Japan’s Dai-ichi Frontier Life Insurance Company has signed a flow reinsurance deal with Talcott Life Re, the second such transaction by a Dai-ichi Life Group firm in 2024.
The Dai-ichi Life Group has three subsidiaries; Dai Ichi Life, Dai-ichi Frontier Life and Neo First Life Insurance Company, which sell life insurance, savings products, and low-cost versions of both, respectively.
In February this year Bermuda-based outfit Resolution Re, inked a flow reinsurance deal with Dai Ichi Life.
This is Talcott’s first Asian flow reinsurance deal since it was acquired by asset manager Sixth Street in June 2021 but the Bermudan firm looks like it is angling for more deals, according to a press release about the deal.
On 1 July Talcott appointed Yasuhisa Watanabe as Chief Representative, Asia Pacific. Prior to joining Talcott, Watanabe had a twenty year career with RGA which included stints as Co-CEO and Chief Financial Officer of RGA Reinsurance Company’s Japan branch.
“As Talcott extends its footprint internationally, Watanabe will be responsible for cultivating relationships with insurers in the Asia-Pacific region,” the release said.
The Talcott press release didn’t reveal Dai-ichi Frontier Life’s strategic motivation for signing the deal but earlier this week S&P Global Ratings said that the recent switch to positive interest rates by the Bank of Japan would have variable impacts on the country’s insurers.
Long term JGB yields have headed north in recent months, with 10-year Japanese government bonds opening trading on 1 August at 1.04%, versus 0.59% 12 months earlier. In a May analyst events the Dai-ichi Frontier Life’s senior management said that rising rates would have an asymmetric impact on its interest rate exposure and its capital base.
Responding to a question on why a 50bps interest rate rise would result in interest rate exposure increasing at a faster speed than capital was accumulated, a senior executive said that this was due to policy surrender risk’s impact on its economic solvency ratio (ESR) under the existing Japanese factor based capital regime.
“If Japanese interest rates rise, while margins increase, interest rate risk decreases, but surrender risk increases. The surrender risk is the larger of mass lapse risk or normal surrender risk, and mass lapse risk is currently affected,” the senior executive said.
Mass lapse risk is the difference between the surrender value and the market value of the policy reserves, which is then multiplied by the mass lapse rate.
“Therefore, rising Japanese interest rates will make the market value of liabilities smaller, while the surrender value is fixed based on the amounts promised to be paid to the policyholder in the case of traditional products without market value adjustment, which leads to increase the difference of those values and surrender risk.
As a result, a rise in Japanese interest rates will lead to a deterioration in ESR,” he said.
