IAIS Chair Toshiyuki Miyoshi sets out his view of structural shifts in the life insurance sector in a contribution to Eurofi Magazine, later posted by Japan’s Financial Services Agency.
Private Credit and Asset-Intensive Reinsurance Drive the Shift
In the Eurofi article, Miyoshi writes: “The global life insurance market is undergoing significant structural shifts, driven particularly by increased investments in alternative assets such as private credit and the growth of asset-intensive reinsurance”.
The article says that, traditionally, life insurers have relied heavily, but not exclusively, on high-quality bonds and equities to ensure liquidity and maintain value for meeting long-term liabilities.
On private credit, Miyoshi writes: “Private credit is a growing subsector of alternative assets with distinctive characteristics”.
InsuraBeat has separate coverage of Japan’s FSA and offshore reinsurance risk.
Benefits and Risks of Alternative Assets
Miyoshi writes: “Private credit offers life insurers potential benefits such as higher yields, diversification, illiquidity risk premiums and improved asset-liability matching”. Miyoshi continues: “This asset class can be attractive to life insurers seeking stable, long-term cash flows to match their liabilities”.
In the same article, Miyoshi writes: “While these alternative assets bring benefits, they also come with risks, such as valuation uncertainty, illiquidity and complexity, which require robust risk management and careful alignment with insurers’ liabilities”.
The article names further concerns: “Additional concerns include hidden leverage, conflicts of interest, credit rating reliability, capital considerations, and information gaps”.
On stress and stability, Miyoshi writes: “The implications of these structural shifts also depend on how they may evolve under stress and whether they could give rise to systemic risk”. The article continues: “Growing interconnectedness of life insurers with other financial institutions through alternative asset markets creates potential contagion risks”.
InsuraBeat has separate coverage of a Bank of England staff paper on life insurers’ corporate bond holdings.
What the IAIS Chair Says Supervisors Are Doing
Miyoshi writes: “Responding to these evolving risks requires continued monitoring, analysis and effective supervisory responses”. Miyoshi continues: “The IAIS’s Global Monitoring Exercise provides a strong foundation for addressing emerging risks and data gaps”.
In the contribution, Miyoshi writes: “The IAIS provides regular reports and input to the Financial Stability Board (FSB) on the key outcomes of the global insurance sector risk assessment and supervisory response, as conducted through the annual data-driven GME”. On the timeline, he writes: “The IAIS has been closely monitoring these trends since 2021”.
On forthcoming work, the article says: “This year the IAIS will enhance its systemic risk analyses of structural shifts in the life insurance sector, including private credit, to strengthen global monitoring and improve understanding of emerging risks and vulnerabilities”.
He writes: “we are developing application papers on alternative assets and AIR to provide practical guidance to supervisors and strengthen supervisory practices”.
On standards, Miyoshi writes: “In addition, the IAIS will review the Insurance Core Principles (ICPs) to ensure that our standards remain robust and any identified gaps are addressed”.
InsuraBeat has separate coverage of the IAIS mid-year global monitoring report.
