Accelerated Softening in Japanese Reinsurance Market
April 1st renewals in Japan’s reinsurance sector have revealed an accelerated trend of softening compared to the prominent international renewals that occurred on January 1st. This shift has been characterized by a surplus of capacity and enhanced optionality for buyers, thanks to traditional capital reaching an unprecedented height of $655 billion, as noted by reinsurance broker Gallagher Re.
Following a prolonged phase of hardening due to significant typhoon events in 2018, compounded rate increases on domestic Japanese catastrophe programs propelled pricing to historic highs. Gallagher Re highlights the established Japanese market code of conduct surrounding the concept of ‘payback.’ This practice expedited payback following substantial rate hikes in recent years, marking the April 2025 renewal as a pivotal moment.
Focus on Price Reduction
The primary emphasis during this renewal cycle was on price reduction rather than coverage. This focus was significantly facilitated by a notable shift in the supply-demand balance favoring buyers. The diminished overall reinsurance limit in the market, coupled with a strong growth drive from sellers, contributed to an “accelerated softening in the rating environment” compared to the early 2025 period. Even with the softening, rates in Japan remain elevated when compared to pre-2018/2019 typhoon pricing.
Rate Adjustments Across Regions
- Japan: Risk-adjusted property catastrophe loss-free rates decreased by 10% to 15%, while property risk loss-free accounts experienced rate changes between -2.5% and -7.5%.
- India: Catastrophe loss-free rates saw reductions of 10% to 15%, with property risk loss-free rates down by 5% to 7%.
- United States: The April renewal was lighter, with catastrophe loss-free rates declining by 5% to 15%, and property risk loss-free rates reduced by 5% to 0%.
- Philippines: Both property risk and catastrophe loss-free rates changed by -5% to -10%.
- Korea: Risk loss-free rates were reduced by 10% to 20%, while catastrophe loss-free pricing saw a further decline, ranging from -15% to -30%.
- Latin America and the Caribbean: Property risk loss-free rates were flat to down 5%, and catastrophe loss-free rates were flat to down 7.5%. However, catastrophe loss-hit rates rose by 10% to 20%.
Global Reinsurance Landscape
Tom Wakefield, CEO of Gallagher Re, remarked, “April 1 renewal activity saw more capacity and more optionality for buyers—specific to class of business, geography, performance, strategy, and scale.” He further noted that the robust reinsurer outcomes for 2023 and 2024 enabled the global reinsurance industry to expand traditional capital to an all-time high of USD655 billion. Many reinsurers anticipate another year of favorable underwriting results, assuming natural catastrophe losses remain within 2025 forecasts.
Wakefield explained that the strong 2024 results include prior year adverse reserves charges, primarily for US casualty classes, reflecting a reassessment of initial profitability forecasts for recent years due to ongoing loss inflation. This underscores the industry’s ability to generate superior aggregate returns despite addressing perceived reserve challenges.
Looking forward, if no major unexpected events occur during the remainder of 2025, the differentiated approach to risk-adjusted rate reductions by the global reinsurance market will likely not only persist but accelerate. Reinsurers will aim to maintain variations between profitable and loss-making accounts. The challenge lies in balancing the desire to deploy increasing capital levels in an attractive market with pressures to support less differentiated, widespread rate reductions.
Unless demand for reinsurance increases over the next nine months, the pressure on reinsurers’ management to demonstrate profitable capital deployment will intensify. Reinsurers face the choice of enhancing returns through dividends and share buybacks or leveraging their financial strength for growth through mergers and acquisitions (M&A). While signs indicate an increase in smaller bolt-on acquisitions by major reinsurers, particularly in non-insurance activities, larger scale (re)insurance related M&A remains a possibility in this market cycle, according to Wakefield.
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