Bank of Japan report highlights growing use of asset-intensive reinsurance and private fund links as stability concerns for global life insurers.
Life insurers worldwide are expanding into alternative investments and asset-intensive reinsurance (AIR) to boost yields amid low rates and inflation shifts, the Bank of Japan said in a May 21 report. The shift aims to meet post-retirement funding needs but raises financial stability risks, particularly in Japan, Germany, the UK, and the US.
The report compares balance sheet changes since the global financial crisis, noting diversification into private funds and increased interconnectedness. Prior trends showed insurers relied on traditional fixed-income assets, but prolonged low rates and regulatory adaptations have accelerated portfolio shifts.
Key concerns include the sustainability of AIR strategies and potential systemic risks from insurer-fund linkages. The BOJ did not detail immediate market reactions but underscored the need for regulatory scrutiny.