8.8

February 8, 1966

8

-8.1

January 22, 1922

-8.7

December 21, 1947

9

-8.1

January 8, 1918

-8.7

February 5, 1901

10

-8.1

January 20, 1889

-8.6

January 11, 1939

The data indicate that all of the top ten record-low temperatures are in 1927 or
earlier in Tokyo, which underwent urbanization, while nine of the top ten recordlow temperatures are before 1950 in Hikone, which is comparatively less affected byurbanization. Recent record lows are also rare at other locations where observation
began just as far back as Tokyo and Hikone, which suggests a long-term increase intemperature.
Notably, some locations have observed record lows in recent years. For
example, during an intense cold wave in western Japan from January 25 to 26,
2016, Hitoyoshi in Kumamoto Prefecture observed the record low of -9.8°C sinceobservation began in 1943. Using a different indicator, locations including
Okayama and Hiroshima Prefecture recorded the lowest single-day hightemperature since observation began in 1900 during a nationwide cold wave fromFebruary 26 to 27, 1981.
C. Long-Term Changes in Precipitation
The Japan Meteorological Agency’s time-series data for annual deviations inprecipitation in Japan (1898-2020)4 indicate no long-term change trend (Figure 1).
Although precipitation has trended upward over the last 10 years, it is low
compared to the 1950s. In addition, time-series data for annual deviations inprecipitation worldwide indicate that the number of years with high precipitation
has increased since 2004.
12

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Figure 1: Annual Deviations in Precipitation in Japan
(mm)
500
400
300
200
100
0
-100
-200
-300
-400
-500

1900

1910

1920

Deviations from the annual baseline

1930

1940

1950

1960

1970

1980

1990

2000

2010

2020 (Year)5-year running mean

Note: Created from time-series data for annual deviations in precipitation in Japan (1898–2020) as reported on the Japan Meteorological Agency
website. The baseline is the 30-year average value from 1991 to 2020.

Precipitation in short intervals such as 10 minutes or 1 hour is of greatest
interest. Using data from the Japan Meteorological Agency website,5 Figure 2 shows
the annual number of events observed by the Automated Meteorological Data
Acquisition System (AMeDAS) nationwide with precipitation of 80 mm or more in
one hour, and the number of events has been trending upward since 1998. Flooding
damage has tended to occur more easily in recent years.
Figure 2: Annual Number of Events with Precipitation ≧ 80mm in One Hour in Japan (1976-2020)(Number of events)
50

40

30

20

10

0

1975

1980

1985

1990

Annual number of events with precipitation ≧ 80mm per hour in Japan

1995

2000

2005

2010

2015

2020 (Year)5-year running mean13

2.	Climate Change: The Situation in Japanand Impact on Non-Life Insurance

D. Wind Record Trends
Table 7 shows the top 10 record events for maximum instantaneous wind speedin Japan.
The data show three record events since 2000, and no tendency toward higher
wind speed in recent years. Further, only two of the top ten record events for
maximum wind speed have occurred since 2000, again showing no tendency towardhigher wind speed.
Moreover, with regard to location-related trends, the second, third and fourthranked record events for maximum instantaneous wind speed in Tokyo occurred
within the last 20 years, but none of the top ten ranked record events for maximum
wind speed occurred in that time. In Hikone, the first and ninth ranked record
events for maximum instantaneous wind speed occurred within the last 20 years,
but only the fourth ranked record event ranked among maximum wind speed eventsin that time. These data suggest no increased likelihood of strong winds in recent
years.
Table 7: Top 10 Record Events for Maximum Instantaneous Wind Speed in Japan
Rank

Prefecture

Location1

Shizuoka

2

Recorded Wind Speedm/s

Direction

Date

Mount Fuji

91.0

SSW

September 25, 1966

Okinawa

Miyakojima

85.3

NE

September 5, 1966

3

Kochi

Murotomisaki

84.5

WSW

September 16, 1961

4

Okinawa

Yonagunijima

81.1

SE

September 28, 2015

5

Kagoshima

Naze

78.9

ESE

August 13, 1970

6

Okinawa

Naha

73.6

S

September 8, 1956

7

Ehime

Uwajima

72.3

W

September 25, 1964

8

Okinawa

Ishigakijima

71.0

SSW

August 23, 2015

9

Okinawa

Iriomotejima

69.9

NE

September 16, 200610

Tokushima

Tsurugisan

69.0

SSE

August 21, 1970

E. Trends in Cherry Blossom Dates
Figure 3 shows the dates when cherry trees began blossoming in Tokyo and
Hikone.
Statistical records begin in 1953, and clearly show that cherry trees have been
blossoming earlier in both Tokyo and Hikone in recent years. Acceleration began in
the 1990s and the trend has been pronounced in the years since 2000.
The anomaly of the very late bloom in both Tokyo and Hikone in 1984 is dueto the fact that it was a very cold year; the average temperature in Tokyo was 4.4°C

14The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

lower in January, 5.3°C lower in February, and 4.8°C lower in March comparedwith the same months in 2020. Incidentally, the average monthly temperature inTokyo in January 1984 was 61st lowest among all years since records began in
1876, February ranked 22nd, and March ranked 14th, so these temperatures were
not particularly low compared with a less urbanized Tokyo. However, the averagemonthly temperature in Tokyo in January 1984 was 5th lowest among all years
since 1953, the year in which cherry blossom statistics were first recorded, February
was the lowest, and March ranked 2nd. It underscores the fact that Tokyo in 1984
was particularly cold among recent years.
Figure 3: Cherry Blossom Dates in Tokyo and Hikone(Date)
4/20
4/15
4/10
4/5
3/31
3/26
3/21
3/16
3/11
1950

1955

1960
Tokyo

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015 2020 (Year)

HikoneF. Number of Typhoons and Typhoon Landfalls
Figure 4 shows the results of an investigation into the number of typhoons by
year 6 to see if typhoons have become more frequent in recent years. The data
indicate that the number of typhoons is not trending upward. Few typhoons
occurred from 2000 to 2010. While typhoons have increased since 2010, thenumber is still lower than in the 1960s and around 1990, when the number oftyphoons was high.

15

2.	Climate Change: The Situation in Japanand Impact on Non-Life Insurance

Figure 4: ‌Number of Typhoons by Year
(Number of typhoons)
40

30

20

10

0

1950

1955

1960

Number of typhoons by year

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020 (Year)

10-year running mean

In addition, typhoons making landfall in Japan7 were most frequent in 2004
during a period when the number of typhoons was otherwise low. Table 8 shows theyears when typhoons made landfall frequently, but shows the number has not been
trending upward in recent years.
Table 8: Ranking of Typhoon Landfalls in Japan by Year
Rank

Landfalls

Year

1

10

2004

2

6

1990, 1993, 2016

5

5

1954, 1962, 1965, 1966, 1989, 2018, 2019

Typhoons with the strength of Typhoon Nancy (1961) and Typhoon Vera (theIsewan Typhoon, 1959) have not struck in recent years. As I mentioned at the
beginning of this paper, Typhoon Jebi in 2018 caused the highest claims paid of any
typhoon in Japan, but it was not nearly as powerful as Typhoon Nancy or the
Isewan Typhoon – their central pressure at landfall was more than 20 hPa lower
than that of Typhoon Jebi.
However, the widely accepted view is that global warming will cause fewer but
more powerful typhoons to approach Japan. Future global warming and typhoonrelated developments require continued attention.

16

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

G. Heavy Snowfall
In 2014, heavy snowfall mainly in inland areas of the Kanto region, including
Tokyo, set significantly higher records for snow depth, and incurred claims paid ofover 300 billion yen.1 According to statistics, heavy snowfall trends seem to differ
from temperature trends.
Figure 5: ‌Days with Snow in Tokyo by Year(Days)
30

20

10

0
1930

1935

1940

1945

1950

Number of days with snow

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020 (Year)

10-year running mean

Note: Table uses data from the Japan Meteorological Agency website.

Figure 5 shows the number of days with snow in Tokyo.
Days with snow have decreased in recent years compared to before 1950, buthave not decreased significantly when compared to around 1960 and 1995. By theway, in 1984, the year in which the cherry blossoms were significantly later as I
mentioned above, the number of days with snow was 29. It was a particularly large
number, reflecting the cold winter.
Table 9 shows major locations where the deepest snow was observed during theheavy snowfall in February 2014. These points are located along the Pacific coast.
Table 9: Major Locations Where Deepest Snow in Month Was Observed during Heavy Snowfall in February 2014
Observation Point (Year observation began)

Deepest Snow in Month (cm)Observation Date

Kofu (1894)

114

February 15, 2014

Kawaguchiko (1933)

143

February 15, 2014

Kumagaya (1896)

62

February 15, 2014

Supplementing the above table, the second-ranked snowfall in Kofu was in1998 and five out of the top ten snowfalls in Kawaguchiko were in the past 30
years. This seems contrary to the trend toward the decrease in heavy snowfalls in17

2.	Climate Change: The Situation in Japanand Impact on Non-Life Insurance

recent years. In Tokyo, however, only one of the top ten snowfalls was in the past
30 years, so the snowfall trend varies by region.
Also, record snowfalls in the heavy snow belt along the Sea of Japan havetended to be less frequent in recent years compared with the observation points
along the Pacific coast mentioned above. However, in Hijiori, Yamagata Prefecture,
six of the top-ten records for monthly snow depth occurred during the 20 years
since 2001. Hijiori is located along the Sea of Japan and holds the record for Japan’s
fourth-highest snow depth at 445 cm, with record snowfalls for the 40-odd years
since 1982.
Supplement: The deepest snow depth during a given month is used for thesnow depth record at each observation point.

(2) Relationship between Climate Change and the Scale of Wind,
Flooding and Other Natural Disasters
Has the risk of wind and flooding damage increased due to the rise in averageannual temperatures in Japan? To answer this question, I investigated therelationship between average annual temperatures in Japan and claims paid annually
due to wind and flooding damage. Wind and flooding damage includes damage
from wind, flooding, large-scale fires, and snow.
Average annual temperature deviations in Japan are the figures announced by
the Japan Meteorological Agency.8 At the same time, claims paid information forwind and flooding damage is data published by the General Insurance Associationof Japan. Information on claims paid annually for wind and flooding is notavailable, so the figures used are actually the figures from total claims paid for largescale natural disasters 9 announced since 2012. This is a good proxy given theavailability of information because wind and flooding damage accounts for a large
proportion of claims paid for large-scale natural disasters.
Figure 6 shows average annual temperature deviations in Japan and annual
claims paid for wind and flooding damage as defined above.

18

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Annual claims paid for wind and flooding damage (Billion yen)

Figure 6: Average Annual Temperature Deviations in Japan and Annual Claims
Paid for Wind and Flooding Damage(Billion yen)
1,800
1,600

2018: 1,529.2

1,400
1,200

2019: 1,072.1

1,000
800
600
400

2014: 327.8

200

2015: 216.6

2017: 172.3
2013: 87.7

2012: 62.9

2016: 21.5

0
0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Average annual temperature deviations in Japan* The baseline for average annual temperature deviations in Japan is the 30-year average from 1991
through 2020.

In conclusion, the correlation coefficient between average annual temperaturedeviations and total claims paid for wind and flooding damage is 0.45, which is
positive but not particularly compelling for several reasons. The statistical period isshort at eight years, and typhoons come from the sea in the south and are not only
affected by the temperature near Japan. Moreover, the pressure pattern at the timeof individual events such as typhoons and the Baiu front (rainy season front)
determines their strength, so the correlation with average annual temperature is notconsidered high in the first place.

4. Conclusion

Section 3 above considered climate change and trends from the past to thepresent from various perspectives. Meteorological phenomena occur due tointerrelationships among extremely complex factors and any conclusions would
require more detailed investigation. However, the following tendencies are apparent.
Items

Climate Change and Trends from the Past to the Present

Temperature

An upward trend is clear. A strong upward trend in temperature isparticularly pronounced in recent years.

Precipitation

Although annual precipitation is not trending upward, precipitationin short intervals is trending upward and contributing to flooding
damage.

Wind speed

A trend toward stronger wind is not apparent.

Cherryblossoms

Cherry trees have been blossoming earlier.

Typhoons

No particular change is apparent in number or landfalls.

Heavy snowfall

New records have been set for heavy snowfall in recent years, so heavy
snow seems no less likely.
19

2.	Climate Change: The Situation in Japanand Impact on Non-Life Insurance

The above conditions only show the impact of climate change to date. The
actual impact of climate change does not live up to the clamor surrounding it, butthat may not be the case going forward. Fortunately, the present influence ofclimate change is as per the table above.
Non-life insurance companies are required to help reduce the social impact ofnatural disasters by providing stable non-life insurance coverage. They also must
aggressively implement measures to both mitigate climate change in ways such as
reducing greenhouse gas emissions and adapt to climate change by preparing foradverse effects, while proactively participating in global initiatives such as the SDGs.
Selected Bibliography
1. G eneral Insurance Association of Japan: Fact Book 2019-2020 – General
Insurance in Japan, page 78.
2. J apan Meteorological Agency website: Method for calculating annual temperaturedeviation in Japan.
https://www.data.jma.go.jp/cpdinfo/temp/clc_jpn.html
3. J apan Meteorological Agency website: National ranking over time.
https://www.data.jma.go.jp/obd/stats/etrn/view/rankall.php?prec_no=&block_no=&year=&month=&day=&view=a2
4. J apan Meteorological Agency website: Deviations over time in annual
precipitation in Japan (1898-2020).
https://www.data.jma.go.jp/cpdinfo/temp/an_jpn_r.html
5. AMeDAS: Annual number of events with precipitation 80mm per hour in Japan.
https://www.data.jma.go.jp/cpdinfo/extreme/extreme_p.html
6. J apan Meteorological Agency website: Number of typhoons.
https://www.data.jma.go.jp/fcd/yoho/typhoon/statistics/generation/generation.html
7. Japan Meteorological Agency website: Number of typhoon landfalls.
https://www.data.jma.go.jp/fcd/yoho/typhoon/statistics/landing/landing.html
8. J apan Meteorological Agency website: Annual average temperature deviations inJapan over time (1898-2020).
https://www.data.jma.go.jp/cpdinfo/temp/an_jpn.html
9. G eneral Insurance Association of Japan website: Claims paid due to wind andflooding damage, etc.
https://www.sonpo.or.jp/report/statistics/disaster/index.html

203.
1. Introduction

Influence of Short-Term Climate Variability
on Climate Change and its Possible
Implications for Risk Quantification
Kazuhiro Tsubono, MSc., Hongyuan Li, Ph.D.,
Oriol Gaspa Rebull
Aon Japan Reinsurance Solutions Analytics

There has been a fair amount of discussion in the (re)insurance industry about
the recent typhoon activity in Japan and its relationship with climate change.
In this article we will explore the available academic literature andmeteorological data for Japan and how the interaction between Climate Variability
and Climate Change is potentially affecting the present and future typhoon activity.
We will also explore some climate change related trends observed in the data andwhat it could mean for the future of typhoon risk quantification.
To guarantee a mutual understanding between the authors and the reader, it isnecessary to define two very important concepts that will follow through the wholearticle:•	We refer to Climate Variability as the variations in the mean state and otherstatistics (such as standard deviations, the occurrence of extremes, etc.) of theclimate on all spatial and temporal scales beyond that of individual weather
events. Variability may be due to natural internal processes within the
climate system (internal variability), or to variations in natural or anthropogenic
external forcing (external variability) as defined by the IPCC [1].
•	We refer to Climate Change as the change of climate which is attributed
directly or indirectly to human activity that alters the composition of the
global atmosphere and which is in addition to natural climate variability
observed over comparable time periods as defined in the Framework
Convention on Climate Change (UNFCCC) in its Article 1 [2].
In other words, Climate Variability consists of high frequency climate
oscillations, some of which account for short term (1 to 5 years) phenomena like El
Niño Southern Oscillation (ENSO) or the Atlantic Multidecadal Oscillation(AMO), while Climate Change represents patterns of change in a longer time scale(i.e. 30 years).
Regardless of the definition, there is overwhelming evidence that climate change
will have an impact on meteorological conditions in the longer term and at a global
scale. However, it is difficult to assess the near-term impact of climate change asother short-term phenomena included under the climate variability also influencenear-term climatological trends.

(1) The recent typhoon activity in JapanThe recent years have seen high typhoon landfall activity in the Northwest
Pacific: 2018 and 2019 in Japan. In 2018 and 2019 Japan suffered 3 of the top 5
weather related insured losses in history, the most material of them Typhoon Jebi,
estimated at $13 billion by Impact Forecasting [3].

21

3. I nfluence of Short-Term Climate Variability on Climate Change
and its Possible Implications for Risk Quantification

Figure 1: Best typhoon track provided by JTWC (Joint Typhoon Warning Center) and loss
estimates by Impact Forecasting across Japan in 2018, 2019 and 2020
Recent loss activity in Japan
Typhoon Haishen (10)September 6th
Typhoon Trami (24)September 30th

: 2018(Billion yen)

: 20192,000: 2020Typhoon Hagibis (19)
October 12th

Typhoon Jebi (21)September 4th

1,500

Typhoon Faxai (15)September 9th

1,000

500

0

2018

2019

2020

If we compare the 30-year long-term average (as defined by JMA) and the last 3
years of typhoon landfalls, we can see that each of the last 3 years’ landfall activity
has been outside the one standard deviation, which shows a big contrast between
short and long-term activity. In other words, a large climate variability.
Year

JMA Landfalls

2018

5

2019

5

2020

0

Long-term average

2.7 ± 2.1

While the long-term average used in this article is defined by JMA as the
30-year average from 1981 to 2010, JMA is soon to release a new long-term average
from 1991 to 2020. Under this new metric the long-term average is 3.0 ± 2.1 andtechnically only 2019 falls outside the 1 standard deviation, but the contrast
between long- and short-term activity remains significant.
High typhoon landfall activity might not have been seen in Japan in the recent
15 years, but climate variability is certainly not new as seen in the last 70 years of
JMA landfall data, especially since the mid-1980s (Figure 2).

22

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Figure 2: Typhoon landfall in Japan as provided by the JMA since 1951 [reference 4]
10JMA historical typhoon landfall in Japan9
8

JP landfalls

JP 5-year rolling average

1976

1986

7
6
5
4
3
2
1
0

1951

1956

1961

1966

1971

1981

1991

1996

2001

2006

2011

2016

* The line shows the 5-year rolling average.

We introduced the 5-year rolling average to better represent some of the shortterm phenomena that drive climate variability like El Niño and reduce the noise
brought by the very short-term activity. Periods of ENSO cycle range from 2 to 7
years, so its impact can be narrowed to specific years, but it will not be seen in thelong-term.

(2) What does climate change research tell us?
Climate change is a very complex issue that is not fully understood. Hundredsof scientists have spent years studying the anthropogenic and non-anthropogenic
factors driving the rise in global temperatures and other phenomena.
The best way to start getting a sensible picture of the potential effects of climatechange in Japan is to revise available scientific literature in a comprehensive way.
Rather than looking for specific changes to typhoon, we have selected three
wide-ranging reports which review the latest studies regarding potential impact of
Climate Change and summarize a level of consensus among the scientificcommunity. This guided our decision-making process.

1

The Japan Climate
Change 2020 by
MEXT, JMA [4]Region: Japan
Cha et al., 2020 [5]2Region: Northwest
Pacific Scope
Knutson et al., 2019 [6]3Region: Global

The Ministry of Education, Culture, Sports, Science and Technology(MEXT) and the Japan Meteorological Agency (JMA) have compiled thefacts about climate change observed so far, and the future projections of the
global average temperature under the 2°C increase scenario (RCP2.6) and the
4°C increase scenario (RCP8.5)
Additional inputs with more focus on the Northwest Pacific Basin have beengathered from the assessment requested by the United Nations Economic andSocial Commission for Asia and the Pacific (ESCAP) and the World
Meteorological Organization (WMO) Typhoon Committee
We have also used the report from the World Meteorological Organization
Task Team on Tropical Cyclones and Climate Change where 11 authors
provide their opinion on proposed projections of a 2°C global warming
scenario relative to 1986-2005 conditions23

3. I nfluence of Short-Term Climate Variability on Climate Change
and its Possible Implications for Risk Quantification

Looking into the future, the most up to date scientific reports seem to haveclear agreement on the increase of typhoon intensity although specifics about basinsare still unclear. Beyond that, there is no real consensus on how frequency oftyphoons will change between now and 2050.
The areas where the scientific community appears to have relatively higher
agreement on climate change regarding typhoon occurrence are seen in the table below:
Risk Factor

Risk
ChangeConfidence
Level

Impact on Flood Risk

Typhoonintensity

Increase

MediumtoHigh

The academic community agrees that withhigher temperatures typhoons are likely to
become more intense

MediumtoHigh

There is a similar level of agreement thathigher level of moisture in the air will
increase the level of induced precipitation,
thus increasing the contribution of flooding
to potentially larger wind losses due to more
intense typhoons

TC induced
precipitation

Increase

Looking into the past, in their 2020 report, the JMA did not find significant
long-term trends in typhoon formations, strong typhoon landfalls or clear
differences between climate change and the natural 10-20 year variability.
So, if there are no clear patterns observed in the past data nor clear agreement
on future trends, what else can be said about the recent typhoon activity?

2. The Correlation
betweenAnomalies

24

Japanese typhoon landfall activity oscillations are starting to be understoodalthough there is still no clear scientific consensus. Findings based on studies byProfessor Fudeyasu of YNU [7] suggest El Niño brings a higher number of landfalls
in early summer and an increase in typhoon intensity in late summer.
So, while there are indications of the influence of ENSO phases in the Japan
landfall activity, there is not enough evidence to directly link it to the 2018/19 seasons.
While there are no clear frequency patterns in the long-term typhoon activity(30-year average), the JMA landfall data shows 3 peaks and 2 cycles of high and low
typhoon activity (1990-95, 2003-07 and 2016-19) with an average transition periodof 13 years since the 1970s (Figure 2).
If we introduce the ENSO anomaly to the mix (Figure 3), we can also see asubstantial change in the variability with longer term ENSO cycles since the 1970s.
Even more interesting maybe is the strong correlation between the ENSO anomaly
cycles and the typhoon activity.
There are many factors that could drive such changes in climate variability. We
could be simply looking at a phase of cyclical climate variability within the longer
climatology, but things turn very interesting when we include global trends linked
to climate change.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Once we overlay the global temperature anomaly to the landfall activity and
ENSO, we can match the emergence of the initial stages of the ENSO and landfalls
long activity cycle with the late 1970s decade, the same decade when global
temperatures started a strong deviation from the long term average.
Figure 3: Time series of NOAA’s annual global temperature anomaly [reference 8], 5-year rolling
average of JMA’s typhoon landfall in Japan and the 5-year rolling average of JMA’s
annual ENSO anomaly [reference 9].
5-year rolling annual averages

NINO3

6

Temp anomaly
Landfall

0.5

5
4

0
3
-0.5

-1

Japan annual landfall

ENSO and temperature anomaly

1

2

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

1

The relationship between global warming and ENSO is not new and it has beenaddressed in scientific articles before [10].
What we see here though, is a first regional attempt at correlation between climate
variability (ENSO anomaly) and climate change (global temperature anomaly) and how
it potentially affects typhoon activity in Japan (JMA typhoon landfall) and by default theprobability of having more or less typhoon losses in the future.
What is most interesting is the possibility of climate change influencing (oramplifying) the natural climate variability oscillations rather than just causing an
incremental change of typhoon activity. In other words, could the climate change
impact on typhoon frequency be a non-linear (cyclical) phenomenon (Figure 4)?
Figure 4: Schematic of the changes in frequency of typhoons due to climatechangehypothetical increase2020 activity* The straight line represents a linear increase where each year there is a marginal frequency increase
compared to the previous one. This is the most common approach taken in the present climatechange conditioning of catastrophe models. The wave line represents a non-linear change where theoverall increase of typhoons is subject to periods of low and high activity.

25

3. I nfluence of Short-Term Climate Variability on Climate Change
and its Possible Implications for Risk Quantification

If such correlation is confirmed in the future, the implications are wide-ranging
and important, but for now we would like to highlight two: Changes in typhoon
landfall and Changes in risk quantification.

(3) Changes in typhoon landfall
Depending on what trend the future holds we could see a very different type of
landfall activity to what we have been experiencing so far.
• If we follow a linear trend, we expect to see an overall and gradual increase of
typhoon landfall in Japan overarching the on-going climate variability.
Basically, each year would have a marginal frequency increase compared to theprevious one (Figure 5 in orange).
• If we follow a non-linear trend, periods of high and low typhoon activity
could become longer, more and/or less active depending on what part of thecycle we are in (Figure 5 in grey).
Figure 5: Frequency changes under a linear and non-linear change of typhoon activity
20

Hypothetical increase in typhoon activity in the next 80 years
Non-linear increase

Linear increaseNon-linear

LinearAnnual Landfall

15

10

5

0
2021

2026

2031

2036

2041

2046

2051

2056

2061

2066

2071

2076

2081

2086

* The linear increase (orange) shows similar cycles of climate variability but with a marginal increase of annual landfall eventsby 2060/80. The non-linear increase (grey) shows periods of higher activity compared to the linear increase (grey line
higher than orange), but crucially also periods of lower activity compared to the linear 5-year rolling average (longer periodsof time with no grey bars).

The outcomes of these two scenarios are very different.
• The linear approach represents a general increase of typhoon activity in the
future, where basically typhoons would make landfall in Japan more often,
hence increasing the probability of small or larger losses, depending on theindividual typhoon characteristics and exposure affected.
• The non-linear approach would increase the already large variability linked totyphoon landfall. Periods of higher activity compared to now would mix withshort period of no activity or longer periods of lower activity, thus increasing
volatility of typhoon losses and making typhoon losses less predictable withthe present modelling tools.

26

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

(4) Changes in risk quantification
The implications of a linear versus a non-linear change in typhoon activity arealso important in the development of climate change-based catastrophe models.
Occurrence and Aggregated Exceedance Probability (OEP and AEP) curves
would look very different depending on what methodology is followed. In a nonlinear approach the number of typhoons in the YLT would change dramatically.
YLTs would have to include some periods of time with a higher number oftyphoons and other periods with a lower number of events.
To exemplify the impact of the linear and non-linear changes, we have used thesame hypothetical changes in frequency shown in Figure 5 to calculate the resulting
AEP of a linear and non-linear typhoon activity compared to the present (Figure 6).
While the linear approach basically shows a gradual increase compared to theoriginal curve, the non-linear one shows differences ranging between -80% at lower
return periods to +30% in the tail.
Figure 6: Top: Original sample AEP (Blue), AEP under a linear increase of
frequency (Orange) and AEP under a non-linear increase of
frequency (Grey).
Bottom: Differences between approaches by return period.
Differences range between 80% at the lower return periods to 40%
in the tail.
AEP

LinearNon-linear
Original

10

0

20

30

40

50
Return period

60

70

80

90

100

AEP difference

80%

0%

Difference: Original to linear
Difference: Original to non-linear
-80%

0

10

20

30

40

50
Return period

60

70

80

90

100

27

3. I nfluence of Short-Term Climate Variability on Climate Change
and its Possible Implications for Risk Quantification

These different behaviours are a representation of the stochastic nature of EP
curves. Even though the physical impact of climate change on typhoon is notexpected to be seen until 2050, the stochastic nature of catastrophe models willchange the shape of the EP curve across all return periods as seen in Figure 6.
This means that on average, if we were to experience a non-linear change oftyphoon frequency under climate change influence, the level of losses at highfrequency events (RP < 10 years) would reduce, but losses at higher return periods(RP > 30) would increase.
A non-linear approach brings a different concept of climate change impact
compared to current assumptions and essentially challenges the underlying
assumptions of Poisson frequency adopted by many cat models. The confirmationof a non-linear trend would force modelling companies to consider some kind oftime-dependency approach to the frequency component of the hazard.
Apart from the inherent complexity of creating a time-dependent hazard
component with such limited historical data, the implications on risk quantification
will also be highly dependent on the degree of frequency and severity changes to be
implemented in the models. It is clear the level of uncertainty linked to climatechange is very large and the modelling implementation of it can feel slightly
overwhelming.

3. Implications forJapanese Insurers

28

In April 2021, the Financial Services Agency (FSA) and the Tokyo Stock
Exchange (TSE) shared initial ideas regarding the update of corporate governancecodes [11]. Though there are no concrete requirements, there are some basic
principles in the code related to climate change.
Within the 2nd basic principle there is some consideration for global
environmental issues mostly related to the physical aspect of climate. The 3rd basic
principle encourages listed companies to appropriately disclose financial
information.
In particular, the guidelines suggest “that companies should collect and analyze
the necessary data on the impact of climate change risks and profit opportunities on theirbusiness activities and profits. These companies should also promote the enhancement of
the quality and quantity of disclosure based on TCFD (Task Force on Climate-related
Financial Disclosures), which is an internationally established disclosure framework, oran equivalent framework.”
The corporate governance code requires the companies listed in the first section) to disclose the above information but without being forced byof the TSE (the law. Nevertheless, explaining the reason why companies will not disclose theinformation will be required.
The relevance of climate change on financial disclosures is increasing and it will
be important for companies to be able to clearly articulate to regulators the impact
of climate change risks and profit opportunities on their business activities and how
reinsurance can mitigate any negative impact.
Climate models and academics suggest a noticeable, alas not fully quantified,

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

increase in frequency of typhoons as soon as 2050. Being able to understand andmodel the inner dynamics of frequency changes, regional patterns, intensity
variations and other relevant parameters will be strongly linked with companies’
capability of disclosing the financial implications of climate change.
By exploring a wide range of parameters linked to climate change, climate
variability and the uncertainties around their relationship now, stakeholders canestablish a robust framework relevant to their portfolio and be ready to address
future regulatory requirements and make informed decisions on underwriting,capital adequacy, risk management and reinsurance.

4. Conclusions

The most up to date scientific reports show no real consensus on how frequencyof typhoons will change between now and 2050; past data do not show any clear
patterns either. The only clear agreement across the scientific community is on theincrease of typhoon intensity in the longer term although specifics about basins arestill unclear.
Climatological data points towards a strong component of climate variability inthe recent 2018/19 typhoon seasons in Japan (similar to 2004) and the possibility ofthis climate oscillation to remain the same or even increase in the future dependingon the global and/or regional climate change impact.
Volatility of cat losses could increase in the future, especially if we add thepotential changes in other perils like rain, drought, snow and other atmosphericrelated phenomena due to climate change.
The development of frameworks to achieve the most comprehensive
quantification of the changes in all atmospheric risks due to climate change possible,
will provide insurers with a more informed degree of risk management as well as anestablished and sound forum for discussion with all stakeholder to achieve asustainable market in the future.
It is widely accepted that catastrophe models are the best available tools totackle some of these quantification issues, but it is also very important to understandtheir underlying data, limitations and strengths to be able to develop credible
alternatives that better align with companies’ views of risk.
Disciplines like model development, model evaluation, calibration andvalidation will become more and more relevant as modelling tools increase theircomplexity, in order to reduce the uncertainty around climate change impact.
The world is getting more volatile, more uncertain and more extreme, leading
investors and regulators towards increasing their requirements for more disclosure of
the impact on businesses (insurance or otherwise) of climate change.
The (re)insurance sector with its deep knowledge of catastrophe risk has thepossibility of tackling this challenging topic from an angle of growth andopportunity, increasing transparency with customers and developing products on
the primary side to leverage new reinsurance solutions to hedge some of that risk.
These are only some of the possibilities open to the industry.

29

3. I nfluence of Short-Term Climate Variability on Climate Change
and its Possible Implications for Risk Quantification

5. References

1.	IPCC, 2012: Glossary of terms. In: “Managing the Risks of Extreme Events andDisasters to Advance Climate Change Adaptation” [Field, C.B., V. Barros, T.F.
Stocker, D. Qin, D.J. Dokken, K.L. Ebi, M.D. Mastrandrea, K.J. Mach, G.-K.
Plattner, S.K. Allen, M. Tignor, and P.M. Midgley (eds.)]. A Special Report ofWorking Groups I and II of the Intergovernmental Panel on Climate Change(IPCC). Cambridge University Press, Cambridge, UK, and New York, NY, USA,pp. 555-564.
2.	United Nations, 1992, “United Nations Framework Convention on Climate
Change”:		https://unfccc.int/files/essential_background/background_publications_htmlpdf/
application/pdf/conveng.pdf
3.	Aon, Aon Catastrophe Insight		http://catastropheinsight.aon.com/Pages/Home.aspx
4.	The Ministry of Education, Culture, Sports, Science and Technology (MEXT)
and the Japan Meteorological Agency (JMA), “Japan Climate Change 2020”:
https://www.data.jma.go.jp/cpdinfo/ccj/index.html
5.	Eun Jeong Cha, Thomas R. Knutson, Tsz-Cheung Lee, MingYing, Toshiyuki
Nakaegawa. “Third assessment on impacts of climate change on tropical cyclones
in the Typhoon Committee Region – Part II: Future projections.” Tropical
Cyclone Research and Review. Volume 9, Issue 2, June 2020, Pages 75-86
6.	Thomas Knutson, Suzana J. Camargo, Johnny C. L. Chan, Kerry Emanuel,Chang-Hoi Ho, James Kossin, Mrutyunjay Mohapatra, Masaki Satoh, Masato
Sugi, Kevin Walsh and Liguang Wu. “Tropical Cyclones and Climate Change
Assessment: Part I: Detection and Attribution” American Meteorological Society.
October 2019. DOI: https://doi.org/10.1175/BAMS-D-18-0189.1
7.	H . Fudeyasu, S. Iizuka and T. Matsuura. “Impact of ENSO on landfall
characteristics of tropical cyclones over the western North Pacific during thesummer monsoon season,” Geophysical Research Letters Vol. 33, L21815,
doi:10.1029/2006GL027449, 2006. (Prof. Fudeyasu El Niño Japan article)
8.	National Oceanic and Atmospheric Administration, Climate Monitoring section:
https://www.ncdc.noaa.gov/cag/time-series/global/globe/land_ocean/1/12/
1880-2016
9.	The Japan Meteorological Agency, Global Environment and Climate section:
https://www.data.jma.go.jp/gmd/cpd/db/elnino/index/nino3idx.html
10.	Cai, W., Wang, G., Dewitte, B. et al. “Increased variability of eastern Pacific El
Niño under greenhouse warming.” Nature 564, 201–206 (2018). DOI: https://doi.org/10.1038/s41586-018-0776-9
11.	Revisions of Japan's Corporate Governance Code and Guidelines for Investor andCompany Engagement, “Council of Experts Concerning the Follow-up of Japan’s
Stewardship Code and Japan’s Corporate Governance Code,” Financial Services
Agency (FSA): https://www.fsa.go.jp/en/news/2021/20210407.html

30

4.
1. T
 he Operating
Environment of
the Non-Life
Insurance Industry

2. O
 verview of the
Non-Life
Insurance Industry

Trends in Japan’s Non-Life
Insurance Industry
Non-Life 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. However, Japan’s population has been declining
since 2008, and its low birthrate and aging population are expected to continue.
Looking at the Japanese non-life insurance market, automobile insurance
currently accounts for about half of net premium income of direct non-life
insurance companies. Factors including new advances in automated driving
technology are projected to change the structure of the non-life insurance industry.
In fact, conditions in the non-life insurance industry have been changing rapidly
over the past several years. In addition to having to cover frequent natural disasters
such as earthquakes and typhoons, the industry has had to deal with changing risks
related to COVID-19 and silent cyber risks, which involve the risk of cyber loss on
existing business classes such as property insurance and casualty insurance.
Non-life insurance companies in Japan are targeting further growth by doing
business overseas, developing new markets by providing new products and services,
and implementing initiatives to increase operating efficiency.

(1) Status of Non-Life Insurance Companies, Cooperatives
and SASTI
Japan’s non-life insurance industry comprises 28 Japanese non-life insurancecompanies that are members of the General Insurance Association of Japan (GIAJ)
and 18 companies that are members of the Foreign Non-Life Insurance Associationof Japan, Inc. (FNLIA). Japan’s non-life insurance market is an oligopoly in which
the three largest non-life insurance groups (in alphabetical order; MS&AD
Insurance Group Holdings, Inc., Sompo Holdings, Inc. and Tokio Marine
Holdings, Inc.) account for more than 86% of the 8,692 billion yen in net premiumincome written by the 28 GIAJ members as a whole.
Japan’s non-life insurance companies have increased operating efficiency sinceliberalization of the insurance industry in 1996, and have conducted mergers andbusiness integrations since 2000. As a result, for all non-life companies, theunderwriting expense ratio (other than commission and brokerage) in fiscal 2020
decreased to 14%, compared with 21% for all non-life insurance companies in theindustry for fiscal 1995, prior to liberalization.
The cooperative mutual insurance market also has considerable premium
volume. Even if we look only at the main cooperatives that make up the Japan
Cooperative Insurance Association Incorporated, they alone had premium incomeof 2,535 billion yen in fiscal 2019 (excluding life cooperatives and pension
cooperatives).
Furthermore, Small Amount Short Term Insurance (“SASTI”) business wasintroduced in Japan following an amendment to the Insurance Business Act in April
2006, and it is also providing customers with non-life insurance cover. As the nameimplies, this business is limited to selling insurance in small amounts with limited
terms. On the other hand, regulations make it possible for companies that are notinsurance companies to enter this business much more easily than in the case of

31

4. T
 rends in Japan’s Non-Life
Insurance Industry

establishing a new insurance company. For example, companies need only registerand need not be licensed by the Financial Services Agency (FSA) to operate, theminimum capital required is 10 million yen compared to 1 billion yen for an
insurance company, and participants may sell both life and non-life insurance. The
number of member companies of The Small Amount & Short Term Insurance
Association of Japan continues to grow and the scale of the market continues toexpand. Non-life insurance products sold in this market are mainly rentersinsurance, including fire insurance for the home contents of renters and rental
housing liability insurance sold through the real estate agent channel, recent strongseller pet insurance, and pecuniary insurance.
The Small Amount & Short Term Insurance Market Data
Figure 1: Member Companies
Figure 2: Premium Income(excl. Life and Medical Insurance)(Total companies)(Total companies)
105

105

103
101

100

100

95

95

90

90

97

103

(Billion(Billion
yen) yen)
100
100

101

91.4

97

90

90

80

80

70

70
63.6

81.7

88
84

85

85

80

80

75

75

70

70
2015

71.6

88

84

2015 20162016 20172017 20182018 2019

60

60

50

50

40

40
2015

2019

94.5

94.5

2018 2019

2019

91.4

81.7

71.6

63.6

2015 20162016 20172017 2018

Source: The Small Amount & Short Term Insurance Association of Japan(2) Overseas Business Trends
The three largest non-life insurance groups have all positioned overseas businessas a growth driver, and have aggressively implemented initiatives such as forming
business alliances with local insurance companies and engaging in M&A.
Figure 3 shows overseas net premium income* for the three largest non-life
insurance groups. It increased slightly year on year in fiscal 2020, and has beenstable over the past several years. Overseas net premium income for these insurancegroups in fiscal 2020 was about 4.5 times that of fiscal 2010, and overseas businessaccounted for approximately 23% of net premium income for the three largest nonlife insurance groups.
* In this section, “overseas net premium income” shows the total of net premium income from
non-life insurance and life insurance premiums.

32

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Figure 3: Trends in Overseas Net Premium Income for the Three Largest Non-Life Insurance 				Groups(Billion yen)
3,000

(%)
25

2,500

20

2,000
15
1,500
10
1,000

5

500

0

0
2011

2012

2013

2014

2015
2016
(Fiscal year)

2017

2018

2019

2020

Overseas net premium income (left scale)
Tokio Marine Holdings, Inc.
MS&AD Insurance Group Holdings, Inc.
Sompo Holdings, Inc.
Percentage of overseas net premium income (right scale) (Total of the three groups including life insurance)

The three largest non-life insurance groups have adopted similar strategies intargeting growth opportunities in emerging markets and expanding specialty lines indeveloped markets. Key overseas business developments of the three largest non-life
insurance groups and recent trends are as follows:
MS&AD Holdings group company Mitsui Sumitomo Insurance acquired thegeneral insurance operations of U.K. company Aviva plc in 2004, and is using its
non-life insurance businesses in Asia as its base for advancing into the ASEAN
region. It enhanced its presence by acquiring Singapore insurer First Capital
Insurance Limited in December 2017, and U.S. managing general agent
International Transportation and Marine Office, LLC in April 2021. In othermarkets, it strengthened its reinsurance business and specialty lines by completingthe acquisition of Amlin plc of the United Kingdom in 2016.
Sompo Holdings acquired leading U.K. specialty (re)insurer Canopius Group
Limited in 2014. In addition, it significantly expanded its overseas business in 2017by 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 of thegroup, and selling all Canopius shares to a private equity investor.
Tokio Marine Holdings has pursued growth opportunities in its overseas
business by acquiring businesses in emerging countries, as well as insurancecompanies with strong specialty lines in developed countries, particularly in Europe
and the United States, such as Kiln Ltd. of Lloyd’s in the U.K. and Philadelphia

33

4. T
 rends in Japan’s Non-Life
Insurance Industry

Consolidated Holding Corp. of the U.S. in 2008, Delphi Financial Group, Inc. of
the U.S. in 2012 and specialty insurance group HCC Insurance Holdings, Inc. of
the U.S. in October 2015. Further, in February 2020 it completed the acquisitionof Privilege Underwriters, Inc., which specializes in the U.S. market for personal
insurance and risk management services for high net worth individuals and families.
At the same time, Tokio Marine Holdings sold its reinsurance subsidiary, Tokio
Millennium Re AG and Tokio Millennium Re (UK) Limited in 2018 and reviewed
its business portfolio.

(3) Trends in Business Results of Non-Life Insurance Companies
for Fiscal 2020
The following is a summary of the main financial results (total) of 28 non-life
GIAJ members in fiscal 2020.
Net premium income in all lines of business increased by 83 billion yen fromthe previous fiscal year to 8,692 billion yen.
Net claims paid (paid basis) decreased by 463 billion yen to 4,563 billion yen
because the number of typhoons and other natural disasters in Japan decreased
substantially compared to the previous fiscal year. As a result, the loss ratio for fiscal
2020 decreased by 5.9 percentage points to 58.0%.
Expenses increased by 31 billion yen to 2,838 billion yen. The net expense ratio
was unchanged from the previous fiscal year at 32.6%.
Underwriting profit (earned/incurred basis) decreased by 1 billion yen to 92
billion yen year on year because of additional provision for catastrophe loss reserves
despite the positive factors above.
Ordinary profit, calculated as the sum of underwriting profit and investment
profit, increased by 500 million yen to 597 billion yen. After deducting tax expense,
net income decreased by 20 billion yen to 437 billion yen.

3. R ecent Non-Life
Insurance Industry
Trends34(1) Fiscal 2020 Trends in the Fire Insurance Market
Multiple large typhoons caused damage in fiscal 2018 and fiscal 2019, but no
typhoons made landfall on the mainland in fiscal 2020. The impact of wind andflooding disaster losses on the non-life insurance market was therefore relatively
minor. Non-life insurance companies estimated a certain amount of damage for theearthquake that occurred in February 2021 offshore of Fukushima Prefecture, but
the impact of natural disaster losses was generally limited.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Table 1: Statistics for Recent Major Earthquakes
Number of Claims Insurance Claims
Paid
Paid
(Personal)(Million yen)

Date

Magnitude

Fukushima
Earthquake

2021/2/13

7.3

95,258148,948*

Kumamoto
Earthquake

2016/4/14,16

6.5, 7.3

212,316

388,308* For the Fukushima Earthquake, as of March 31, 2021, including loss reserves
	(Source: General Insurance Association of Japan website, “Key figures related to the insurance
claims paid for earthquakes in fiscal 2020 as of March 31, 2021,” No. 21-01)

However, fire insurance is expected to remain unprofitable in fiscal 2020 for
the eleventh consecutive fiscal year. Even though there were fewer natural disasters,
issues such as rising reinsurance premiums and more accidents resulting from aging
factories made it clear that there have been latent structural profitability-related
problems in the fire insurance market.
The reference loss cost rate of residential fire insurance (as calculated by theGeneral Insurance Rating Organization of Japan) was raised in Japan in October
2019 by 4.9% on a national average because of the major natural disasters in 2018.
Direct non-life insurance companies then revised their premium rates in January
2021. The following table presents the fire insurance premium rate increases forreference.
Table 2: Recent Rate Increase Revisions
Dare of Revision

Rate Increase*

Comments

October 2019+7% to +10%

Reflected the revision of the reference loss cost rate
in May 2018 (5.5%: in consideration of the impact ofnatural disasters before 2017)

January 2021

+8% to +10%

Reflected the revision of the reference loss cost rate in
October 2019 (4.9%: in consideration of the impact
of Typhoon Jebi and Typhoon Trami in 2018)

2022

N/A

Reflected the revision of the reference loss cost rate in
May 2021 (Approximately 10%: claims paid due tosuccessive typhoons in 2019)* The average rate increase for residential, general, and factory properties by the three largest non-life
insurance companies, based on interviews by Toa Re

The reference loss cost rate will likely be reviewed in light of huge claims related
to a series of natural disasters since 2019, the maximum policy period for fire
insurance will shorten to five years from ten years, and direct non-life insurancecompanies will likely revise their rates. Results in Japan’s fire insurance business are
therefore expected to improve in the future. Direct non-life insurance companies
have considered business conditions for policyholders during the COVID-19
pandemic and have not uniformly requested increases in fire insurance premiums,

35

4. T
 rends in Japan’s Non-Life
Insurance Industry

but instead have tightened other conditions for the insured, such as increasing
deductibles and setting limits on claims payable.
In addition, several large-scale industrial fire losses occurred in fiscal 2020.
Notably, the fire at an Asahi Kasei Microsystems Co., Ltd. semiconductor factory in
October 2020 was estimated to become Japan’s largest fire-related insured loss.
Furthermore, at the end of the fiscal year, a fire occurred at a Renesas Electronics
Corporation semiconductor factory. These fires are expected to incur losses fromproperty damage, business interruption and contingent business interruption. These
repeated large-scale fires have the potential to affect the performance of direct nonlife insurance companies, and also to have a considerable impact on the reinsurance
market.

(2) COVID-19- and Silent Cyber-Related Risks
Reinsurance renewals in 2021 focused on heightened consciousness of the riskof infectious diseases, mainly due to the COVID-19 situation, and the underwriting
conditions for silent cyber risks. Reinsurer positions differed depending on various
issues including the characteristics of each business line, the insurance product andrelated conditions to be covered, and the reinsurance structure. In general, however,cedents such as direct non-life insurance companies that opened renewal
negotiations at an early stage did well. Eventually, overseas reinsurers seemed tounderstand the renewal conditions sought by direct non-life insurance companies,
while the markets generally accepted them.
In property lines, some reinsurers requested exclusion clauses for infectious
diseases and silent cyber risks even for January 1 renewals, resulting in calls at an
early stage of renewal from major direct non-life insurance companies for a modified
version of the Lloyd’s Market Association (LMA) standard exclusion clause. In mostcases, cedents gained the understanding of reinsurers largely by effectively explaining
the collateral of direct policies with policyholders and the exposures to be ceded.
In accident lines, deals were done according to total exposed amount andprobable maximum loss (PML) scenarios. Non-proportional treaty reinsurance, forwhich excess point is higher compared to exposure, was renewed without any
limitations on infectious diseases. In liability lines, the majority of reinsurers areconcerned about the impact of COVID-19, and under some treaties an exclusion
clause was introduced based on the potential exposure in relation to the level of theattachment points and the details of the underlying exposure.
In marine lines, although standard exclusion clauses have been introduced forsilent cyber risks and infectious diseases, in some cases direct non-life insurancecompanies achieved cyber exclusion write-backs of fire/explosion, etc. by gaining
reinsurers’ understanding through their detailed demonstration of exposure.

(3) Industrywide SDGs Initiatives
Individual companies and entire industries, including the non-life insurance
industry, have been implementing sustainability initiatives for several years in
response to the Sustainable Development Goals (SDGs) adopted by the United36

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Nations General Assembly in September 2015.
The non-life insurance industry is working to become more resilient tofluctuations in external factors by promoting new solutions and innovations thatoffer society greater security, safety and health. Examples include changes inunderwriting policy to encourage decarbonization backed by the notion that global
warming and climate change are key factors in the frequent natural disasters ofrecent years.
Initiatives within the industry are not limited to products and services in theinsurance segment. Initiatives also extend to asset management, various systems
related to employees and employment, improved governance and compliance, andadded value such as community contribution programs. Further initiatives toimprove corporate and industry value may be undertaken in the future.

(4) Trends in Regulation by Regulatory Agencies
Given changes in the financial environment, over the past several years the FSA
has recognized the importance of broadening its view of financial administrationfrom “the Form” to “the Substance,” from “the Past” to “the Future,” and from
“Element by element analysis” to “Holistic analysis” to achieve the goals of financial
administration. Moreover, the FSA is making this a reality by inculcating principlebased inspection and supervision that emphasizes dialogue with financial
institutions that has the requisite quality and depth.
A key priority for insurance companies is to meet customer needs as a means to
prepare for various risks in the future given environmental changes such as frequentand intensifying natural disasters and the COVID-19 pandemic. Therefore, the FSA
has indicated that insurance companies must reexamine their current businessmodels from perspectives including product and service design, group governance,and risk management. With this mindset, the FSA has announced that it will holdin-depth dialogues with insurance companies concerning their issues, programs andprogress in creating sound and sustainable business models.
In Japan, the FSA is examining evaluation and supervisory methods based on
economic value in parallel with the introduction of the Insurance Capital Standard(ICS) by the International Association of Insurance Supervisors (IAIS). Solvency
assessment based on economic value is central to this regime, and will likely comeinto force in line with the ICS application schedule (to be introduced in fiscal 2025
as a full-fledged regulation after a five-year monitoring period).
The FSA has noted that introducing the economic value-based solvency ratio
into the regulatory regime may bring unexpected consequences, such as excessively
risk-averse behavior among insurance companies. Therefore, it is investigating
unintended consequences and international trends while continuing its examination
with emphasis on dialogue with relevant parties.

37

5.
1. Overview ofBusiness Resultsfor Fiscal 2020

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

The fiscal 2020 business results for 42 life insurance companies are as follows:(1) Total Amount of New Business
During the fiscal year ended March 31, 2021 (fiscal 2020), the total insured
amount of new business for individual life decreased by 11.2% to 44.1 trillion yen,
due to sales personnel refraining from face-to-face marketing to prevent the spreadof COVID-19. The total insured amount of new business for individual annuity
insurance decreased by 24.3% to 4 trillion yen. The total insured amount of new
business for group insurance decreased by 2.2% to 4.5 trillion yen.

(2) Total Amount of In-force Business
The total insured amount of in-force business for individual life decreased by
1.7% year-on-year to 815.8 trillion yen, which was essentially unchanged from theprevious fiscal year despite a 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 0.7% to 101.8 trillion yen. On the other hand, the total
insured amount of in-force business for group insurance increased by 1.7% to 404.8
trillion yen.

(3) Premium Revenues and Total Assets
Total premium revenues decreased by 6.3% year-on-year to 31 trillion yen.
Total assets increased by 5.0% to 412.4 trillion yen due to the increase in foreign
securities.

2. Trends in theLife InsuranceMarket Due to
COVID-19

38

Japan confirmed its first case of COVID-19 infection in January 2020. Since
then, the impact has been extensive and protracted. Under these circumstances,
Japanese life insurance companies have implemented various initiatives to address
COVID-19.
Many life insurance companies have expanded benefits to cover COVID-19.
Conventional accidental death benefit riders do not cover death due to COVID-19,
but many life insurance companies have introduced special benefit payments given
societal needs. In addition, doctors have frequently advised isolation at home or inhotels for patients with mild symptoms when the number of cases outstripped theavailability of hospital beds, and life insurance companies have also paid hospital
benefits for those people if a medical certificate is supplied. Moreover, one company
doubled benefits paid for hospitalization due to infectious diseases such as COVID19. Other companies have started supporting the growing use of online healthcare
to reduce interpersonal contact by paying outpatient benefits for online
examinations.
A number of companies have been selling insurance products for infectious
diseases to address the outbreak of COVID-19. In May 2020, small-amount, shortterm insurer justInCase, Inc. launched Corona Tasukeai Hoken (insurance for

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

mutual aid under COVID-19), a product that covers hospitalization for injuries andillnesses including COVID-19, and treatment at home and temporary medical
facilities due to COVID-19. Subsequently, Taiyo Life Insurance Company launched
Kansensho Plus Nyuin Ichiji-kin Hoken (an additional lump-sum benefit for
infectious diseases) that covers designated infectious diseases including COVID-19,
and Daiichi Smart Small-amount and Short-term Insurance Co., Ltd., a subsidiaryof Daiichi Life Insurance Co., Ltd., began offering a product called Corona Mini
Support Hoken (small support insurance for COVID-19) with premiums that vary
according to COVID-19 infection status.
In addition, COVID-19 has had a major impact on life insurance sales
activities. Although life insurance sales channels in Japan are becoming morediverse, insurance company sales personnel remain the largest channel. However, life
insurance companies have had to refrain from face-to-face marketing by sales
personnel to prevent the spread of COVID-19. As a result, the number of newpolicies decreased significantly at the beginning of the COVID-19 pandemic, andthe impact was pronounced. The number of new policies has been recovering sincethen, but the outbreak of COVID-19 has led to broad recognition thatdiversification of sales channels is more essential than ever, and companies are now
accelerating initiatives to add sales channels that are not face-to-face.
The extensive and protracted effects of the COVID-19 pandemic require life
insurance companies to contribute to the stability of society by responding flexibly
and promptly based on societal needs, and to evolve business models according tocircumstances.

3. Impact of
COVID-19 on
Life Insurance
Company Results

As of May 10, 2021, the cumulative number of cases in Japan stood at over
640,000 and the cumulative number of deaths was over 10,000. Suffering has been
widespread, but the number of COVID-19 cases and deaths is low compared toEurope and the United States.
According to official statistics, 1.3 million to 1.4 million people die annually inJapan, but the death toll from COVID-19 is currently just over 10,000, which isonly about 0.8% of total annual deaths. While COVID-19 cases may increase in the
future and the situation requires careful attention, COVID-19 has not had a major
impact on Japan’s mortality rate. Currently, therefore, the impact on life insurancecompanies from the increase in death and hospitalization benefits due to COVID19 is limited.
However, the mortality rate may worsen in the future due to indirect effects
rather than direct deaths from COVID-19. The COVID-19 pandemic has led
people to avoid going to hospitals for medical exams. According to the Tokyo
Medical Association, the cancer screening rate from May to July 2020 decreased
compared to the same period a year earlier, with lung cancer, stomach cancer, andbreast cancer screenings down significantly by more than 40% compared to theprevious year. The Tokyo Medical Association is concerned that the delayed
discovery of illnesses that were previously detected and treated at an early stage will39

5. Trends in Japan's Life Insurance Industry

make the illnesses more serious or even fatal, and is therefore calling attention toillnesses aggravated by the excessive avoidance of medical examinations.
To date, the impact of COVID-19 on the results of life insurance companies
has not been significant, but the indirect impact may worsen the mortality rate. The
effects of COVID-19 require careful, long-term attention now and in the future.

4. General Trends inthe Life Insurance
Industry

40

Progress in Digital Transformation
Digital transformation (DX) initiatives are moving forward in Japan. The
Ministry of Economy, Trade and Industry (METI) has issued guidelines for thepromotion of DX, and under the guidelines DX is defined as innovations andcreations in which “Companies address major changes in the business environment
using data and digital technology to innovate their products, services, and businessmodels based on the needs of customers and society. They also create a competitive
advantage by transforming their business, organization, processes, and corporate
culture.” However, issues such as delayed digitalization in Japan’s response to
COVID-19 have highlighted the delay in digitalization in society as a whole and theneed to promote DX. The government has acted to improve the situation by
establishing the Digital Agency on September 1, 2021.
These initiatives are progressing throughout society, and several life insurancecompanies have formulated DX strategies. For example, Aflac Life Insurance Japan
Ltd. formulated a DX strategy in September 2020. With the ongoing digitalizationof society, diversification of values, and rapid lifestyle changes, Aflac Life plans togenerate sustainable growth by collaborating with fintech companies to use digitaltechnology such as open innovation. Another initiative involves applying data
analysis and predictive models that use artificial intelligence (AI). In addition, Meiji
Yasuda Life Insurance Company launched a DX strategy in April 2021 to address
the impact on the life insurance business from the acceleration of society’s digital
shift and changes in values brought about by the increased severity of the COVID19 situation. The strategy involves structuring sales and service models that
integrate face-to-face and non-face-to-face, and automating and improving theefficiency of operations.
An operational efficiency improvement service using AI and optical character
recognition (OCR) that Nippon Life Insurance Company and Nissay Information
Technology Co., Ltd. offer is a specific example of DX. This service is designed toraise administrative efficiency by using AI-OCR to automatically digitalize eachhospital’s non-standard documents such as receipts and medical statements, which
had been technologically challenging to read accurately. The system was patented
in Japan in August 2020.
Until now, digitalization was mainly for simple and repetitive operations, but
now DX is rapidly being adopted for a wider range of uses. Future trends such as
how the ongoing implementation of DX will change insurance companies and theiruse of big data are now of great interest.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

5. Life Insurance
Product Trends
Disability
Insurance

The risk of death has decreased in Japan due to heightened health awarenessand advances in medical technology that provide effective treatments for serious
illnesses, making Japan a global leader in longevity. However, life-saving medical
treatment and recuperation can take a long time, so today the risk of reduced
income due to a lengthy disability period is higher than the risk of dying. Over the
past several years, this has resulted in greater interest in disability insurance, whichpays benefits under certain conditions when disability due to illness or injury
continues for a certain period.
Japan has public systems to address disability, including injury and disease
allowances and disability pensions. The injury and disease allowance systemprovides benefits to company employees, public employees, and other people withpublic health insurance when they are absent from work due to illness or injury andare unable to receive adequate compensation from their employer. The disability
pension system is available when illness or injury limits life or work. However, themaximum term for payment of injury and disease allowances is one year and six
months, the allowance is about two-thirds of the recipient’s salary, and selfemployed people are ineligible for injury and disease allowances. On the other hand,disability pensions are not universally available because the system pays pensions
when people are in a state of disability corresponding to disability grade one or two
as stipulated by law. Thus, the public systems have limits on payments to recipients.
Under these circumstances, the need for compensation that addresses disability
risk is increasing. The public system for injury and disease allowances paid benefits
in 1.61 million cases in fiscal 2009, but this figure increased to 2.02 million cases infiscal 2018. In recent years, several life insurance companies have started selling
disability insurance to address growing needs and the shortfalls in public systems,
and a wide variety of products have been developed.
In December 2019, SBI Life Insurance Co., Ltd. launched the industry’s firstdisability insurance product that allows policyholders to choose from three types ofrisk coverage. One is a comprehensive illness type, which also covers mental illness
such as depression, and policyholders can use mental health consultation services freeof charge. The deductible period for benefits is 60 days, and another feature is thatpolicyholders are able to select a type with reduced premiums if they choose to receive
50% less in benefits during the injury and disease benefit payment period. In April
2020, Fukoku Mutual Life Insurance Company launched a disability insurance rider
that pays benefits for 12 months after 30 consecutive days of hospitalization and homecare. If care continues for another year beyond that, benefits can continue even after
the end of the disability status until a maximum age of 70. Tokio Marine & Nichido
Life Insurance Co., Ltd. launched a disability insurance product in January 2021 thatis linked to the public system. It pays benefits after 60 consecutive days of
hospitalization and home care for designated illnesses, and also pays benefits should
the policyholder’s disability correspond to a prescribed disability grade.
Disability insurance products are becoming more diverse given the growing
need to cover the risk of unemployment, and emerging trends will remain a focus ofinterest.

41

5. Trends in Japan's Life Insurance Industry

6. Regulatory
Trends42

Trends in Introducing Economic Value-based Solvency Regulations
On June 26, 2020, the Financial Services Agency (FSA) of Japan published areport from The Advisory Council on the Economic Value-based Solvency
Framework. The report covered the introduction of economic value-based solvency
regulations, and outlined a timeline for moving forward with introduction of theframework – a tentative decision about the fundamentals of the framework to bemade around 2022, finalization of standards around spring 2024, and enforcementfrom April 2025. With this timeline in place, the Advisory Council recommended
that study should move forward, so progress toward introduction is likely toaccelerate.
The Advisory Council discussed the overall structure of its prudential policy
framework, relying on the concept of three pillars, an approach also adopted in
Solvency II in the EU. Pillar 1 (solvency regulation) establishes a common standardof a solvency ratio and a framework of supervisory interventions, which functions asa backstop to protect policyholders. Pillar 2 (risk management and supervisory
review) covers risks that are not fully captured in Pillar 1 and establishes asupervisory review on insurers’ risk management frameworks that facilitate
enhancement of their risk management practices. Pillar 3 (disclosure) facilitates
dialogue between insurers and external stakeholders that improves corporate
governance and enhances discipline in insurance companies through external
scrutiny. In addition, the Advisory Council indicated that the standardized modelfor domestic regulation could be designed based on the Insurance Capital Standard(ICS), but will need to be adjusted as necessary to take into account issues unique todomestic regulations.
As things currently stand, the solvency margin ratio regulation introduced in
1996 is used as a regulation to secure insurers’ financial soundness in Japan.
However, the valuation of liabilities based on locked-in assumptions and factorbased risk measurement are recognized as major challenges under the current
regulation. In the former, liabilities are valued using assumptions such as a discountrate and an occurrence rate that are fixed at the inception of an insurance contract.
In the latter, the amount of risk (required capital) is calculated by multiplying theexposure value by a prescribed factor for each type of risk. As a result, the value of
liabilities is not affected even if an event such as a fall of interest rates causes
fluctuation in the fair value of assets. This is not consistent with trends ininternational methods for measuring soundness that involve appropriate
management of fluctuations in net assets, which is essentially the difference between
asset valuation and liability valuation on an economic value basis. Transitioning toeconomic value-based solvency regulation will resolve this issue, with the
expectation that it will establish a regulatory and competitive environment thatenables insurers to sustainably meet various insurance needs while protecting
policyholders by ensuring soundness over the medium and long term.
The introduction of this regulation will require insurers to enhance thesophistication of their enterprise risk management (ERM) framework to incorporate
an economic value-based approach. Anticipating the introduction of this regulation,

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

major Japanese life insurance companies are notably increasing ultra-long-term
government bonds in their 2021 asset management plans. In addition, the new
regulation will likely affect the management behavior of insurance companies andthe insurance products they provide.
Several issues will continue to require attention. These include international
capital regulations, which are the basis for the standardized model for domestic
regulation; developments in the introduction of economic value-based solvency
regulation in Japan; and the response of insurance companies.

43

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, 2021, the Toa Re Group boasted total assets of 772.1
billion yen. Net premiums written during the fiscal year ended March 31, 2021
totaled 287.5 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

44The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2021

Consolidated
Financial Highlights

Thousand
U.S. dollars

Million yen
2021

2020

Ordinary income¥312,101¥297,757

Net premiums written

287,547

Ordinary profit (loss)

2019

2018

2017

2021

¥266,625 ¥254,934¥251,462$2,819,085

270,252

248,288237,911

223,749

2,597,299

2,164

88

(7,390)9,857

14,022

19,546

2,745(2,141)(7,150)9,191

10,512

24,794

Total net assets

182,257

167,141

179,944

200,550

191,907

1,646,255

Total assets

772,108

711,690694,088687,950

698,418

6,974,148

For the year ended March 31

	Net income (loss) attributableto owners of the parent
As of March 31(Rate: ¥110.71 = US$1)

Net Premiums
Written by Class(Consolidated Basis)(Million yen)

Others¥22,950
8.48%

Fire¥69,00925.54%

Fiscal 2019
Life¥90,692
33.56%

Total¥270,252

Marine¥11,205
4.15%
Personal Accident¥2,6410.98%
Motor¥35,167
13.01%

Liability¥38,585
14.28%(Million yen)

Others¥29,943
10.42%

Fire¥79,168
27.53%

Fiscal 2020
Life¥85,767
29.83%

Liability¥43,251
15.04%

Total¥287,547

Marine¥10,643
3.70%
Personal Accident¥2,7630.96%
Motor¥36,01012.52%

45

Company Overview

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

Overseas Network

Toa Re America(Toronto Branch)

Toa Re (Head Office)TaiwanHong Kong
Singapore
Kuala Lumpur
Toa Re America(Agricultural Office)Locations

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 400, Irvine, CA 92612, U.S.A.
Telephone: +1-949-474-1420

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

Switzerland

The Toa 21st Century Reinsurance Co., Ltd. (Toa Re Europe)
Kreuzplatz 16, 8008 Zürich, Zürich, Schweiz

Representative Offices

46

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

47

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

92,215
94,0797,098,116
6,686,089
59.8
63.3
32.7
32.0
1.95
1.94

Fiscal 2020

Fiscal 2019

Fiscal 2020

Fiscal 2019

Fiscal 2020

Fiscal 2019

Fiscal 2020

Fiscal 2019

Fiscal 2020

Fiscal 2019

701.3

89,113Fiscal 2019

Fiscal 2019

131,604

Fiscal 2020

746.5

7,351

Fiscal 2019

Fiscal 2020

23,918

Fiscal 2020

2.53

888,652

Fiscal 2019

Fiscal 2019835,374

Fiscal 2020

3.05

1,547,930

Fiscal 2019

Fiscal 2020

1,559,567

Fiscal 2020

702.3

790.9

3.06

2.70

2.36

2.15

34.5

34.9

62.0

58.6

3,420,733

3,745,278

44,784

21,61058,61532,476

1,126(12,485)

724,662

679,990

1,276,770

1,281,426

Aioi Nissay
Dowa

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

815.2

825.9

3.81

3.45

2.78

2.37

30.8

30.8

65.2

57.4

9,192,693

9,562,449

169,966

109,379

223,945

157,272

38,490(16,965)

1,353,232

1,185,264

2,247,508

2,261,313

Tokio Marine& Nichido

1,115.3

1,279.4

1.89

6.17

1.57

1.32

33.4

33.1

64.8

57.9

381,758

403,135

3,757

17,077

5,785

23,557

2,789

6,811

86,70475,971

148,850

147,750

NisshinTokio Marine Holdings

717.3

703.5

3.39

3.30

2.50

2.35

32.4

33.6

64.9

60.8

7,166,057

7,389,677

130,579

146,994

182,387

197,432

43,11366,3681,301,872

1,189,878

2,184,750

2,141,433

Sompo Japan

Sompo Holdings

707.0

723.2

2.84

3.02

1.89

1.66

24.8

26.2

72.1

65.7

492,360

543,280

1,466

3,253

4,486

3,931

(4,320)(5,853)150,083

137,809

208,029

209,821

Toa Re(Unit: Million yen, %)Sources: Each company’s financial statements of fiscal 2020

Supplemental Data: Results of Japanese Major Non-Life Insurance Companies for Fiscal 2020, Ended March 31, 2021

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 / english /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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