Japan Q3 Market Dynamics


Landscape

In the third quarter of 2021, as it prepared to host the Olympic Games, Japan was hit by a fifth wave of COVID-19. New case numbers rose to unprecedented levels of over 20,000 per day in late August before falling again. In response. the government instituted a state of emergency over much of the country, which restricted eating out and indoor events. Over the same period, the percentage of the population that has been fully vaccinated rose from around 15% to over 60%. Updated figures revealed faster economic growth than previously expected in the second quarter, despite the country facing a fourth wave. GDP grew by 0.5% quarter-on-quarter in real terms, or by 7.6% year-on-year. Meanwhile, August was the eleventh consecutive month to see a negative inflation rate, with a year-on-year decline of 0.4%, and the Bank of Japan retained its -0.1% benchmark short-term interest rate.


In early October Japan’s newly approved Prime Minister Fumio Kishida brought forward a general election for the lower house of parliament to the end of the month, seeking a fresh mandate for the governing Liberal Democratic Party in the context of falling COVID-19 cases.

Key Indices - Japan


Market Dynamics

Japan Featured Products Q3 2021


Q3 Casualty/Liability Summary

Overall (Stable) There is a significant variance between local and international insurers. International insurers are reducing capacity and increasing pricing, while local insurers remain focused on growth and are stepping in to fill the capacity gap with local capacity at competitive pricing.

Rates (Flat) Pricing is renewing flat in most cases.

Capacity (Ample) Capacity is stable, with most insurers are renewing at the same capacity levels.

Underwriting (Prudent) Underwriting is stable. Underwriters are prudent but flexibility is applied, especially for well performing risks.

Limits (Stable) Most risks are renewing with same limits and additional limits are available.

Deductibles (Stable) Deductibles remain at zero or very low and most risks are renewing with the same deductibles.

Coverages (Stable) Coverages are stable, although there is a trend amongst insurers to clarify the treatment of “silent cyber” and introduce Cyber Attack / Cyber Incident exclusions.

A Look Ahead (Stable) Stable market conditions are expected to continue.


Q3 Cyber Summary

Overall (Challenging) The underwriting approach of international insurers is rigorous and stringent, resulting in a significant increase in pricing and a tightening of coverages.

Rates (+11-30%) Pricing remains challenged, with material increases applying across the board.

Capacity (Constrained) International insurers are tightening capacity while local insurers remain stable.

Underwriting (Stringent) Underwriting is stable. Underwriters are prudent but are demonstrating flexibility, especially for well performing risks.

Limits (Decreasing) Local insurers continue to offer limits as requested – but there is a sign of tightening.

Deductibles (Stable) Local insurers continue to offer zero (or very low) deductibles, and most risks are renewing with the same deductibles.

Coverages (Restricting) International insurers are restricting coverage while local insurers continue to offer “as is” renewals.

A Look Ahead (Challenging) Early indications point to local insurers beginning to follow the trends of international insurers by tightening their underwriting approach, increasing pricing and tightening their terms.


Q3 Directors & Officers Summary

Overall (Stable) International insurers (excluding Japanese local insurers) are increasing rates and tightening capacity. There is very limited appetite in the international D&O marketplace for new business for organizations who experienced negative impacts from COVID-19.

Rates (+11-30%) Pricing remains challenging, especially for risks placed with international insurers.

Overall (Stable) Capacity is tightening, especially for new business, for industries affected by COVID-19.

Underwriting (Prudent) Underwriting is rigorous and rigid – with extensive underwriting detail required - especially for industries affected by COVID-19.

Limits (Decreasing) There is a growing trend for international insurers to impose limit reductions on renewal.

Deductibles (Stable) Deductibles remain generally stable.

Coverages (Stable) Most placements are being renewed with “as is” terms and conditions.

A look Ahead (Challenging) Market conditions, in general, are expected to remain challenging for the remainder of 2021 and Cyber exclusions are expected to become a common theme in renewal discussions.


Q3 Property Summary

Overall (Challenging) Loss ratios have led to a further hardening of local market conditions, with material changes applied to most renewals.

Rates (+1-10%) As a result of recent natural disasters and a challenging reinsurance market, pricing is very challenged, with significant rate increases being applied to most renewals.

Capacity (Constrained) Capacity is generally sufficient; however, Flood capacity – especially international capacity - is restricting notably.

Underwriting (Stringent) There is a strong focus on risk quality and profitability. Underwriting appetite has narrowed, and the underwriting process is rigorous.

Limits (Decreasing) Most risks are renewing with the same limits, with the notable exception of Flood limits, which are being decreased by insurers.

Deductibles (Stable) While most risks are renewing with the same deductibles, some insurers are imposing deductible increases for poor performing risk types.

Coverages (Stable) Coverage is generally stable with the notable exception of Contingent Business Interruption coverage, which is restricting, due primarily to recent semiconductor incidents.

A Look Ahead (Challenging) Current market conditions are expected to continue.


Q3 Surety Summary

Overall (Stable) Japanese construction companies – the primary stakeholder group for Surety products – have not experienced a material deterioration in financial performance, even despite the impacts of the pandemic. As a result, insurers remain cautiously optimistic about their underwriting performance in this space and are offering moderately favorable pricing and terms.

Rates (Soft) Rate trends are stable, and some local risks are experiencing slight rate reductions.

Capacity (Ample) Insurers – still cautiously optimistic – are offering “as is” capacity in this space.

Underwriting (Prudent) Underwriting remains consistent; there are no shifts in attitudes or approaches.

Limits (Stable) Limits are available as requested.

Deductibles (Not Applicable)

Coverages (Stable) Contract terms remain consistent.

A Look Ahead (Stable) Market conditions are expected to remain stable through the remainder of 2021.


Q3 Trade Credit Summary

Overall (Soft) The market is experiencing favorable conditions, showing a softening trend, primarily as a result of additional support and competition from foreign credit insurers.

Rates (Soft) Rate reductions on renewals are common.

Capacity (Abundant) As domestic bankruptcies have decreased, insurer uncertainty has subsided, resulting in a strengthening of insurer appetite and capacity.

Underwriting (Stable) Underwriting remains stable.

Limits (Increasing) As domestic bankruptcies have decreased, insurer uncertainty has subsided, and underwriters are now offering higher limits.

Deductibles (Decreasing) Competition is driving deductible decreases.

Coverages (Stable) Most placements are being renewed with “as is” terms and conditions.

A Look Ahead (Soft) Favorable market conditions are expected to continue through the remainder of 2021.