Commercial ties limit Japan's captive development

Despite Japan's position as the world's third-largest economy, Japanese-owned captive insurers remain a small fraction of the total number of captives globally, thanks to links between insurers and industry.

According to a special report from the rating agency, this is primarily due to the close relationship between the country's insurance companies and industrial groups.

The synopsis of the special report, titled Ties Between Insurers, Industrial Giants Limit Scope of Japan's Captive Market, was released in a statement issued in Hong Kong.

The report states that the comparatively low number of captives in Japan can also be attributed to the country's small liability insurance market, relative to the Western market.

For example, the Japanese government covers workers' compensation risks, while that line of business in the US is fully employer-funded through either commercial insurance or self-funded insurance, the statement adds.

“Prospects for growth of the Japanese captive market remain mixed with a strong near-term increase in the number of new Japanese captives are not likely”, says Seewon Oh, senior financial analyst at A.M. Best Asia-Pacific.

However, she notes that the role of captives in Japanese companies is expected to develop gradually, based on recent observations of both rated and not-rated captives owned by Japanese companies as well as discussions with market participants such as multinational brokers.