Japanese reinsurance cedents continue to access the insurance-linked securities (ILS) market for capacity with the catastrophe bond the preferred structure, underscoring the strategic role of cat bonds, AM Best has said.But changes coming to the Japanese insurance market through M&A could influence the amount of risk flowing to the ILS market, at least for a time.Commenting on the Japanese market and cedent appetite for reinsurance, AM Best noted that the reinsurance market there turned in April 2024 with a softening trend emerging that persisted through 2025.Abundant capacity drove strong reinsurance execution for Japanese cedents and the hard market cycle across Asia Pacific ended, the rating agency explained.

In addition, large Japanese insurance groups, which exert significant influence on the reinsurance market there, have stronger capital positions and took the opportunity to reduce reinsurance price pressures by increasing their retentions.This, combined with rate reductions, means that the overall pool of property catastrophe reinsurance premiums in Japan has actually shrunk, according to AM Best.“This contraction comes as reinsurers seek growth in the Asia-Pacific region, potentially accelerating softening market conditions into the January 2026 renewals, barring major catastrophe events,” the rating agency continued.

All of which suggests Japanese property catastrophe rates on-line are set to remain in a softening state for now, major loss events remaining absent from that region.The catastrophe bond market remains a core provider of reinsurance capacity to the large Japanese insurance groups, which AM Best notes as underscoring, “the strategic role of cat bonds as a complement to traditional reinsurance.” “In the insurance-linked securities (ILS) space, Japanese cedents continue to access capital markets for catastrophe risk transfer,” the rating agency explains.Highlighting recent deals such as Sompo Japan’s latest $150 million cat bond and Zenkyoren’s Nakama Re Pte.

Ltd.(Series 2025-1) issuance also from this year.In addition, in 2025, we’ve also seen Zenkyoren also benefit from the $100 million cat bond, which was sponsored with the support of German company Sparkassen-Finanzgruppe.

It’s also worth noting Peak Re’s cat bond that transferred Japanese peril risk to the capital markets for the company, alongside earthquake risk from China and India.But overall, Japanese peril focused cat bonds remain a small component of the overall market and AM Best also highlights changes coming due to a merger that could also influence the amount of risk that gets transferred to the capital markets in cat bond form.“Looking ahead, the planned merger of Mitsui Sumitomo Insurance (MSI) and Aioi Nissay Dowa Insurance (ADI) by 2027 is expected to reshape the Japan reinsurance market,” AM Best explains.

This merger was and sees two companies that have sponsored catastrophe bonds together set to become one.Of course, the pair are both domestic non-life insurance subsidiaries of MS&AD Insurance Group Holdings.Mitsui Sumitomo has been a sponsor of cat bonds since 2007, while coverage for the Aioi Nissay Dowa portfolio was introduced into those deals back in 2018.

But, AM Best notes that the merging of these two entities will have ramifications for their reinsurance renewals and demand for them.Saying, “Consolidation of reinsurance programmes is likely to follow, with competition expected to be fierce in order to secure participation in the future combined reinsurance programmes.” As a result, it’s safe to assume this could have some ramifications for the use of catastrophe bond backed protection by the combined entity, while the fierce competition AM Best expects could also influence where and to what form of capital risk gets ceded to.At the group level, there has certainly been a strategic intent to diversify the reinsurance towers for these insurers with the assistance of the capital markets, as cat bonds have now been a long-standing feature of them.

But it will be interesting to see how core cat bonds remain once the merger completes and whether the resulting combination of the reinsurance towers into one has an influence on how much risk finds its way to ILS capital sources.Of course, Japanese natural catastrophe risks are also a feature of many international multi-peril cat bonds that we see issued, meaning the diversification the region offers will remain a key feature of the market.It is also worth noting though, that returns over expected loss have always been relatively thin with Japanese cat bonds, with some investment managers in the ILS market finding them less appealing at times, given the exposure has not always been felt to be well-compensated for.

Over the year’s since we have been tracking the catastrophe bond market, we have analysed and tracked 54 cat bonds that are solely exposed to catastrophe risks in Japan.You can view these cat bonds by visiting our extensive and filtering the list by peril, or for ease use the links below to view our directory already filtered by type.View .

View .View .There are numerous other which also feature Japanese exposures.

However it is worth noting that these have become a less frequent feature of the cat bond market in recent years, potentially due to the competitive nature of traditional reinsurance markets when it comes to diversifying perils..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.