Japan’s
Insurance
Market2022

Japan’s Insurance Market 2022
ContentsPage

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

1

1. The Offshore Wind Power Projects in Japan and Notable Differences with Europe
Kunihiko Toda, Senior Consultant, Shoko Takaragawa, Consultant
Risk Management Business Unit, Risk Solution Development Department
Renewable Energy/Infrastructure Group
Sompo Risk Management Inc.

2

2.	Renewable Energy: Offshore Wind and the Future
Joseph Lone
Partner, Marine & Energy Reinsurance,
Arthur J. Gallagher (UK) Limited

14

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

30

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

Company Overview©2022 The Toa Reinsurance Company, Limited. All rights reserved.
The contents may be reproduced only with the written permission of The Toa Reinsurance Company, Limited.

38
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To Our Clients

It gives me great pleasure to have the opportunity to welcome you to our publication, ‘Japan’s
Insurance Market 2022.’ It is encouraging to know that over the years our publications have been
well received even beyond our own industry’s boundaries as a source of useful, up-to-date
information about Japan’s insurance market, as well as contributing to a wider interest in andunderstanding of our domestic market.
The insurance and reinsurance industries have been encountering a substantially changing
business environment. For instance, insurance needs and risks have been rapidly diversifying andchanging amid developments that include evolution and growing prevalence of digital technologies,
increasingly severe natural disasters, and demographic trends in the form of a decreasing birthrate
and an aging population. Meanwhile, the COVID-19 pandemic has greatly affected the economic
climate as well as people’s work and lifestyles.
Amid this increasingly changing environment and under TEAM TOA 2023, the Group’s
medium-term management plan, we aim to achieve sustainable growth in step with clients andsociety by providing optimal solutions and services to our clients. In addition, in pursuit of the
Sustainable Development Goals (SDGs), we are promoting various group-wide initiatives toprovide solutions to social challenges through our business activities.
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.
This year’s publication is the first to be issued exclusively in electronic form, in recognitionof the role that we all have in considering the environment and sustainability. I hope that our
publication continues to provide a greater insight into the Japanese insurance market, and I
would like to express my gratitude to all who kindly contributed so much time and effort
towards its making.

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

1

1.
1. Introduction

2. Natural
Conditions

2

The Offshore Wind Power Projects in Japan
and Notable Differences with Europe
Kunihiko Toda, Senior Consultant,
Shoko Takaragawa, Consultant
Risk Management Business Unit, Risk Solution Development Department
Renewable Energy/Infrastructure Group
Sompo Risk Management Inc.

Surrounded by ocean, Japan has great potential for offshore wind power
generation, and expectations are rising for the development of this industry tocontribute to the realization of a carbon-neutral society. Specific targets are set as thecapacity of 10 GW by 2030 and 30 to 45 GW by 2040, 1 with expecteddevelopment in two to four offshore areas (approximately 1 GW in total) annually.
Most of the onshore wind farms that have come online in Japan to date featurewind turbines in the 2 to 3 MW class, and the number of turbines limited to 20-30
units even for large-scale wind farms. Future offshore wind farms, however, willfeature double-digit MW generation capacity turbines, with each farm consisting ofaround 30 to 100 turbines. The huge scale of this business (estimated to be several
hundred billion yen), and the fact that the turbines are located offshore, will posesignificant construction and operations management challenges compared toonshore wind projects.
Expectations for offshore wind projects are increasing, however, the supply
chain of the Japanese wind power industry is not yet mature enough to support
offshore wind projects, partly due to the fact that a large number of the onshore
wind farms in Japan are relatively small in scale. In addition, the construction andmaintenance of offshore wind facilities requires specialized construction technology,
equipment and human resources, but Japan faces infrastructure shortfalls ranging
from construction equipment and ships to specialists.
In its efforts to further develop the domestic offshore wind industry, Japan has
much to learn from leading European companies, which already have extensive
experience in managing the wide array of risks involved. At the same time, Japan
faces unique risks that differ from those in Europe and must address those issues
when adapting its implementation of European methodologies. Representative
examples are natural disasters and the technical and social issues mentioned earlier.
To minimize those risks, it is important to establish effective mechanisms and plans,
but doing so still does not preclude the possibility of accidents. As such, insurance
coverage will help to provide stability in the offshore wind projects. This reportfocuses on natural conditions, the business environment, technical requirements,
and the role of insurance, and examines the differences with Europe and measures toaccommodate those differences.

2.1. Earthquakes, Tsunami, Typhoons, and Lightning
Japan has a higher risk of natural disasters such as earthquakes, tsunami,
typhoons, and lightning than those in Europe, which is a leader in the offshore windbusiness. Japan has therefore placed greater emphasis on regulations and guidelines
to counter natural disasters than is the case in Europe. This has led Japan’s national
government, wind power industry participants, and manufacturers to implement a
range of measures.
One example is the Sea of Japan side of the Tohoku region, where multiple
offshore wind projects are being developed. The Japanese government’s

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

Headquarters for Earthquake Research Promotion has announced that theprobability of an earthquake in this area with a seismic intensity of approximately
6.0 lower or higher (Japanese scale) is 6% to 26% for the 30 years beginning 2020.2
In response, the technical standards formulated by the Ministry of Economy, Tradeand Industry3 require offshore wind facilities to confirm their structural safety forrare and extremely rare earthquake motion as stipulated by the Building Standard
Law. These standards are the same as those that onshore wind facilities are required
to meet. Furthermore, the Japanese government has formulated the Unified
Technical Standards for Offshore Wind Power Facilities4 (the Unified Standards),
which elucidate standards for reducing the risk of wind turbine collapse or
disintegration due to shaking from an earthquake, so that the offshore wind projects
can be safely promoted.
The risk of tsunami is high in Japan because the risk of earthquakes is high, so
the Unified Standards require that the foundations and towers of offshore windturbines do not collapse or disintegrate given the tsunami assumptions of local
governments. The risk of damage by a large-scale tsunami to a wind turbine is low
because its nacelle5 and blades6 are located sufficiently high above the ocean surface.
However, onshore facilities are necessarily exposed to tsunami risk. Onshore
substations and warehouses for components are exposed to the risk that tsunami will
wash away or destroy a large quantity of main and spare parts7 for wind turbines,
along with the risk that power plant will be unable to sell power for extended
periods if substations are flooded. Therefore, the study and implementation ofremedial measures such as raising the level of buildings and installing equipment atgreater height are necessary based on the tsunami risk for planned sites.
Typhoons, high winds, and lightning are other examples of natural disaster risks
unique to Japan, in addition to earthquakes and tsunami. Typhoons and high winds
in Japan involve wind speeds and directions that can fluctuate wildly, and thosewinds lead to damage to many onshore wind turbines. To mitigate risk and prevent
recurring damage, business operators and experts have therefore considered andimplemented measures such as adoption of the T-Class8 wind resistance design
standard for configuring wind turbines to accommodate Japan’s environmental
conditions. Moreover, winter lightning with an extremely large electrical charge
often occurs along the coastal areas of the Sea of Japan, and incidents caused bylightning strikes on wind turbines occur frequently. Compliance with technicalstandards assuming an electric charge of 600 coulombs or higher is therefore
required9 to reduce such risk in priority lightning protection areas with high risk oflightning strikes (see Figure 1). Other measures under consideration to reduce
lightning risk include increasing the area of the receptor,10 using highly conductive
materials, and placing conductive tape on blade surfaces.

31. The Offshore Wind Power Projects in Japan
and Notable Differences with Europe

Figure 1: Lightning Risk Map11

Priority lightning protection areas: areas with high risk of lightning strikes
Lightning protection areas: areas with comparatively lower risk of lightning strikes

Note: Excludes offshore areas

2.2. Certification
Third-party certification through design verification is effective for countering
the risks of earthquakes, tsunami, typhoons, and lightning events peculiar to Japandescribed above. Wind turbine type certification specified by the International
Electrotechnical Commission (IEC) and wind farm certification that evaluates
strength and safety based on site environmental conditions are also utilized in theconstruction plan review required by the Electricity Business Act. Due to the factthat obtaining wind farm certification takes years and remarkable advances in windturbine technological innovation and turbine size are ongoing, wind power
operators therefore need to collaborate with wind turbine manufacturers from theinitial stage of business development to gather the necessary design information,
drawings and specifications. Given the frequency of typhoons in Japan as mentioned
earlier, selecting wind turbine models with T-Class certification is a key
consideration in developing wind farms because they effectively reduce the risk
levels.
Beyond T-Class certification, Japanese and Asian markets require technology
development such as for winter lightning, blades that address lower wind speed andcomponent technologies for offshore wind turbines such as floating structures andmooring systems for mass production,12 due to the difference in wind conditions

4

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

and natural disaster hazards with those in Europe. This suggests the need to respondto type certification for wind turbines that incorporates such new element
technologies and to the wind farm certification. The development process when
applying new element technologies should therefore include sufficient time toobtain and review the information required for certification of such element
technology.

2.3. Steep Continental Slope and Floating Type Risk
Europe has many offshore wind turbines in the North Sea, but the continental
shelf (where the water is shallower) in that area is more expansive than it is around
Japan, where four tectonic plates meet and the continental slope is steep and closer
to shore (see Figure 2). Fixed-bottom wind turbines are technically andeconomically limited to a depth of about 50m (see Figure 3), and offshore areas
suitable for these turbines are limited around Japan. Public bids are therefore likely
to include both floating and fixed-bottom turbines from the mid-2020s.
Figure 2: Ocean Depth around Japan13
125º

130º

135º

140º

145º

150º

50º

50º

45º

45º

40º

40º

35º

35º

30º

30º

25º

25º
125º

130º

135º

140º

145º

150º

m
-200

-150

-100

-50

0

5

1. The Offshore Wind Power Projects in Japan
and Notable Differences with Europe

Unlike fixed-bottom turbines, floating turbines are exposed to the risk ofaccidents and failure in the construction of the floating structure, mooring cables
and dynamic cables.14 Of particular note, the mooring cables are situated in a radiusof about one kilometer around the floating structure, although this depends onmooring method and water depth. In addition, the dynamic cable needs to follow
the sway of the floating structure and is not fixed or embedded in the seafloor.
While fixed-bottom wind turbines are exposed to the risk of damage to cables,
including damage from dragnets and anchors on the seafloor, floating wind turbines
are exposed to greater risk because the mooring and dynamic cables are floating inthe sea over a wide area.
Figure 3: Application Range for Fixed-bottom and Floating Wind Turbines15
Fixed-bottom

Floating

TLP

Monopile
0-30m, 1-2 MW

Jacket/Tripod
25-50m, 2-5 MW

Semi-Sub

Floating Structures>50m, 5-10 MW

Spar

Floating Structures>120m, 5-10 MW

Offshore wind operators absolutely need to mitigate the risk of damage tomooring and dynamic cables and the consequent risk that wind turbines or small
vessels will capsize. To do this, they need to coordinate, build consensus with otherstakeholders including the fishing industry, existing businesses and port authorities
and monitor the ocean use by those stakeholders.

6The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

3. Business
Environment

3.1. Shortage of Work Vessels
In 2020, annual worldwide demand (excluding China) for new offshore
installation vessels was estimated to be somewhere between 8 to 13 vessels.
Currently, 32 of these vessels are available. Demand for these work vessels is
expected to be up to five times higher worldwide in 2030, and finding suitable work
vessels is likely to be challenging given the increasing size of wind turbines.16 The
Tohoku and Hokuriku regions, in the northern area of Japan, are particularly
exposed to the risk of a more serious shortage of work vessels due to theconcentration of demand for vessels from spring to autumn because construction is
not possible in winter. In addition, cabotage regulations17 in Japan require special
permission from the Ministry of Land, Infrastructure, Transport and Tourism to use
work vessels that are registered overseas.
Use of Japanese-flagged ships, including Japanese-registered foreign ships, may
be desirable, but on-board crane constraints, such as crane height and maximum
lifting capacity given the increasing size of wind turbines, and the onboard
availability of a dynamic positioning system (DPS), limit the number of suitableships. In addition, the foundation and transition piece18 require accurate installation
and both wind turbines and foundations are becoming larger, but Japan lacks thetechnical knowledge and experience to address these issues.
As mentioned above, Japan has no large-scale offshore wind project to date andtherefore lacks relevant construction equipment and experience. Consequently, interms of securing vessels with a construction track record and that havespecifications suitable for the construction plan, the future offshore wind businesswill need to set the required parameters such as load capacity, crane lifting capacity
and DPS availability for ship selection based on the wind turbine model data andconstruction schedule. The same is true for cable laying vessels and operations andmaintenance (O&M) vessels, and the offshore wind operators will need to plan andsecure the necessary ships before the start of construction and operation.

3.2. Immature Supply Chain and Expectations to Developers forJapan’s Wind Industry Development
There is an oligopoly by several manufacturers of offshore wind turbines, andthese are European and U.S. manufacturers. Almost all of their factories are locatedin the United States and Europe, which leads to significant delays and costs whenrecovering from accidents in Japan because of the extended shipping time. In
addition, ocean conditions around Japan make transport of large wind turbine
components and their maintenance or replacement difficult in winter. Therefore,
there is a risk of prolonged shutdown periods if spare parts are not available in Japanin the event of a failure of or accident to a major component of the wind turbine.
Given the above situation, wind power operators must work with manufacturers
and maintenance companies to secure the supply of spare parts and organize thesystems to quickly recover from accidents and breakdowns. The offshore windindustry is already well-developed in Europe, where multiple offshore wind
operators with large wind farms and O&M companies have inventories of common

71. The Offshore Wind Power Projects in Japan
and Notable Differences with Europe

spare parts, with a mature second-hand market providing an efficient backup
system. Also, the factories of wind turbine manufacturers are located nearby,
meaning quicker restoration because transportation takes less time.
Japan has few broad plains with good wind conditions such as those in Europe
and the United States, which has inhibited the development of a large-scale wind
power businesses and a domestic supply chain of spare parts manufactured locally.
As a result, procurement periods and downtime can be lengthy. A potentiallyefficient means to shorten post-accident recovery time in Japan would involve
standardizing spare parts with other wind farms around Asia in collaboration with
European offshore wind operators. Formulating strategies for re-procurement as partof business development would also mitigate risk. This would involve using actual
wind farm operating data and experiential accident data to itemize the materials andparts for specific projected accidents and their frequency, analyzing delivery leadtime, purchasing long lead items in advance and guaranteed delivery contracts. It
would also involve local purchase orders for items that can be manufactured inJapan. These initiatives would quantify the damage in the event of an accident andformulate the plans for quick recovery, and then the business plan can be covered byrequired insurance for property damage and downtime.
Unexpected accidents and failures are inevitable even with the above plans andcountermeasures, but these plans and backup systems improve responsiveness tominimize the scale of damage and downtime. This also helps to prevent increases ininsurance premiums after an accident and reduces the operating expenditures(OPEX). This is the true risk management as opposed to ad hoc risk
countermeasures.

4. TechnicalRequirements

8

4.1. Shortage of Specialized Engineers for Offshore Wind Facilities
A survey conducted by the Ministry of Economy, Trade and Industry in 2017
pointed out that European countries have many third-party O&M companies and astrong pool of maintenance personnel due to the large number of wind turbine
manufacturers in Europe and the high mobility of engineers among various
companies, including wind turbine manufacturers, in the industry. The survey
estimated the optimum number of wind turbine maintenance engineers for Japan at
690 for the 2,203 domestic wind turbines in operation at that time, assuming one
engineer can service about 3.2 wind turbines. However, a 2019 survey indicated ashortage of about 190 maintenance engineers in Japan.19
Japan has had a shortage of wind power maintenance personnel from the start,and offshore wind facilities require maintenance personnel with even higher andwider specialties; training specialized personnel has therefore become an issue in thelocal industry. Examples of the required skills of maintenance personnel for offshore
wind equipment include basic safety training (emergency measures, manual
handling, fire prediction, work at height, and maritime survival skills) established by
the Global Wind Organization (GWO), 20 which sets international training
standards for wind facility workers. Other knowledge such as ship maneuvering

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

skills, diving skills, blade repair training, rope access, radio equipment handlingskills, and English are also required, in addition to knowledge of wind turbine
maintenance itself. Japan has training facilities that provide basic safety training
based on GWO standards and various kinds of maritime survival training, andoffshore wind projects need to utilize these facilities, secure maintenance personnel
and improve their skills.
In addition, subcontractors who participate in operations and maintenanceduring the term of a long-term service agreement (LTSA) with a wind turbine
manufacturer are required to (1) be registered as a vendor and (2) independently
receive various kinds of training as required by the manufacturer. Offshore wind
power generation is becoming a full-scale business in Japan, but the number ofpeople who have experience maintaining offshore wind facilities is very limited.
Japan needs to develop maintenance personnel, but this takes time because
maintenance engineers require diverse skills. In addition, the lack of adequate
training facilities and systems in Japan makes training and hiring maintenancepersonnel more difficult.
Measures to resolve the shortage of maintenance personnel for offshore windfacilities in Japan include promoting the training of local engineers in collaboration
with wind turbine manufacturers, and dispatching engineers to manufacturers fortraining as part of conditions of purchase agreements and LTSA. Alternatively, if theconsortium has a member with experience in the European offshore wind industry,
it is desirable to have maintenance personnel dispatched from offshore windfacilities in Europe, or conversely, to dispatch maintenance personnel to wind farms
in Europe, for technology transfer through hands on maintenance training fromexperienced technicians.

4.2. Restricted Access to SCADA Data
SCADA (supervisory control and data acquisition) systems are the mainstream
for monitoring wind power generation. SCADA functions are roughly divided into
three categories: monitoring, operations control, and data collection. Monitoring
involves reading real-time data for wind turbines such as current wind speed, winddirection, power generated, and historical data including alarm history. Operations
control involves remote delivery of stop, reset, and operation commands to the windturbine, and output control in response to output suppression requests from anelectric power company. Data collection involves aggregation and storage ofhistorical wind turbine data such as 10-minute logs, alarm logs, trigger logs, andpower generation logs transmitted from the wind turbines.
Given the shortage of maintenance personnel and many other factors that
impact the ability to operate safely, the need for accurate and reliable initiatives that
improve the use of SCADA data will likely increase in the future. Malfunctions
detected at onshore wind facilities oblige the chief electrical engineer to immediately
go to the turbines, visually check the abnormality, and give instructions to theoperator and the maintenance company for wind turbine operation andmaintenance. The use of data from SCADA systems and other sources is more

9

1. The Offshore Wind Power Projects in Japan
and Notable Differences with Europe

important at offshore wind farms because immediate access to the turbines isdifficult. SCADA data enables companies to remotely detect, investigate andeliminate the cause of abnormalities rather than having to make on-site visualinspection or direct confirmation in the nacelle. Recent research and development
has also confirmed that enhanced SCADA data analysis enables operatingcompanies to detect signs of wind turbine failure in advance and to undertakepreventive maintenance that precludes the occurrence of serious accidents to acertain extent.21
However, most of the operation and maintenance data of wind power
generation equipment in Japan is aggregated and managed by overseas
manufacturers, which do not typically share various types of data22 with responsible
local operating companies. In addition, many power generation facilities do not
fully utilize wind turbine operational data because of the poor performance of
SCADA systems installed in the early days of the industry and the limited storage
period of SCADA data.
There are many cases that show difficulties in identifying the root cause of
accidents because SCADA data was only partially disclosed for the root cause
analysis of serious accidents in onshore wind turbines. This suggests that detailed
SCADA data is needed to accurately analyze the cause of accidents. The Japanese
government has often discussed the importance of using SCADA data to prevent
serious accidents of wind turbines with wind power operators and experts. Demands
for offshore wind power operators to have greater access to enhanced data will likely
increase further in the future. Given the foregoing, power generation companies
need to discuss SCADA data access rights and scope during contract negotiations
with wind turbine manufacturers.
In addition, the Unified Standards advocate the technique of monitoring andmaintenance that involves not only SCADA but also an array of measurement
sensors attached to various parts of the wind power generation equipment as acondition monitoring system (CMS) that monitors and identifies the state of eachcomponent. For example, monitoring vibration in the main shaft bearings, gearbox
and generator enables to collect effective data for performing preventive
maintenance to shorten downtime by predicting component failure and purchasing
replacement parts prior to failure.

5. The Role of
Insurance in the
Offshore Wind
Business

10

Offshore wind projects often employ project finance because capital
expenditures are in the hundreds of billions of yen due to the scale of the business.
The project implementation organization, location, and social environment are
different for each project, so lenders’ risks are also diverse.
Operating companies in the offshore wind business must comprehensively
identify various risks, analyze them, and present a countermeasures plan. The
guidelines and the proposal form for public bidding require companies to formulate
and submit the countermeasures plan. At the same time, no plan is able to eliminate
all risks, and accidents and breakdowns are common during the construction andThe Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

operation of offshore wind facilities. Insurance is an effective means of providing
compensation for these accidents or breakdowns, and helps to ensure stable,
competitive business operations without the need for excessive capital reserves.
Project lenders also require necessary and sufficient insurance coverage to endorse afinancing agreement.
Properly designed insurance coverage requires a full analysis and a formed
recovery plan, from the planning stage, which includes the supply chain system anda frame agreement with the manufacturer based on analysis of the natural disaster
risk, spare parts lead time, and downtime analysis as discussed above. Based on sucha business plan that appropriately identifies risks, effective mitigation strategies, andrecovery contingencies in the event of an accident, as a result, insurance companies
are able to provide appropriate insurance after estimating maximum damages
encompassing property damages and lost profits due to equipment downtime. The
insurance provided with the understanding and agreement of lenders enables stablebusiness operations with keeping its competitiveness.

6. Conclusion

This paper focused on differences in the business environment between Europe
and Japan, and examined ways to reduce risk. Offshore wind projects in Japan needto respond to conditions and an environment that are different from those inEurope, including environmental issues such as earthquakes, typhoons, andlightning, and social issues such as supply chains and the shortage of engineers. The
issues examined here serve as examples of risks and countermeasures, and all
stakeholders involved need to accurately identify these risks in consideration of thecircumstances in each project location and the project implementation organization,and to address them while incorporating the latest technological trends. Identifying
risks and addressing them with the latest technologies enable companies to maintainhigh wind turbine operating rates. It will also support feasibility, stable operations,and increased earnings for power generation companies by forestalling the
manifestation of risks and accidents, reducing the need for higher capital andoperating expenditures.
The offshore wind industry is certainly not fully mature in Europe astechnologies are constantly advancing and evolving; however, criteria and standards
there based on the large body of extant performance and experiential data are very
instructive. Hopefully, Japan’s offshore wind industry will develop and contribute to
the realization of a carbon-neutral society by overcoming the risks peculiar to Japan
while incorporating the precedents from Europe.

111. The Offshore Wind Power Projects in Japan
and Notable Differences with Europe

References
1. Ministry of Economy, Trade and Industry, Agency for Natural Resources andEnergy, Vision for Offshore Wind Power Industry (1st)https://www.meti.go.jp/shingikai/energy_environment/yojo_furyoku/
pdf/002_02_02_01.pdf (Japanese) (access date: November 4, 2021), https://www.
mlit.go.jp/kowan/content/001390489.pdf (Provisional English translation)
2. The Headquarters for Earthquake Research Promotion, National Seismic
Hazard Maps for Japan
https://www.jishin.go.jp/main/chousa/20_yosokuchizu/yosokuchizu2020_
chizu_10.pdf (Japanese) (access date: November 4, 2021)
3. Ministry of Economy, Trade and Industry, Guidance for Technical Standards forWind Power Equipment
https://www.meti.go.jp/policy/safety_security/industrial_safety/law/files/20210414fuugi-kaisyaku.pdf (Japanese) (access date: November 4, 2021)
4. Ministry of Land, Infrastructure, Transport and Tourism, Unified TechnicalStandards for Offshore Wind Power Facilities (Revised)https://www.mlit.go.jp/common/001339422.pdf (Japanese) (access date:November 4, 2021)
5. A box on top of the wind turbine tower that encases the main shaft, gearbox,
and generator
6. Wind turbine blades
7. Spare replacement parts for accidents, breakdowns, or wear
8. International Electrotechnical Commission (IEC), Design Standards for Higher
Average Wind Speeds
9. Ministry of Economy, Trade and Industry, Guidance for Technical Standards forWind Power Equipment
https://www.meti.go.jp/policy/safety_security/industrial_safety/law/files/20210414fuugi-kaisyaku.pdf (Japanese) (access date: November 4, 2021)
10. A component of a lightning protection system, on the tip of a wind turbine
blade
11. New Energy and Industrial Technology Development Organization, JapaneseWind Power Generation Guidelines, Lightning Strike Countermeasures
https://www.nedo.go.jp/content/100107252.pdf (Japanese) (access date: October28, 2021)
12. New Energy and Industrial Technology Development Organization, Technology
Development Roadmap for Strengthening the Industrial Competitiveness of
Offshore Wind Power (draft)
https://www.meti.go.jp/shingikai/energy_environment/yojo_furyoku/sagyo_
bukai/pdf/003_03_00.pdf (Japanese) (access date: October 28, 2021)
13. Ministry of Economy, Trade and Industry, Agency for Natural Resources andEnergy, Floating Offshore Wind Power Generation Introduction Manualhttps://warp.da.ndl.go.jp/info:ndljp/pid/12295692/www.enecho.meti.go.jp/
category/saving_and_new/new/information/190529a/pdf/manual.pdf (Japanese)(access date: August 16, 2022)

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The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

14. Cable that can float in the ocean along with the movement of the floating
structure
15. Ministry of Economy, Trade and Industry, Agency for Natural Resources andEnergy, Floating Offshore Wind Power Generation Introduction Manualhttps://warp.da.ndl.go.jp/info:ndljp/pid/12295692/www.enecho.meti.go.jp/
category/saving_and_new/new/information/190529a/pdf/manual.pdf (Japanese)(access date: August 16, 2022)
16. The Maritime Executive, Rystad Predicts Shortage of Wind Farm Installation
Vessels
https://www.maritime-executive.com/article/rystad-predicts-shortage-of-windfarm-installation-vessels (English) (access date: October 28, 2021)
17. Regulation that limits coastal transportation (cabotage) in Japan to ships
registered in Japan. Article 3 of the Marine Act prohibits cabotage by foreign
ships in principle.
18. A joint component that adjusts the verticality of the pile foundation and theverticality required by the wind turbine tower.
19. Ministry of Economy, Trade and Industry, 2017 survey on the Study ofRationalization of Safety Regulations for Electrical Facilities (Structural Surveyof the Wind Power Generation Industry)
http://www.meti.go.jp/meti_lib/report/H29FY/000009.pdf (Japanese) (accessdate: October 28, 2021)
20. A non-profit organization consisting of wind turbine companies and windturbine manufacturers. It standardizes safety training and emergency response.
21. Makoto Iida. 2013-2017 Results Report. Research and Development ofRenewable Energy Technology Such as Wind Power. Research andDevelopment of Advanced Practical Application of Wind Power Generation.
Research and Development of Smart Maintenance Technology Research andDevelopment (Analysis)
https://www.nedo.go.jp/library/seika/shosai_201903/20190000000059.html(Japanese) (access date: October 28, 2021)
22. Industrial Structure Council, Subcommittee on Electric Power Safety.
Document 4 of the 16th Subcommittee on Electric Power Safety Electricity
Safety Subcommittee: Progress of Examination for Smarter Electric Safety
https://www.meti.go.jp/shingikai/sankoshin/hoan_shohi/denryoku_anzen/
pdf/016_04_00.pdf (Japanese) (access date: October 28, 2021)

13

2.
1. Overview –The Opportunity

Renewable Energy:
Offshore Wind and the Future
Joseph Lone
Partner, Marine & Energy Reinsurance, Arthur J. Gallagher (UK) Limited

It is clear from the mounting, social, environmental and political pressure, that
Renewable Energy is undoubtedly the future of energy. The 26th United Nations
Climate Change Conference (COP 26) saw 200 countries adopt the Glasgow
Climate Pact, aiming to turn the 2020s into a decade of climate action and support.
The conference has also been a key catalyst in steering countries towards a Net Zerofuture. Net Zero is defined as achieving a balance between the carbon emitted into
the atmosphere, and the carbon removed from it. A challenging yet necessary target,
as participating countries currently produce 90% of global greenhouse gas
emissions, leaving a significant footprint on the planet.
In addition to climate change protocols putting pressure on the inevitable shift
towards Renewable Energy, other external factors are also accelerating this change.
The Russian invasion of Ukraine and the subsequent sanctions and move (especiallyby the EU) to become less dependent on Russian oil and gas is one such factor.
As is the case in all markets, stakeholders must continue to adapt to thechanging world around it, a situation the (Re)Insurance Energy Market now finds
itself in. A key driver of this is the growing influence of Environmental, Social andGovernance (ESG). ESG is an umbrella term used to reference the sustainability of acompany, by measuring these three factors. Financial investors of companies also havea key focus on ESG, as it is their responsibility to show they are investing in a socially
responsible, ethical, and sustainable way. With ESG in mind, more (Re)Insurancecompanies are increasing their awareness of and involvement in Renewable Energy
in an attempt to showcase the greener future of their company.

ENVIRONMENTAL

GOVERNANCE

Considers how acompany performs
as a steward
of nature.

Deals with how acompany is governed

E.g., climate change,energy emission,
waste management,
and resource
depletion

SOCIAL
Examines how acompany manages
its relationships with
employees, suppliers,
customers and thecommunity
E.g., health and wellbeing,building safety, employee relations,diversity, and impact on communities

Source: Dedalus Healthcare Limited

14E.g., executive pay,shareholder rights,
board diversity,and structure audits

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

It is therefore the aim of this report to provide an in-depth, global andcontextual understanding of why the expectation for Renewable Energy is so great.
Furthermore, with the global stage set, the growth of Offshore Wind andFloating Offshore Wind will be explored. Two areas that have grown exponentiallyin recent years and show the most longevity and therefore benefit to any assuming(Re)Insurers. Further prototypical ‘offshore alternatives’ are also considered.
Subsequent to which, the potential use of modelling and analytics to build
frameworks to assess potential losses for Renewable Energy assets (globally) is also
considered.
Finally, the key considerations and headwinds working against the Renewable
Energy sector are discussed; before concluding with why, despite such issues,
Renewable Energy and specifically Offshore Wind, should be considered as an
immediate opportunity.

2. Growth andExpectations

Net ZeroA review of the list of countries who have made legally binding commitments,or, proposed legislation in favour of carbon neutrality (Net Zero), by 2050, makes
the expectations for the sector abundantly clear.
The map/infographic on the next page provides an in-depth study into thecountries that have made such carbon neutral pledges, breaking them down bytarget year and the level of commitment. These commitments are grouped by; none
made, under discussion, proposed legislation, policy document, law.
While it notes that “the majority of carbon neutral goals are only under discussion
with no firm plan of action,” the point still remains that this same majority are
investing a huge amount of time and capital into Renewable Energy solutions. It
can therefore be said that the opportunity is on a truly global scale and as such, theexpected growth in Renewable Energy will be exponential.

15

16

Source: Visual Capitalist

Race to Net Zero: Carbon Neutral Goals by Country

2.	Renewable Energy:
Offshore Wind and the Future

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

List of key countries committed to Net Zero, broken down by continent:
Asia:• Japan: by 2050
• South Korea: by 2050
• China: by 2060
Europe:• United Kingdom: by 2050
• European Union (27 Countries): by 2050
- Sweden: by 2045
- Germany: by 2045
North America:• USA: 50-52% reduction in greenhouse gas pollution from 2005 levels by
2030 and committed to 2050.
• Canada: by 2050
South America:• Brazil: by 2050
• Uruguay: by 2030
• Chile, Columbia, Costa Rica, Dominican Republic, Ecuador, Guatemala,Haiti, Honduras, Paraguay and Peru have committed to a collective regional
objective to have shifted to 70% Renewable Energy by 2030.
Oceania:• Australia: by 2050
• New Zealand: by 2050
Despite promising targets, the global energy mix today is still heavily
dominated by fossil fuels, with non-renewable sources accounting for more than
80% of energy consumption. It is however expected that by 2030 Renewable Energy
will account for 50% of the power mix and 85% by 2050, a significant shift fromthe energy landscape we currently see.

The Role of ESG
As outlined in the Overview, companies are now benchmarked and held
accountable according to their ESG standards. Up until now this has been mostprevalent in Europe, with the International Sustainability Standards Board (ISSB)
being formed at COP 26 in November 2021. The ISSB has a global scope, but
individual governments will decide whether the standards will be adopted asnational requirements. As such, the focus of ESG is beginning to cascade across theglobe. The Environmental aspect, which holds the most relevance for this report,
relates to a company’s efforts to actively reduce carbon emissions and operate
sustainably. This includes anything from the where and how business is conducted,
down to the office building’s carbon emissions.
Where companies fall short of meeting these standards, fines can be served. A
record fine of more than 90 million pounds was issued against Southern Water

172.	Renewable Energy:
Offshore Wind and the Future

l

En

cia

vir

So

on

me

nta

l

Services Limited in the UK in 2021 for widespread pollution involving 6,971
unpermitted sewage discharges. Nevertheless, incentives are also given by many
governments. A notable example is Japan’s Renewable Sea Area Utilisation Act in2019. This act allows the long-term use (up to 30 years) of certain sea areas for
Offshore Wind power projects under permits issued by the Ministry of Economy,
Trade and Industry (METI). In consideration of the impact that ESG will have on
companies in the form of fines and incentives, this adds further foundation to the
expectation of how big a role Renewable Energy will play in the future.
Furthermore, such ESG consideration is also starting to feature in many
insurance company’s underwriting requirements. Insurers are now being requestedby their board to ask clients what their ESG position is, and what they are doing inthis space. Whilst this is unlikely to determine whether business is won or lost at acommercial level, through similar incentives and penalties to the aforementioned,
one can see how more and more ESG pressure will be mounted on companies totrade sustainably.

Governance

Areas of Growth
The following list provides a breakdown of how the global output of Renewable
Energy is currently sourced:
Global Renewable Energy
Offshore Wind

Onshore Wind

Solar

Hydro-Electric

Other

0.00%

Source: Gallagher Re
18

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

As shown on the previous page, the majority of capital expenditure (CAPEX)
has largely been into Offshore Wind and the subsequent success seen by early
adopters, such as Europe, has created a domino effect around the globe. Net Zerocommitments, reduced costs, improved technology and more powerful windturbines have also driven its rapid adoption. The bar graph below predicts thecontinued and expected growth into 2030 by new installations.

Global Offshore Wind Growth to 2030
New installations
GW, offshore

Other

North America

China

EuropeAsia ex. China
1.55
1.25

CAGR*
+12.7%

39.98

37.72
1.70

0.01

31.95
19.53

28.84
18.07

25.29
14.55

CAGR*
+29.3%

21.96
10.84
1.14

0.06
0.01

12.71

0.02

12.52

2.89
8.68
6.07
2.94
3.06

2020

7.50

4.00
1.49

2021e

2022e

15.80

9.44

5.09
5.00

6.31
5.00

3.17

2.33

1.07
0.01

4.00

2023e

2.21

12.74

3.96

7.00

6.00

6.00

4.20

5.10

3.50

3.56

4.25

4.00

2024e

2025e

2026e

2027e

7.00

6.50

5.20
4.00

2028e

7.40

4.00

2029e

7.50

4.40

2030e

* CAGR = Compound annual growth rate
Source: GWEC Market Intelligence, July 2021

As shown above, the key players in Offshore Wind are Europe, North Americaand Asia. In 2020, Europe had the largest market for Offshore Wind energy, with its
active 22 GW making up 75% of total global installations. Other nations are now
showing signs of catching up, for example North America is anticipated to makegains of up to 25 GW by 2030.

19

2.	Renewable Energy:
Offshore Wind and the Future

Asia is following suit and expected to see similar growth, for example by 2030,
China is expected to have added 52 GW of new capacity. China’s current capacity
sits at 19.7 GW. Additional markets in Asia are also intending to increase their
Offshore Wind capabilities. In December 2020, the Japanese government set atarget to install 10 GW of Offshore Wind power by 2030 and 45 GW by 2040. The
following bar graph further illustrates the clear upwards projection of global
Offshore Wind growth in Asia by 2030, again by measuring new installations.
When considering this rate of growth, it is of no surprise that Offshore Wind is
expected to become a 1 trillion U.S. dollar industry by 2040.
Global Offshore Wind Growth to 2030 in Asia
New installations, Asia
GW, offshore

Rest of Asia
South Korea

India
Japan

Vietnam
China

TaiwanShare of Chinese
offshore market

X%

CAGR*
+10.1%

0.70
0.80

0.70

9.83

CAGR*
+23.5%
1.00
0.14
0.36

7.50

0.45
0.26
0.43

1.20

10.20

14.50

7.00

7.00

1.50

1.50

1.50

2.00

2.00

1.50

1.50

1.50

1.50

1.00

1.00

1.00

1.00

11.10

0.60
0.50

11.70

8.96

6.00

6.00

6.50

5.00
5.00

4.00
4.00

1.13

0.60
0.10

7.21

5.14

3.12

1.96

1.00

1.50

1.00

1.00
1.00

1.50

2020

2021e

2022e

2023e

2024e

2025e

2026e

2027e

2028e

2029e

2030e

98%

76%

73%

78%

69%

56%

59%

55%

56%

49%

48%

* CAGR = Compound annual growth rate
Source: GWEC Market Intelligence, July 2021

20

0.40
0.60

5.49

0.06

3.06

0.64
0.30
0.77
0.50

14.40

0.70
0.50

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

Floating Offshore Wind
Looking towards future growth, one facet of Offshore Wind that is expected tosee a surge in investment is Floating Offshore Wind. Floating Offshore Wind assets
will take one of the following forms:• Barge: The shallowest draft of all of the floating foundation types.
• Semi-submersible: The current most popular concept, already proven, withgood dynamic stability.
• Spar: The simplest concept. It achieves stability through ballast installed
below its main buoyancy tank.
• Tensioned Legs Platform (TLP): Not widely deployed and typically requires
a purpose-built installation vessel.
The Different Types of Floating Platforms for Wind TurbinesBARGE

SEMISUBMERSIBLESPARTENSIONEDLEGSPLATFORM(TLP)

Source: Iberdrola, S.A.

The main benefit of Floating Offshore Wind is its ability to move aroundbecause it is not fixed to the seabed. As a result, these turbines can be moved todeeper waters where the wind is stronger, thereby improving energy efficiency.

21

2.	Renewable Energy:
Offshore Wind and the Future

Furthermore, its installation also has the added benefit for the environment around
it, as it does not affect seabed ecosystems.
According to the International Energy Agency (IEA), moving into deeper waters
using floating wind turbines has the potential to meet the world’s electricity demand
11 times over by 2040. Japan is making great progress in this area with construction
due to start in September 2022 on a Goto Floating Wind Farm LLC 16.8 MW
floating offshore wind farm. It is expected to be fully commissioned by January
2024. Moreover, as can be seen in the bar graph below, Japan will be one of the key
players in floating Offshore Wind by 2030 in respect of new installations.
New Installations
MW, floating**

NorwayFrancePortugal

South Korea

United Kingdom
Japan

Ireland
China

Spain
TaiwanItaly

GreeceUnited States

CAGR*+59.6%

CAGR*+104.7%
7
25
60
98

6
48
4
17
17

2020

57

2021e

190

2022e

6,254

100
300
250
288
200
250

113

12
10
27
59
6

10
200
2
212

2023e

2024e

100
10
250
45
199.4

1,670

50
100
250

900

2026e

2027e

504
500

2,750

500

500

1,000

1,000

1,000

500

500
500

500

2028e

2029e

2030e

1,300

700

500
500
500
600

3,388

1,000

604.4

2025e

150
100
350
100
270

50
200

400
250

* CAGR = Compound annual growth rate** This floating wind outlook is already included in GWEC’s global offshore wind forecast
Source: GWEC Market Intelligence, July 2021

Offshore Alternatives
Technology, as ever, is evolving rapidly and the Offshore Renewable industry istaking advantage of this progress in order to meet the growing demands.
Other areas of advancement that are expected to help balance Japan’s
dependence on fossil fuels including other Offshore Renewable technologies. Most
notably, tidal ocean thermal energy conversion and ocean currents.
Japan boasts one of the world’s strongest currents in Kuroshio. There is apotential site in the Kuroshio Current, whereby new turbines, weighing over 300
tonnes could be installed. The design is such that these huge turbines would beanchored to the seabed with an embedded buoyancy adjustment system.
Japan’s New Energy and Industrial Technology Development Organization(NEDO) estimates the Kuroshio Current could generate as much as 200 GW, beingaround 60% of Japan’s current generating capacity.

22

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

40°

KoreanPeninsula

Japan

China
30°

o
hi nt
s
ro re
KuCur
Pacific Ocean
Taiwan

120°

130°

140°

Source: The Asia-Pacific Journal

Impact on the Insurance Market
Prior to the exponential growth in offshore renewables that we are seeing now,there were a select few insurers who supported Renewable Energy risks; while others
entered the market and quickly withdrew following a series of losses. However, suchgrowth and rapid improvement in the operational technology has resulted in many
Renewable Energy risks becoming viable enough for underwriters to reconsider theirposition as a whole.
Furthermore, the upstream energy market is repositioning its capabilities towrite Renewable Energy risks. In recent years, due to limited growth in Oil and Gas
portfolios, coupled with demands from their existing client base, as they too manage
their transition strategies in order to meet necessary targets, Upstream Energy
underwriters have a growing appetite, in particular, for Offshore Wind.
These dynamics, in conjunction with mounting Environmental, Social andGovernance (ESG) pressures, has led to a host of companies committing to writing
Offshore Wind as part of their Energy portfolios. Companies are doing so by
creating dedicated Renewable Energy teams and/or supporting Managing General
Agents (MGAs) and consortiums, resulting in significantly increased capacity
dedicated to writing offshore renewable risks. A further catalyst for such a shift in
focus has been the Lloyd’s of London Market’s policy mandate, ending insurance
coverage for coal, oil sands and Arctic energy projects by 2030.

232.	Renewable Energy:
Offshore Wind and the Future

Some of the larger insurance writers within the Renewable Energy space havespecialist in-house teams of engineers who can assess and advise on the quality ofrisk. The knowledge taken from these teams, alongside newly formed committees
and working groups, such as the Joint Rig Committee, has resulted in developmentof new wordings, which are now being incorporated within (re)insurance contracts.
Examples include new Cable Protection System (CPS) exclusions and adjustments
to Series Loss clauses, which all form part of the continued evolution seen within
the offshore Renewable Energy market.

3. Global Renewable
Energy Analytics
Solutions

While natural catastrophe modelling and exposure management practices arewell developed for property classes, marine and energy are still in a state of
maturation. There remain several key challenges when assessing exposure and loss
quantification for Renewable Energy:• Vulnerability – the complexity of renewable risks and their associatedinfrastructure are difficult to model and are exposed to more complex formsof loss. This, coupled with the rapid expansion in the sector means there is alarge amount of construction/erection risk which requires a more bespokeview of vulnerability.
• Lack of claims data – due in-part to choice of location and engineered
design, there have been limited claims to date from natural catastrophes,
which makes further calibration of models extremely difficult.
• Vendor model coverage – while current vendor models do provide stochastic
offerings they are limited in scope, both geographically and in granularity ofrisk differentiation.
• Exposure data – data capture and governance lags more developed classes(e.g., aggregated field values) and as a result accurate risk quantification
becomes increasingly challenging.
Gallagher Re works with clients to address these challenges, from original
exposure estimation through to bespoke View of Risk analysis. This is done via a
number of approaches.
Using powerful geovisualisation tools, clients are able to assess spatial
correlation between assets, identify concentrations of risk, overlay hazard data andget real-time event updates anywhere in the world. We continue to collaborate withleading data providers to help disaggregate, augment and refine exposure data to get
the most robust view of exposure and risk.

24

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

Typhoon Jebi Wind Field Overlaid on a Market Portfolio

Source: Gallagher Re using SpatialKey and Kinetic data

Shaking Intensity at Asset Locations for the Great Kanto Earthquake

Source: Gallagher Re using SpatialKey and USGS data25

2.	Renewable Energy:
Offshore Wind and the FuturePartnerships with leading research institutions through the Gallagher ResearchCentre, as well as participation on global risk initiatives provides us with uniqueaccess to a library of vulnerability information for Renewable Energy structures.
This in conjunction with our proprietary CAR/EAR model, ENGINEER, allows foradjustment of modelled losses for all phases of construction and operation,differentiated by peril.
Combining these two capabilities allows us to build a framework for assessing
potential loss for Renewable Energy assets globally on a deterministic basis for majorperils, both onshore and offshore.
Academically Derived Vulnerability Curves for Offshore Wind Assets

Source: Rose et al

Identification of Historical Typhoons to Affect Japanese Offshore Development Areas

Source: Gallagher Re using SpatialKey and NOAA data

26

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

Where vendor catastrophe models do exist, our market-leading Model Researchand Evaluation (MR&E) team provide expert insight into their suitability, andwhere appropriate, recommend modifications. This, in conjunction with claims datafrom both clients and the Gallagher group of companies, allow for bespoke model
adjustments and formulation of own View of Risk.
To supplement vendor catastrophe modelling, Gallagher Re is building out
global stochastic capability for Renewable Energy classes for Earthquake andWindstorm. This is particularly important for offshore structures where vendor
models have limited coverage outside of the North Sea.

4. KeyConsiderations

Current Headwinds
It is worth noting that, like many other sectors at the moment, Renewable
Energy is still feeling the effects of COVID-19, which have greatly impacted supply
chains. As a result, suppliers and developers are under huge strain. This issue has
been further exacerbated by the unprecedented demand. For example, there are over
300 Offshore Wind projects currently in the global pipeline. This demand has been
driven by the factors previously mentioned in the report, to summarise:
1. Global commitment to Net Zero
2. Changing nature of the risk picture and technology (bigger turbines, deeper
waters)3. Growing ESG pressures
Such demand has also had a knock on impact in other areas of the Renewable
Energy sector and created a shortage of qualified personnel. Most notably,
recognised surveyors to carry out Site-Specific Assessments (SSA). Subsequently,
there is a delay in companies procuring the necessary licences and approvals toproceed with pipeline projects (up to an 18-month waiting time). For the projects
that make it beyond this stage, there is also only a select few vessels with thecapability to tow the wind turbines out to sea to be built, causing further delays.
In addition to personnel issues, there is also the issue of local content laws. This
is where legislation permits developers to build Renewable Energy assets, provided
they use local resources and companies, rather than external third parties. This cancause further issues as there can be a big difference in the standards from one
country to the next. Furthermore, there is also a lack of collaboration between joint
venture parties in the process. Such shortages and personnel issues, along with theimpact of inflation has caused price volatility and overall uncertainty in the market.

Insurance Trends
Presently, underwriters are scrutinising the wording of slips more than everbefore. The implementation of Cable Protection System exclusions and Series Loss
Clauses is a clear reflection of this, and the insurance industry’s desire to create longterm stability in the market. Similarly, underwriters are now also carefully
considering the level of deductibles and the rating being applied. This has come in27

2.	Renewable Energy:
Offshore Wind and the Future

the wake of big Offshore Wind losses seen by manufacturers such as Orsted A/Swithin the last year.
While such trends in underwriting requirements may improve current loss
ratios, there are other important challenges ahead. The most significant of which is
the rapidly changing risk profile in Wind, as highlighted in the following graph.
Tracking the Height and MW Capacity of Turbines from 1990 to 2035

840

720

Hub Height (feet)

600

480

360

240

120

0
1990

2000

2010

2020

Land-Based Wind

2016

2035
Offshore Wind

Wind Turbine Capacity MW/Hub Height (feet)
Rotor Diameter (feet)
Source: US Department of Energy

This illustrates the rate of change in wind turbines over time from the landbased turbines (1990 – 2020), to the projected future, being all offshore in deeper
waters with bigger turbines.

The Opportunity
While there are some very real issues facing the Renewable Energy market, theexpected (and existing) demand as a result of Net Zero commitments; projected
growth in offshore and floating wind (active global Offshore Wind output iscurrently 278 GW and anticipated to be 638 GW by 2035); combined with themounting pressure of ESG agendas, supports the view that Offshore Wind requires
immediate consideration, to ensure the challenges and demands of the future can be
fully realised and capitalised upon.

28

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

The contents herein are provided for informational purposes only and do notconstitute and should not be construed as professional advice. Any and all examples usedherein are for illustrative purposes only. They are not offered as solutions to produce
specific results and are not to be relied upon. The reader is cautioned to consult
independent professional advisors of his/her choice and formulate independentconclusions and opinions regarding the subject matter discussed herein. Gallagher Re is
not responsible for the accuracy or completeness of the contents herein and expressly
disclaims any responsibility or liability for the reader’s application of any of the contents
herein to any analysis or other matter, nor do the contents herein guarantee, and should
not be construed to guarantee, any particular result or outcome.

29

3.
1. Overview of
the Non-Life
Insurance
Industry30

Trends in Japan’s Non-Life
Insurance Industry
Non-Life Planning Department
The Toa Reinsurance Company, Limited(1) Status of Non-Life Insurance Companies, Cooperatives and
SASTI
Of the 54 non-life insurance companies currently operating in Japan, 33
companies are licensed as domestic insurers, including foreign capital domestic
insurers, while 21 companies are licensed as foreign insurers.
Japan began liberalizing its insurance industry with the financial big bang in
1996. Its non-life insurance companies have increased operating efficiency sincethen while conducting mergers and business integrations in stages. As a result, thenon-life insurance market has become an oligopoly comprising the three largest
non-life insurance groups (in alphabetical order; MS&AD Insurance Group
Holdings, Inc., Sompo Holdings, Inc. and Tokio Marine Holdings, Inc.). Based on
statistics released by the General Insurance Association of Japan (GIAJ) and thefiscal 2021 financial results disclosed by these groups, we calculate that these threegroup companies account for more than 86% of net premium income written by
the 29 GIAJ members.
The market also includes cooperative and mutual insurance companies, whooffer fire, personal accident and automobile insurance. The main cooperatives thatmake up the Japan Cooperative Insurance Association Incorporated had premiumincome of about 2.5 trillion yen in fiscal 2020 (excluding life cooperatives andannuity cooperatives).
In another development, the Small Amount and Short Term Insurance(“SASTI”) business was introduced in Japan following an amendment to theInsurance Business Act in April 2006. SASTI companies, who are limited to sellinginsurance products in small amounts with limited terms, provide non-life or life
insurance products. In fact, regulations make it much easier for SASTI companies toenter the insurance business than is the case of establishing a new insurancecompany. For example, SASTI companies need to register only and need not belicensed by the Financial Services Agency (FSA) to operate. The minimum capitalrequired is 10 million yen, compared to 1 billion yen for an insurance company, andthey may sell both life and non-life insurance products. The number of member
companies of The Small Amount and Short Term Insurance Association of Japan
continues to grow and the scale of the market continues to expand. Non-life
insurance products sold in this market are mainly renters insurance, including fire
insurance for the home contents of renters and rental housing liability insurance
sold through the real estate agent channel, recent strong-seller pet insurance, andpecuniary insurance. Some SASTI companies have grown to the extent that they
may choose to get a license to operate as an insurance company, while some existing
non-life insurance companies have newly established SASTI companies.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

The Small Amount and Short Term Insurance Market Data
Figure 1: Member Companies

Figure 2: Premium Income(Total companies)(Total companies)
110
110
105

105

100

100

95

95

90

90 88

85

110

103

110

103

(Billion(Billion
yen) yen)
120
120
110

110

100

100

90

90
81.4

80

80

85

70

70

80

80

60

60

75

75

50

50

70

70
2016

40

40
2016

101
97

101

97

88

2016 20172017 20182018 20192019 20202020

117.8 117.8
107.4 107.4
103.2 103.2
92.3

92.3

81.4

2016 20172017 20182018 20192019 2020

2020

Source: The Small Amount and Short Term Insurance Association of Japan(2) Trends in Business Results of Non-Life Insurance Companies in
Fiscal 2021
The following is a summary of the main financial results (total) of 29 non-life
GIAJ members in fiscal 2021.
Net premium income in all lines of business increased by 113 billion yen fromthe previous fiscal year to 8,806 billion yen, mainly due to automobile and fireclasses.
Net claims paid (paid basis) increased by 147 billion yen to 4,711 billion yen
because of the Earthquake off the Coast of Fukushima Prefecture, which occurred in
February 2021, and the increase in automobile claims, which had declined in theprevious year. As a result, the loss ratio increased by 1.3 percentage points to 59.3%.
Expenses increased by 55 billion yen to 2,894 billion yen. The net expense ratio
increased by 0.2 percentage points to 32.9%.
Underwriting profit (earned/incurred basis) grew by 218 billion yen to 310
billion yen.
Ordinary profit, calculated as the sum of underwriting profit and investment
profit, increased by 293 million yen to 891 billion yen. After deducting tax expense,
net income also increased, by 233 billion yen to 670 billion yen.

31

3. Trends in Japan’s Non-Life
Insurance Industry(3) Overseas Business Trends for the Three Largest Non-Life
Insurance Groups
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 foreign insurance companies and engaging in M&A.
Figure 3 shows overseas net premium income* for the three largest non-life
insurance groups. Their net premium income from overseas business in fiscal 2021
was about 4 times that of fiscal 2012, and overseas business accounted forapproximately 27% of their net premium income.
* In this section, “overseas net premium income” includes both non-life and life insurance
premiums.

Figure 3: Trends in Overseas Net Premium Income for the Three Largest
Non-Life Insurance Groups(Billion yen)
4,000

(%)
30

3,500
25
3,000
20
2,500

2,000

15

1,500
10
1,000
5
500

0

0
2012

2013

2014

2015

2016
2017
(Fiscal year)

2018

2019

2020

2021

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)

32

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

The three groups’ business developments in the non-life insurance segment are
as follows:
Mitsui Sumitomo Insurance Co., Ltd. acquired the general insurance operationsof U.K. company Aviva plc in 2004, and has made Aviva its base for advancing into
the ASEAN region. In 2015, another MS&AD group company, Aioi Nissay Dowa
Insurance Co., Ltd., acquired Box Innovation Group, a major U.K. telematics
automobile insurer. Furthermore, MS&AD Holdings strengthened its reinsurance
business and specialty lines by completing the acquisition of Amlin plc of the U.K.
in 2016. It also acquired Singapore insurer, First Capital Insurance Limited in 2017,and U.S. managing general agent, International Transportation and Marine Office,
LLC in 2021.
Since 2014, SOMPO Holdings has made significant progress in its overseas
business by acquiring leading U.K. specialty (re)insurer, Canopius Group Limited(later sold in 2017) and U.S. insurer and reinsurer, Endurance Specialty Holdings
Ltd. (now called Sompo International Holdings Ltd). Sompo International has been
their core company for doing overseas business. It acquired U.S. agriculture
insurance provider, Diversified Crop Insurance Services in 2020, and announced theacquisition of Italian agriculture insurer, ARA 1857 S.p.A. in 2021, promoting its
strategy of expanding agriculture insurance business. SOMPO International has alsoannounced that it will spin off and sell the consumer insurance business of Sompo
Seguros S.A. in Brazil in 2023.
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. Since 2008, it hascompleted the acquisition of Kiln Ltd. of Lloyd’s in the U.K., Philadelphia
Consolidated Holding Corp. of the U.S., Delphi Financial Group, Inc. of the U.S.,
specialty insurance group, HCC Insurance Holdings, Inc. of the U.S., and Privilege
Underwriters, Inc. of the U.S. At the same time, Tokio Marine Holdings reviewed
its business portfolio and sold reinsurance subsidiary Tokio Millennium Re AG in
2018. In 2020, it announced its goal of establishing a new non-life insurance
subsidiary in Canada, and in 2021, its group companies, Tokio Marine Seguradora
S.A. and Caixa Seguridade in Brazil established a joint venture to underwrite
mortgage and homeowners insurance.
With a focus on life and non-life insurance, on the other hand, the three groups
are expanding and strengthening an array of various areas based on synergies withinsurance products and promotion of insurtech, including financial services, risk
solutions and services, nursing and senior care, healthcare, and digital. They areenhancing alliances and investments in a variety of overseas companies including
artificial intelligence startups and insurtech companies.

33

3. Trends in Japan’s Non-Life
Insurance Industry

2. Latest Trends in
Business Resultsof Non-Life
Insurance
Companies(1) Trends in the Fire Insurance Market
After multiple large typhoons caused substantial damage in fiscal 2018 andfiscal 2019, the impact of wind and flood losses on the non-life insurance market
was relatively minor in fiscal 2020 and fiscal 2021. The real impact of the
Earthquake off the Coast of Fukushima Prefecture in March 2022 is still unclear as
claim assessment and payment are ongoing, while it is assumed that results are likely
to be influenced by the increased percentage of households that have taken out
earthquake insurance since the Kumamoto Earthquake.
Table 1: Statistics for Recent Major Earthquakes
Date

Magnitude

Number of
Claims Paid

Insurance
Claims Paid
(Million yen)

Fukushima
Earthquake

2022/3/16

7.4

289,929

210,730*

Kumamoto
Earthquake

2016/4/14

7.3

214,003389,811* For the Fukushima Earthquake, as of June 17, 2022, including loss reserves(Source: General Insurance Association of Japan website, “Key figures related to the Earthquake off
the Coast of Fukushima Prefecture (occurred on March 16, 2022) (As of June 17, 2022) and Japan
Earthquake Reinsurance Co., Ltd. website, “20 Largest Claims Paid for Earthquake Insurance on
Dwelling Risks” from the Statistics part of the Annual Report)

Due to the fact that fire insurance business results in Japan have deteriorated
due to major natural disasters in 2018 and 2019, the reference loss cost rate for fire
insurance (homeowners’ comprehensive insurance), as calculated by the General
Insurance Rating Organization of Japan, has been raised three times since 2018.
Non-life insurance companies have revised their premium rates in response to thereference loss cost rate revisions, and have also consistently phased in tighter terms
and conditions (besides those related to premium rates) such as shortening the
maximum policy period for fire insurance to five years from ten years, increasing
deductibles, and setting limits of liability. The results of fire insurance companies are
therefore expected to improve.

34

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

The following table presents the fire insurance premium rate increases forreference.
Table 2: The Fire Insurance Premium Rate Increases
Dare of Revision

Rate Increase*

Comments

October 2019+7% to +10%

Reflected the revision of the reference loss cost rate in
May 2018 (average 5.5% increase: in consideration of
the impact of natural disasters before 2017)+8% to +10%

Reflected the revision of the reference loss cost
rate in October 2019 (average 4.9% increase: inconsideration of the impact of the major natural
disasters Typhoon Jebi and Typhoon Trami in 2018)+8% to +10%

Reflected the revision of the reference loss cost rate in
May 2021 (average 10.9% increase: in considerationof the impact of typhoons and heavy rain in 2019and 2020)

January 2021

October 2022

* The average rate increase for residential, commercial and industrial properties by the three largest
non-life insurance companies, based on interviews by Toa Re(2) Reinsurance Renewals in 2022
Most reinsurance contracts of domestic non-life insurance companies, including
cooperatives and SASTI companies, are renewed at the start of their fiscal year,
generally April 1.
Reinsurance capacity was sufficient at the April 2022 renewals, althoughreinsurers expressed concerns about the substantial impact of inflation due to supply
chain disruptions and labor shortages caused by the COVID-19 pandemic. In
addition, reinsurers positively evaluated the improved direct insurance policy
conditions, including increased premium rates in consideration of past losses related
to large-scale natural disasters, and pro-rata property treaties were renewed withessentially the same conditions. The reinsurance cost increase under nonproportional treaties covering natural catastrophe risks was modest.
In response to Lloyd’s Market’s request for silent cyber clarification undercasualty business (since July 2021), the introduction of the clarification clause forcasualty treaties was a key issue at renewals. The standard Sanction Clause of Lloyd’sMarket Association (LMA) was widely introduced in various classes of business inconsideration of regulations related to the economic sanctions imposed by various
countries after the Russian invasion of Ukraine.

35

3. Trends in Japan’s Non-Life
Insurance Industry(3) Acceleration of Digital Transformation during the COVID-19
CrisisThe COVID-19 crisis that has persisted for more than two years has caused
significant problems for insurance business operations. In order to overcome thosedifficulties, major insurers and others have rapidly accelerated digital transformation
using various digital technologies premised on ‘zero contact’. The following are
examples:• The introduction of various mechanisms and tools that enable remote andpaperless customer interactions including insurance consultations, contract
application and loss reporting, along with insurance premium and claims
settlement.
• The application of AI techniques for customer communications, risk
assessment, claim surveying, disaster prediction and mitigation, as well as forvarious new products and services.

(4) Trends in Regulation by Regulatory Agencies
Given changes in the financial environment, over the past several years the
Financial Services Agency (FSA) has been inculcating principle-based inspection andsupervision that emphasizes dialogue with financial institutions that has therequisite quality and depth to achieve the goals of financial administration.
Under these circumstances, the FSA has stated that it is important for insurancecompanies to create sustainable business models and to develop products that
address evolving customer needs in response to changes in the businessenvironment, such as the intensification of natural disasters, progress indigitalization, and post-COVID-19 strategies. The FSA is also promoting moresophisticated governance and improvement in management systems throughdialogue with insurance companies.
At the same time, the FSA will address changes in the financial environment bysteadily moving forward with appropriate initiatives to protect policyholders andwill also introduce solvency regulations based on economic value.
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 (it will 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.

36

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

(5) ESG and SDGs Initiatives
Japan is among the countries promoting ESG and SDGs. Led by major
insurers, various companies are proceeding with implementation of a broad array ofstudies and initiatives in areas including asset management, personnel systems,
corporate governance, compliance and social contribution, in addition to improving
insurance products and services.
The three largest non-life insurance groups have clearly defined their purposeand established sustainability committees, and have officially incorporated the ESG
framework into the decision-making process for insurance operations andinvestment. They regularly publish sustainability reports. In addition, they are
addressing the greater frequency and intensity of natural disasters as a result ofclimate change by cooperating more closely with other industries, local governments
and other organizations in disaster mitigation initiatives ranging from disasterprevention to repair cost reduction. The three groups are also enhancing insurance
products that facilitate renewable energy development. Some companies haveannounced they will not provide new insurance underwriting capacity or makeinvestments related to coal-fired power generation.

37

4.
1. Overview ofBusiness Resultsfor Fiscal 2021

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

The fiscal 2021 business results for 42 life insurance companies are as follows:(1) Total Amount of New Business
During the fiscal year ended March 31, 2022 (fiscal 2021), even though sales
personnel refrained from face-to-face marketing to prevent the spread of COVID19, the total insured amount of new business for individual life increased by 5.3%
to 46.5 trillion yen thanks to enhanced online sales. The total insured amount of
new business for individual annuity insurance increased by 32.3% to 5.3 trillion
yen. The total insured amount of new business for group insurance increased by
21.5% to 5.4 trillion yen.

(2) Total Amount of In-force Business
The total insured amount of in-force business for individual life decreased by
1.1% to 806.9 trillion yen, essentially unchanged from the previous fiscal year. The
total insured amount of in-force business for individual annuity insurance decreased
by 0.7% to 101.1 trillion yen, showing a similar trend to that of the total insured
amount for individual life insurance. On the other hand, the total insured amountof in-force business for group insurance increased by 1.0% to 408.8 trillion yen.

(3) Premium Revenues and Total Assets
Total premium revenues increased by 3.5% to 32 trillion yen. Total assets
increased by 1.8% to 419.7 trillion yen thanks to the increase in foreign securities.

2. Impact of
COVID-19 on
Life Insurance
Companies

38

Japan has kept COVID-19 cases and deaths at relatively low levels comparedwith the United States and Europe. So, it is believed that the increase in death andhospitalization benefits paid due to COVID-19 will have only a limited impact on
the performance of life insurance companies. However, the situation is changing due
to the appearance of the highly infectious Delta and Omicron variants.
Life insurance companies have addressed societal needs and fulfilled their
responsibilities by increasing COVID-19-related benefit payments since thepandemic began, and so-called “deemed hospitalization” is representative. Broughton by the shortage of available hospital beds because of an increase in patients due
to COVID-19, deemed hospitalization involves paying hospitalization benefits to
COVID-19-positive people who, based on a doctor’s diagnosis, receive certification
for self-care at home or at a hotel instead of at a hospital.
Benefit payments for deemed hospitalization have been increasing rapidly as the
COVID-19 pandemic drags on, with the outbreak of the new and highly infectious
Delta and Omicron variants. Prior to the outbreak of these variants, COVID-19related hospitalization benefits paid from March 2020 through March 2021 totaled
12.33 billion yen, of which deemed hospitalization benefits totaled 6.98 billion yen.
However, hospitalization benefits paid from April 2021 through March 2022
increased by more than 8 times to 102.26 billion yen, of which deemedhospitalization benefits increased by nearly 13 times to 88.97 billion yen.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

Table: Hospitalization Benefit Payments Related to COVID-19
2020/3 -2021/3

Hospitalization
benefits

Deemedhospitalization
benefits

Fiscal 2021*

Total

2021 Q1

2021 Q2

2021 Q3

2021 Q4

126,449 cases
Approx.
12.33 billion yen

102,585 cases
Approx.
10.36 billion yen

174,127 cases
Approx.
18.43 billion yen

213,418 cases
Approx.
21.56 billion yen

537,274 cases
Approx.
51.90 billion yen

79,988 cases
Approx.
6.98 billion yen

77,976 cases
Approx.
7.24 billion yen

141,237 cases
Approx.
14.71 billion yen

190,619 cases
Approx.
18.54 billion yen

503,853 cases
Approx.
48.46 billion yen* Fiscal year in Japan from April 1 to March 31

Some companies began selling insurance products for infectious diseases toaddress the outbreak of COVID-19. However, some of these companies had nochoice but to terminate sales of these products because of the negative impact on
results from increased COVID-19-related hospitalization and other benefits paid,
which turned out to be higher than expected.
Deemed hospitalization is a program for patients who would normally be
admitted to a hospital, but were not because of hospital capacity constraints brought
about by the pandemic. These patients have a medical condition that requires adoctor’s supervision, but have to receive medical treatment at home or at some otherfacility. Further to this, the current Omicron strain of the virus carries far less risk ofserious complications, but deemed hospitalization benefits remain available. As aresult, mildly ill people who would not normally require hospitalization arereceiving hospitalization benefits because they are infected. The situation therefore
differs from expectations when insurance companies began paying benefits for
deemed hospitalization, leading to calls for a review of that program.
The extensive and protracted effects of the COVID-19 pandemic require life
insurance companies to fulfill their responsibilities to contribute to social stability byaddressing needs flexibly and quickly. At the same time, life insurers must also address
the challenge of stable business management. Life insurers have to steer through adifficult management environment while balancing these contradictory requirements.

39

4. Trends in Japan’s Life Insurance Industry

3. Major Life
Insurance
Companies
Entering the
Small Amountand Short Term
Insurance Market

40

Major life insurance companies have begun to enter the small amount and shortterm insurance market. In 2019, Sumitomo Life made Aiaru Syougakutankihoken
Corporation a subsidiary, and in 2021 Dai-ichi Life established Dai-ichi Smart Smallamount and Short-term Insurance Company, Limited. More recently, in April 2022
Nippon Life launched Nissay Plus Small Amount and Short Term Insurance Co., Ltd.
as a subsidiary.
Small amount and short term insurance is a comparatively new insurance market
created through a 2006 amendment to the Insurance Business Act. Small amount andshort term insurance companies have to limit themselves to selling insurance in theform of protection cover (only) for small amounts and a limited term of one year, or
two years at the maximum in the case of non-life insurance. The capital required forentry is a low hurdle of 10 million yen or more, and firms ranging widely from realestate companies and consumer electronics mass retailers to trading companies haveentered the market through the establishment of small amount and short term
insurance companies. While insurance companies are subject to a licensing system forsales of their products, small amount and short term insurance companies are subject
only to a registration system (that requires only a screening process), which enables
flexibility in developing products. Therefore, non-life insurance companies establishedsmall amount and short term insurance companies within their groups early on, andhave been serving the small amount and short term insurance market with a focus onfire insurance for renters.
On the other hand, life insurance companies have been cautious about entering
the small amount and short term insurance market because they generally issue
policies with longer terms of 10 years to whole life, so policies with terms limited to
one year were not a particularly attractive business. However, the emergence of fintechchanged that. Companies have been increasing the number of insurance products
available for purchase by smartphone, enabling them to approach customer segments
comprising people who had been reluctant to buy insurance, particularly young
people. Small amount and short term insurance is ideal for identifying andcommercializing products that match particular demographics, and for flexibly
addressing a wide range of customer needs with a broad portfolio of insurance
products. In addition, major life insurance companies have traditionally relied on theirsales personnel, but in recent years they have been expanding sales in agency channels,so entering the small amount and short term insurance market helps them approach
more customers. Major companies also think that the information they collectthrough broadly based marketing will enable group synergies. In fact, companies thatare part of major life insurance groups are providing flexible and distinctive new
products. Aiaru provides coverage in niche markets to meet specific target needs, suchas medical insurance for women undergoing fertility treatment. For its part, Dai-ichi
Smart has launched a brand of insurance products that can be concluded completely
digitally, mainly targeting young people, and sells a product with insurance premiums
that fluctuate according to COVID-19 infection status on the first day of each month.
Backed by lifestyle changes and the ubiquity of digital technology use, Nissay Plus
entered the small amount and short term market in April 2022 and has addressed

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

diverse customer needs by launching products that cover risks during pregnancy andafter childbirth based on collaboration with partner companies. All of these products
take advantage of the characteristics of small amount and short term insurance andwould have been difficult to quickly develop and sell within the conventionalframework of an insurance company.
Japan’s life insurance market is contracting because the birthrate is declining andthe population is aging, so life insurance companies need to identify new needs. The
small amount and short term insurance market is an attractive means for doing so
because it enables flexible product delivery and has the potential to provide experiencethat supports the development of new life insurance products. A point of interest will
be how life insurance companies serving the small amount and short term insurance
market are able to generate synergies among group companies to develop growthstrategies.

4. Life Insurance
Company
Response to theIntroduction of
Economic Valuebased Solvency
Regulations

The Financial Services Agency (FSA) of Japan plans to shift from the current
solvency margin regulations to an economic value-based solvency margin regime in
2025, and life insurance companies are taking action in anticipation of the new
regulations.
The current solvency margin regulations came into force in 1996 to protect
consumers by ensuring companies maintain sufficient capacity. The regulations callfor the calculation of liabilities based on locked-in assumptions and factor-based risk
measurement. The current methods have advantages including straightforward
solvency margin control and low administrative burden because variables are locked
in at an insurance policy’s inception. However, the current methods are not alignedwith international methodologies for measuring soundness, and assessment does notreflect recent trends. Given such issues, the new regulations scheduled for
introduction in 2025 will no longer use locked-in formulas for calculating liabilities.
Insurance companies will need to address the impact of this change on theirsolvency margin, because interest rates and mortality rates will vary for each
assessment period. A particularly significant impact from the new regime will arise
from the large disparity between interest rates that vary for each assessment period
and policies written in the past with high assumed interest rates inherent toinsurance company portfolios.
Insurers are currently conducting analyses that include analysis of standard
models and how their portfolios meet economic value solvency margin
requirements, and verification of risk portfolios with the aim of maintaining thesolvency margin at a high level. Based on this situation, and in anticipation of the
new regime coming into force in 2025, companies have already implemented
specific initiatives, as illustrated by the following two cases.
The first case is an initiative for lowering assumed interest rates for grouppension products managed by life insurance companies. Nippon Life Insurance, amajor Japanese life insurer, announced in April 2022 that it will reduce the assumed
interest rate for group pension products to 0.50% from 1.25% in April 2023. This41

4. Trends in Japan’s Life Insurance Industry

is the first time in the 21 years since April 2002 that it has reduced the assumed
interest rate for defined benefit group pension products. Another major life insurancecompany, Dai-ichi Life, already reduced its assumed interest rate to 0.25% from
1.25% in October 2021. Insurers are reducing assumed interest rates because
protracted low interest rates constrain the yields they can guarantee for grouppension products. Upward pressure on interest rates is gradually increasing, but theyield on 10-year Japanese government bonds is still around 0.2%, which suggests
investment management results will deteriorate as insurance companies replacehigher-yield public and corporate bonds purchased in the past with the low-yieldbonds now available. Insurance companies are therefore reducing assumed interest
rates to enhance their financial structure. Moreover, the longer interest rates remain
low, the more liabilities will increase under the new capital regulations that will comeinto force in 2025. Life insurance companies are taking action now because they see
management challenges intensifying under low-interest rates in the future.
The second case involves the growing use of reinsurance. Life insurancecompanies have increasingly used reinsurance as a solution for financial issues overthe past several years. On a standard policy reserve basis, Dai-ichi Life madereinsurance transactions for about 100 billion yen in 2018 and about 300 billion
yen in 2021, and Taiyo Life has done roughly 580 billion yen in reinsurance deals in
2022. In the past, Japanese life insurers typically used financial solutions for surplus
relief to reduce initial acquisition cost. With some exceptions, while J-GAAP obliges
life insurers to make provisions to standard policy reserves without considering
initial acquisition cost, J-GAAP does not allow deferred acquisition costs, meaning
companies need to record those costs in the year they acquired the new policies eventhough they have yet to generate any profit. So, insurers have used surplus relief toreduce the surplus strain in the first year of policies. On the other hand, in theabove transactions by Dai-ichi Life and Taiyo Life, reinsurance is used to cede asset
risk. In Japan, the assumed interest rate for life insurance was over 5% until theearly 1990s because interest rates were high at that time, and there are many policies
that are still in force with high assumed interest rates because whole life insurance
and individual annuities were core products at that period. Insurance companies
therefore use reinsurance to fix the variable negative spread risk of such policies. The
new capital regulations are driving the increase in need for reinsurance. Under thecurrent solvency margin regime, insurers value liabilities using assumptions of themortality rate and the interest rate fixed at the inception of an insurance policy, but
the new capital regulations will require insurers to use recent mortality rates andinterest rates to value liabilities. Consequently, insurers are using reinsurance topreclude increased liabilities and reduced financial soundness (stemming from the
new regulations) from long-term policies in their portfolios that carry high assumed
interest rates.
Japanese life insurance companies have begun implementing various initiatives
in advance for the purpose of resolving issues related to the introduction of the newcapital regime coming in 2025. This trend will be more pronounced toward 2025,
so it is important to pay attention to the future movement of each company.

42

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

Figure: Yield on 10-year Japanese Government Bonds
and Nippon Life’s Assumed Interest Rate(%)
3.0
Yield on 10-year Japanese government bonds
Nippon Life’s assumed interest rate
2.5

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0
2002

2005

2008

2011

2014

2017

2020

2023 (Year)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, 2022, the Toa Re Group boasted total assets of ¥860.4
billion. Net premiums written during the fiscal year ended March 31, 2022, totaled¥302.0 billion.

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 enhance our corporate value for the interests ofour shareholders through open
and transparent corporate management
respecting the creativity of our group employees
and valuing their contributions
conserving the environment and contributing toa sustainable society

44

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2022

Consolidated
Financial Highlights

Thousand
U.S. dollars

Million yen
2022

2021

Ordinary income¥329,804¥312,101

Net premiums written

302,024

Ordinary profit (loss)

2020

2019

2018

2022

¥297,757 ¥266,625¥254,934$2,694,697

287,547

270,252

248,288237,9112,467,717

827

2,164

88

(7,390)

9,857

6,757

(1,248)2,745(2,141)(7,150)

9,191(10,196)

Total net assets

201,307

182,257

167,141

179,944

200,550

1,644,799

Total assets

860,421772,108

711,690694,088687,950

7,030,157

For the year ended March 31

	Net income (loss) attributableto owners of the parent
As of March 31(Rate: ¥122.39 = US$1)

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

Others¥22,959
7.99%
Pet¥9,747
3.39%

Fire¥79,168
27.53%

Fiscal 2020
Total

Life
¥85,767
29.83%¥287,547

Marine¥10,643
3.70%

Motor
¥36,01012.52%

Liability¥43,251
15.04%(Million yen)

Others¥24,833
8.22%
Pet¥10,990
3.64%

Fire¥80,81326.76%

Fiscal 2021
Total

Life
¥93,051
30.81%
Liability¥47,595
15.76%¥302,024

Marine¥11,409
3.78%

Motor
¥33,328
11.03%

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

Memo

47

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