japan’s insurance market - toare.co.jp · pdf filetrends in the insurance business law...

The Toa Reinsurance Company, Limited

Japan’s Insurance Market

To Our ClientsTeruhiko Ohtani

President and Chief Executive, The Toa Reinsurance Company, Limited 1

1. Trends in Japan’s Non-Life Insurance Industry and Aioi’s Management StrategiesTadashi Kodama

Representative Director and President, Aioi Insurance Co., Ltd. 2

2. Trends in the Insurance Business Law and Related Legislation - The Events of Fiscal 2007 - Masaaki Oishi

President and CEO, Center for Insurance Studies in Japan (CIS) 12

3. Lessons from Solvency II for the Japanese Insurance MarketJames Vickers

Chairman, Willis Re International 21

4. CSR in Japanese Corporations and the Trend in the Insurance IndustryMitsuo Ogawa

President, Craig Consulting 30

5. Trends in Japan’s Non-Life Insurance IndustryUnderwriting & Planning Department

The Toa Reinsurance Company, Limited 37

6. Trends in Japan’s Life Insurance IndustryLife Underwriting & Planning Department

The Toa Reinsurance Company, Limited 41

Supplemental Data : Results of Japanese listed non-life insurance companies

for fiscal 2007, ended March 31, 2008 48

Japan’s Insurance Market 2008

Contents Page

©2008 The Toa Reinsurance Company, Limited. All rights reserved. The contents may be reproduced only with the written permis-sion of The Toa Reinsurance Company, Limited.

1

Teruhiko OhtaniPresident and Chief Executive,The Toa Reinsurance Company, Limited

To Our Clients

It gives me great pleasure to have the opportunity to welcome you to our 2008 brochure, which is now

in its twelfth year. It is encouraging to know that over the years our brochures have been well received even

beyond our own industry's boundaries as a source of useful, up-to-date information about Japan's insurance

market, as well as contributing to a wider interest in and understanding of our domestic market.

During fiscal 2007, the year ended March 31, 2008, the Japanese economy continued to grow at a mod-

est pace supported by improved corporate earnings and an increase in capital investment. However, declining

residential investment and soaring energy and raw material prices put a brake on the Japanese economy

toward the end of the fiscal year.

In the non-life insurance industry in Japan, while economic growth had a positive impact on premium

income from marine insurance for corporate customers, premium income from mainstay motor insurance

and fire insurance was sluggish because of declines in automobile sales and housing starts.

In the reinsurance market, although reinsurance premium rates continued to soften somewhat during

the year under review, many reinsurance companies recorded favorable results because there were relatively

few major disasters around the world.

The environment surrounding Toa Re is being transformed by the increasing complexity of risks posed

by climate change, as well as structural changes in the Japanese non-life insurance industry, including the cre-

ation of a scheme for small-claims short-term insurance providers, and trends in the international regulatory

environment for reinsurance.

By responding to these changes in the business environment in a timely and effective manner, Toa Re is

vigorously developing business based on appropriate risk management in non-life reinsurance, which is our

mainstay business, as well as in life reinsurance and co-operative reinsurance, where we are strengthening our

position in a bid to diversify sources of profit and to expand the scope of our business.

In PROCEED 2008, the medium-term management plan launched in fiscal 2006, Toa Re sets out its

vision: “As a professional reinsurer, we are striving to become a corporate group that continues to provide

high quality products and services and is trusted by customers in Japan and overseas.” To this end, in the

final year of PROCEED 2008, we are implementing various measures in Japan and overseas from six view-

points, namely, Customers and marketing, Products and underwriting, Process and risk management,

Corporate finance, Corporate social responsibility, and Organizational and corporate culture, in order to

achieve development of the entire Group and to enhance our enterprise value.

By endeavoring to act as an exemplary reinsurance company, we are resolved to fulfill our mission:

“Providing Peace of Mind.”

In conclusion, I hope that our brochure will provide a greater insight into the Japanese insurance market

and I would like to express my gratitude to all who kindly contributed so much time and effort towards its

making.

2

Japan’s insurance market has changed significantly since I became president

in 2004. In particular, the past two to three years have been a critical period, with

the industry experiencing many problems, further liberalization of financial regula-

tions and the appearance of new rules. The resulting changes are ushering in a

new era in the Japanese insurance culture, which had been in place for more than

100 years.

In 2005, Japan’s non-life insurance industry experienced several major prob-

lems involving the very foundation of the insurance business, including incidental

unpaid insurance claims, inappropriate non-payment of third-sector products, and

incorrect setting of premiums for fire insurance and other products. The industry

reflected on these problems, thoroughly analyzed the causes and prepared the

infrastructure for measures to prevent recurrence. Through these and other steps,

insurance companies worked on their highest management priority: restoring

trust.

Furthermore, the Program for Further Financial Reform was introduced in

April 2005 following the completion of financial regulation to deal with nonper-

forming loans. This program promoted liberalization and the preparation of sys-

tems with emphasis on user needs and enhanced convenience. At the same time,

various initiatives were implemented, strengthening existing rules and formulat-

ing new ones to protect users, improve governance, and enhance risk management.

In addition, “The plan for strengthening the competitiveness of Japan’s financial

and capital markets” was announced in December 2007. This plan is intended to

improve regulation, and The Principles in the Financial Services Industry

announced in April 2008 are central components of the plan, which emphasizes

self-discipline and self-reliance among financial institutions.

I would like to briefly touch upon the Japanese insurance industry’s recent

issues, their impact on the non-life insurance market, and Aioi’s initiatives.

(1) Measures aimed at restoring consumer confidence

The industry as a whole, and companies individually, have implemented vari-

ous measures to restore confidence following the problems I mentioned earlier. An

overview of measures implemented by the industry as a whole since 2005 follows

below.

■ Appropriate payment of claims

• Formulation of “Self-Imposed Guideline on Payment for Insurance Claims”

• Formulation of “Guidelines for 3rd Sector Insurance Products”

• Creation of guidance from report of claims to receipt of payments

■ Provision of products that are easier to understand

• Publication of “Guideline on making Insurance Policy Wordings more cus-

tomer-friendly”

1. Tadashi Kodama Representative Director and President, Aioi Insurance Co., Ltd.

Trends in Japan’s Non-Life Insurance Industryand Aioi’s Management Strategies

1. Conditions in Japan’sNon-Life InsuranceMarket

Introduction

3

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2008

■ Promoting consumer understanding of Insurance

• Publication of a buyer’s guide for non-life insurance policies

• Formulation of “Guideline for Description of Solicitation Materials, etc”

■ Improving the quality of agents/solicitors

• Improvement of examinations

• Introduction of a renewal system (every five years) for agents/solicitors

credentials

As this overview shows, the insurance industry has worked to raise quality

throughout its processes. Efforts to restore trust have required detailed changes in

the way the entire non-life insurance industry does business, from sale to payment,

from entry to exit. For example, in the past insurance companies tended to

respond passively to claims, and paid them without sufficient prior explanation or

guidance. Insurance companies are now implementing improvements so that they

make detailed responses and carefully explain payment conditions to customers to

eliminate incidental unpaid claims.

In addition, the insurance industry is promoting improvements to support

accurate understanding of insurance. In the past, contracts and brochures exten-

sively used technical terminology and were difficult for ordinary consumers to

understand, but now the use of plain language, large type and other features are

making contract details and specifications easy to understand. Moreover, a broad

array of significant reforms is changing the way the overall insurance industry has

historically operated. Not only insurance companies, but also agencies that sell

insurance products and write contracts are now improving themselves under a

recently introduced system for the renewal of qualifications, this being for the first

time in the history of agency system, such reforms have taken place.

One of the causes of the problems the insurance industry experienced is, in

my understanding, the intensifying competition in Japan’s insurance market since

its liberalization in 1996. Companies rushed to expand sales by competing on the

basis of product development and rates, but the coordination between product

development sections and claim sections was insufficient. Today, however, the

series of problems has caused the industry to change fundamentally to prioritize

quality over competitive conditions. In our case, Aioi Insurance has broken away

from the customs and assumptions of the insurance industry of the past to become

a customer-oriented company that is resolutely promoting changes.

Aioi Insurance has formulated a medium-term management plan for fiscal 2007

and 2008, “AIOI Quality for the Customer,” that is centered on this resolve. As the

following chart shows, our values position the regard, trust and support of customers

as our priority in everything we do. We have dramatically reformed all business

processes, from insurance product development to sales, administration and claims

payment, from the viewpoint of customers. With this as a base, we will increase cus-

tomer relationships as we work to generate sustained growth and expand earnings.

4

(2) Key Trends in Insurance Regulation

Following the completion of many years of efforts to resolve nonperforming

loans, the Program for Further Financial Reform was announced in December

2004 and implemented over the course of two years starting in April 2005. This

program promoted liberalization and the preparation of systems to enhance user

convenience and protect users. Naturally, it also significantly changed the com-

petitive environment of the insurance industry.

One change was the lifting of all restrictions on bancassurance. Up to that

time, bancassurance had been limited to products with a connection to banking

operations, such as long-term fire insurance and loan repayment insurance bun-

dled with mortgage loans, as well as some types of personal accident insurance.

The range of products expanded in December 2005, and all restrictions were lifted

in December 2007. This allowed bank branches throughout Japan to become

insurance agencies, which enhanced user convenience. However, it also created

concerns about user inconvenience, such as high-pressure sales at banks and the

adequacy of the response to automobile accidents and other incidents. Therefore,

the restrictions were lifted in stages with the authorities discussing and carefully

1. Trends in Japan’s Non-Life Insurance Industry and Aioi’s Management Strategies


5

monitoring the process.

Ironically, as the insurance industry was experiencing the problems already

mentioned at the same time, the result was that banks were not really to handle

direct sales of complex non-life insurance products. In the future, however, factors

such as the development of bancassurance products that are easy to sell and an

increase in the number of bank employees with knowledge of insurance will lead

insurance companies to strengthen their relationships with banks and promote

sales, centered on life insurance and third-sector products.

Moreover, the privatization of Japan’s postal service executed in October

2007 split the former Japan Post Public Corporation into Japan Post Holdings

Co., Ltd. and four operating companies, with Japan Post Network Co., Ltd. per-

forming commissioned services for Japan Post Service Co., Ltd., Japan Post Bank

Co., Ltd. and Japan Post Insurance Co., Ltd. Every post office throughout Japan

is now able to provide postal, financial and insurance services. At the same time,

the approximately 24,000 post offices nationwide handled by Japan Post Network

Co., Ltd. became non-life insurance agencies. This expanded channels for selling

non-life insurance, and as in the case of bancassurance, was a legislative develop-

ment that exerted a significant impact on the non-life insurance operating environ-

ment. Looking forward, the industry is keeping an eye on trends to see whether

the government will finally backpedal to maintain an equal footing with private

companies, and how the insurance business will develop in this environment.

Legal reform enacted from the viewpoint of protecting customers has also

affected the insurance market. Such reform from the perspective of consumer pro-

tection has presented problems for the non-life insurance industry, and in April

2006 the revision of the Insurance Business Law instituted regulations for small-

claims short-term insurance providers. The new regulations now place all insur-

ance companies under the Insurance Business Law, except for affinity groups with

specified limits on the number of members. During the two-year transitional peri-

od, affinity groups not controlled under a specific law had to select one of four

options:

(1) continue as affinity groups within a single corporation, labor union affinity

groups or small-scale affinity groups (excluded from the scope of application of

the Insurance Business Law);

(2) continue operating as a small-claims short-term insurance provider*;

* Small-claims short-term insurance provider:Insurance operations within a designated scale operating under the Insurance Business Law canunderwrite small amount, short-term insurance.(Primary Conditions)• Annual premium income: ¥5.0 billion or less• Insured period: Non-life insurance: 2 years or less

Life insurance or medical care insurance: 1 year or less• Sum insured: ¥10 million or less per individual insured

6

(3) acquire certification as an insurance company; or

(4) cease operations.

Consequently, as of March 2008, among 430 affinity groups not controlled

under a specific law, 179, or 41.6 percent, selected option (1); 60, or 14.0 percent,

selected option (2); 5, or 1.2 percent, selected option (3); and 186, or 43.3 per-

cent, selected option (4).

Those companies that elected to cease operations switched over their con-

tracts to insurance contracts, or to group insurance contracts with insurance com-

panies, a method that allowed insurance companies to serve as a backup and con-

tinue coverage. In other cases, insurance companies took small-claims short-term

insurance providers as their subsidiaries. Thus the connection between coopera-

tives in Japan’s insurance market will move in new directions in the future.

Moreover, in June 2006 a legal system that cuts across various business sec-

tors to protect customers with investment-oriented financial products was codified

as the Financial Instruments and Exchange Law, which took effect in September

2007. This law established regulations for non-life insurance companies for the

suitability of derivatives transactions (weather and typhoon derivatives) and

explanatory reports before and after transactions. In conjunction with the

Financial Instruments and Exchange Law, the Insurance Business Law being

restructured, the investment-type products of insurance on foreign currency basis

and variable annuity products were additionally regulated.

Thus the Program for Further Financial Reform upgraded and strengthened

various regulations. The problems the insurance business experienced triggered

the strengthening of regulations, with the result that laws were revised and rein-

forced for the further protection of customers.

The Program for Further Financial Reform was completed in March 2007.

In December 2007, the Plan for Strengthening the Competitiveness of Japan’s

Financial and Capital Markets was announced. This plan is the most extensive

reform of Japanese finance since Japan’s version of the Big Bang. The plan has the

objective of enhancing the functionality and reliability of Japan’s capital markets

in order to strengthen the international competitiveness of Japan’s financial insti-

tutions. It is projected to significantly liberalize business regulations, including

those for the insurance industry, under the theme of internationalization.

The Principles in the Financial Services Industry were announced in April

2008 to improve regulation. They are similar to the supervisory policies and tech-

niques used in the United Kingdom. Moreover, the International Association of

Insurance Supervisors, the International Accounting Standards Board and other

organizations have debated solvency systems and the market value of insurance lia-

bilities for international institutions. In tandem with this, Japan is currently

studying the revision of solvency standards and the implementation of internation-

al accounting standards in promoting the preparations needed to create an interna-



7

tional level playing field in Japan’s insurance market.

As a result of such regulatory liberalization and preparation, management will

have greater freedom and more options in the future, and will therefore have to be

more self-disciplined and self-reliant, with stronger capital and risk management.

Looking forward, the strategic application of these changes in the rules and

required changes to the management base are key issues. Approaches to strength-

ening capital and risk management will have to be more sophisticated in the

future, and will include the effective use of reinsurance.

(3) Overview of Results for Japanese Non-Life InsuranceCompanies

At this point I would like to present data about Japan’s non-life insurance

market. As you know, this market is the fourth largest in the world in terms of

premium income, but challenging conditions have impacted growth over the past

several years.

Japan’s economy has continued to expand moderately, but last year’s turmoil

in global capital markets stemming from the subprime mortgage crisis, the appre-

ciation of the yen versus the dollar and other currencies, the rising price of oil and

other factors are causing increasing concern about corporate earnings, which has

added to uncertainty about the future of the economy. The number of vehicle

sales and housing construction has slipped, and insurance companies have been

preparing the infrastructure required to prevent recurrence of non-payment of

claims while placing the highest priority on quality in deploying human, physical

and financial resources. The operating environment has remained challenging as a

result of these and other factors.

The interim results for fiscal 2007 of the 22 companies of The General

Insurance Association of Japan, which were announced in December 2007, reflect-

ed this environment. Net premium income decreased 0.1 percent, or ¥3.1 billion,

compared with the same period a year earlier to ¥3,785.1 billion, primarily

because of lower revenues among mainstay motor and fire insurance. Net claims

paid increased 0.8 percent, or ¥17.1 billion, compared with the same period a year

earlier to ¥2,092.5 billion. Compared with the same period a year earlier, the loss

ratio increased 0.8 percentage points to 59.9 percent and the expense ratio

increased 0.5 percentage points to 32.4 percent.

On the other hand, underwriting profit totaled ¥9.1 billion, compared with

an underwriting loss for the same period a year earlier of ¥25.5 billion. The

change was primarily the result of reduced claims payment for typhoon losses.

Full-year net premium income for fiscal 2007 appears to be headed lower

because of factors such as the reduction of the rate under Compulsory Automobile

Liability Insurance that began in February 2008.

8

(1) Aioi’s Results

Amid this challenging operating environment, Aioi increased fiscal 2007

interim net premium income 0.4 percent, or ¥1.6 billion, compared with the

same period a year earlier to ¥428.6 billion, and maintained its number four

position in the industry. Net claims paid decreased 0.2 percent, or ¥0.5 billion,

compared with the same period a year earlier to ¥234.6 billion. Compared with

the same period a year earlier, the loss ratio decreased 0.4 percentage points to

58.8 percent, and the expense ratio increased 0.3 percentage points to 32.7 per-

cent. Underwriting profit increased ¥4.1 billion compared with the same period

a year earlier to ¥5.8 billion.

The medium-term management plan I mentioned earlier places the highest

management priority on reforming the Company. As a result, Aioi continued to

increase premium income. Although our growth rate was comparatively lower

than in the past, it was among the highest in the industry. Moreover, we dealt

with the non-payment problem while achieving a loss ratio and a combined ratio

that were among the best in the industry.

Next, I would like to discuss the business strategies Aioi will execute as it

works to be the best company in the industry.

(2) Aioi’s Growth Strategy

The key point in our growth strategy is our strategy for motor insurance,

which is our main product. Toyota Motor Corporation owns 33.4 percent of

Aioi’s shares, making it the Company’s largest shareholder. Cooperation with

Toyota in domestic and overseas markets is a strategy unique to Aioi and one of

the Company’s greatest strengths.

In Japan, Aioi cooperates with Toyota’s financial businesses to develop

unique motor insurance with enhanced convenience for automobile users, and

primarily sells this insurance through Toyota dealerships. In August 2005, Aioi

developed and began selling the Lexus Owners Motor Insurance Plan to meet

insurance needs among luxury car owners, and sales have increased steadily. As a

result, our objective is to increase our share of the domestic Toyota dealership

market to 40 percent.


2. Aioi’s Business Strategy


9

10

Aioi is also developing other kinds of unique, leading-edge insurance prod-

ucts. One type is PAYD (Pay-As-You-Drive) insurance, which uses mobile termi-

nals installed in automobiles for intelligent transport system (ITS) technology to

collect driving distance information and adjusts premium payments on actual dis-

tance driven. Moreover, Aioi is the only insurance company in Japan with the col-

lision experiment facilities. We utilize this facility and evaluate vehicle damage

susceptibility and ease of repair in order to offer discounts on physical damage

insurance of up to 15 percent. In the future, Aioi will make full use of its close

relationship with an automobile manufacturer to enhance the excellence of its

main motor insurance products.

Overseas, Aioi operates in 17 countries and regions in Europe, Asia and

Australia using its unique business model through cooperation with Toyota

Financial Services to enable integrated finance and insurance operations. This

business will drive future growth, and Aioi will expand the number of countries in

which it operates through proactive investment of resources.


11

The last two to three years have been a period of transition for the attitudes

that underlie Japan’s non-life insurance industry. It is not easy to transform think-

ing that dates back more than a century. That is a challenge for both insurance

companies and insurance agencies. We must, however, remember that trust and

credit that took 100 years to build can quickly erode.

We understand that serious problems have emerged in the industry, and that

these problems have greatly troubled our customers. In my view, the problems

have taught some salutary lessons to insurance companies in Japan, and have

served as catalysts for reforms at a time when preparations for the globalization of

Japan’s financial markets are underway. I believe the problems have prompted

Japanese insurance companies to reconsider their practices and increase their com-

petitiveness in terms of operational quality, and to compete openly and fairly with

other players around the globe.

Insurance companies in Japan, including Aioi, are now committed to

improving their operational quality. Once changes have been fully implemented,

they will have true strength, creating a market that provides customers with securi-

ty and that offers the kind of reliable, refined and extensive services that are char-

acteristic of Japan. I am convinced that the establishment of this kind of market is

fundamental to the further development of Japan’s non-life insurance business to

move on to achieve new growth.

(Written in April, 2008)


Conclusion

Local Finance New/Company Name Bureau Registration Date Specific Class of Business

(1) Shinsai Partners Inc.(2) Pet & Family Small-amount Short-

term Insurance Company(3) ExcelAid Co., Ltd.(4) UB Kyosaikai Co., Ltd.(5) re-plus insurance inc. (6) MC S.S. INSURANCE CO., LTD.(7) Aeterna SSI Corporation(8) IKIIKI SEDAI Inc. (9) Millea Nihon Kosei SS Insurance

Co., Ltd.(10) A-1 Insurance Co., Ltd.(11) ASSOCIA inc.(12) Japan Animal - Club Co. Ltd. (13) Takken Family Co., Ltd.(14) Zenchi Kyosai Co., Ltd.(15) Nihon Jutaku Insurance Co., Ltd.(16) Broad-minded Co., Ltd.(17) Zenkankyo Kyosaikai Co., Ltd. (18) Relo Kyosai, Ltd.(19) Memolead Life Co., Ltd. (20) NP Insurance Co., Ltd.

(21) Ipet Co., Ltd.

Kanto No.1

Kanto No.2

Kanto No.3

Kinki No.1

Kanto No.5

Kanto No.6

Kanto No.7

Kanto No.8

Kanto No.10

Kinki No.2

Kanto No.11

Tohoku No.1

Kanto No.12

Kanto No.14

Kinki No.3

Kanto No.15

Kanto No.16

Kanto No.17

Kanto No.18

Kanto No.19

Kanto No.20

October 27, 2006

November 29, 2006

June 21, 2007

July 25, 2007

October 25, 2007

November 14, 2007

November 20, 2007

November 22, 2007

December 10, 2007

December 12, 2007

December 28, 2007

January 31, 2008

February 4, 2008

February 5, 2008

February 25, 2008

March 17, 2008

March 17, 2008

March 19, 2008

March 19, 2008

March 19, 2008

March 21, 2008

New

Specific

New

Specific

New

New

New

Specific

Specific

Specific

New

Specific

Specific

Specific

Specific

Specific

Specific

Specific

Specific

Specific

Specific

Earthquake expenses

Pets

Life and healthcare

Household effects and liability


Life, healthcare and liability


Healthcare




Pets


Life, healthcare and liability


Life and healthcare


Consolation payment

Life and healthcare

Consolation payment, life, andhealthcare

Pets

12

(1) Registration of Small-Claims and Short-Term Insurance Companies

A list of small-claims and short-term insurance companies as of April 1,

2008 is provided below. The companies are listed in order of their dates of regis-

tration. In the column headed “New/Specific,” “Specific” signifies businesses

that have converted from specific insurance businesses to small-claims and short-

term insurance companies. The word “New” is given in the column to small-

claims and short-term insurance companies which are newly established business-

es. The use of the form of transition called comprehensive transition, including

portfolio and business transfer provisions as prescribed under the Insurance

Business Law, is not separately identified in the table below; however, it has been

announced that Zenkankyo Kyosaikai Co., Ltd., listed as No.17, has used com-

prehensive transition. Other transitions appear to have been carried out inde-

pendently.

Small-claims and short-term insurance businesses denote insurance business-

es approved in line with the revision of the Insurance Business Law enforced in

April 2006. Unlike life and non-life insurers, small-claims and short-term insur-

ance businesses are simplified insurance businesses with a minimum capital of 10

million yen, a maximum insurance amount of 10 million yen, and an insurance

policy period of two years at most.

2. Masaaki Oishi President and CEO, Center for Insurance Studies in Japan (CIS)

Trends in the Insurance Business Law andRelated Legislation — The Events of Fiscal 2007 —

1. Events Relating tothe InsuranceBusiness Law

13


The small-claims and short-term insurance companies listed in the above

table include 13 household-related businesses, five pet-related businesses, and five

businesses associated with the mutual aid society for ceremonial occasions. A

detailed analysis of the products of these companies is omitted. Many household-

related businesses underwrite fire insurance. Businesses associated with the mutu-

al aid society for ceremonial occasions consist of two categories: businesses

engaged in mortality risks and businesses involved in living benefits and the pro-

vision of healthcare benefits.

(2) Life Insurance Companies and Non-Life InsuranceCompanies Approved in Fiscal 2007

Insurance companies approved under Articles 3, 185 and 271 of the

Insurance Business Law as of April 20, 2008 are listed in the table given below.

This table was prepared based on documents published, from July 2007 to April

2008, on the Measures & Policies page of the Financial Services Agency website.

Company Name Approval Date Types Remarks

(1) The Dai-ichi Frontier Life Co., Ltd.

(2) HDI Versicherungs AG

(3) H.S. Insurance Co., Ltd.

(4) SBI Insurance Co., Ltd. (5) Anicom Insurance, Inc.(6) Anicom International, Inc.

(7) Mitsui Sumitomo Insurance GroupHoldings, Inc.

(8) Allianz Life Insurance Japan Ltd.(9) Adlick Insurance Company, Ltd.

(10) SBI AXA Life Insurance Co., Ltd. (11) LIFENET INSURANCE

COMPANY

July 31, 2007

September 13, 2007

October 26, 2007

December 26, 2007 December 26, 2007December 26, 2007

March 5, 2008

March 7, 2008March 21, 2008April 2, 2008April 10, 2008

Life insurance

Foreign non-lifeinsurance businessNon-life insurance

Non-life insuranceNon-life insuranceInsurance holdingcompanyInsurance holdingcompanyLife insuranceNon-life insuranceLife insuranceLife insurance

Wholly owned by the Dai-ichi MutualLife Insurance CompanyThe headquarters is located in theFederal Republic of Germany.The company offers overseas travel per-sonal accident insurance only.

The company offers pet insurance only.The company was approved as an insur-ance company at the same time.

The company seeks to sell productsthrough the internet.

(22) Fuji Insurance Co., Ltd.(23) A-Life Co., Ltd.(24) ACE Chintai SSI (25) Pet Medical Support Co., Ltd.(26) SC Insurance Co., Ltd.(27) Floral Kyosai Co., Ltd.(28) Motto Gyutto Hoken Co., Ltd.(29) LEOPALACE INSURANCE CO., LTD.(30) Namiki Chaochao Kyosai Co., Ltd.(31) Bell Insurance Co., Ltd.

Kanto No.21

Kanto No.22

Kanto No.23

Kanto No.24

Chugoku No.1

Tohoku No.2

Kanto No.25

Kanto No.26Kanto No.27

Fukuoka(Branch) No.1

March 21, 2008

March 21, 2008

March 25, 2008

March 26, 2008

March 27, 2008

March 31, 2008

March 31, 2008

March 31, 2008March 31, 2008

March 31, 2008

Specific

Specific

Specific

Specific

Specific

Specific

Specific

NewSpecific

Specific

Accident, life, and healthcare



Pets

Life and healthcare

Life and healthcare

Pets

Household effects and liabilityHousehold effects and liability

Life and healthcare

14

2. Trends in the Insurance Business Law and Related Legislation — The Events of Fiscal 2007 —

(3) Status of the Transitions from Specific InsuranceBusinesses

Projected transitions as of March 31, 2008, announced by the Financial

Services Agency are as follows:

Projected transitions in specific insurance business(as of March 31, 2008)

(Note 1) Examples of exemption from application- Provision of congratulatory or condolence payments to the extent considered appro-

priate in light of normal social conventions.- The number of policyholders is limited to not more than 1,000. - The business is managed in accordance with the provisions associated with the

exemption from application of the Insurance Business Law by changing operationsto mutual-aid for one working place, and by adopting other measures.

(Note 2) An asterisk “*” means that the business as a mutual-aid business is expected to close.(Total 186 companies [43.3%])

The Financial Services Agency stated in the above table that 88.1% as

described in [A] represented the number of companies that were helped to con-

tinue their businesses instead of ending up being “Kyosai (mutual-aid) refugees.”

The point that requires close attention is the total number. The number of spe-

cific insurance businesses was given as 389. However, the number has increased

to 430. No information about the reasons for this increase has been made public.

It is presumed that the same number of specific insurance businesses were late for

registration, but the Financial Services Agency accepted their registration even

though the registration period had expired.

These figures for projected transitions in specific insurance businesses wereprepared as at March 31, 2008, and they may change in the future.

Transition Types As at the End of March 2008

a. Companies converting to insurance companies

b. Companies converting to small-claims and short-terminsurance businesses

c. Companies that continue to operate mutual-aid business,exempted from application of the Insurance Business Law(Note 1)

d. Companies that continue to provide insurance services topolicyholders by establishing group contracts with otherinsurance companies

e. Companies that transfer mutual-aid contracts to otherinsurance companies

Total number of companies that continue to provide insuranceservices to policyholders [A](a + b + c + d + e)Companies that simply withdraw from insurance business [B]

Total [A] + [B]

5(1.2%)60(14.0%)179(41.6%)

114(26.5%)*

21(4.9%)*379(88.1%)

51(11.9%)*430(100.0%)

15

2. Trends in 0therRelated Legislation


(1) Companies Providing Guarantees against HousingDefects

To protect people from housing defects, it has become possible since April

2008 to establish a company that provides guarantees against housing defects. Six

companies are reported to have begun consulting with the Ministry of Land,

Infrastructure, Transport and Tourism of Japan to become designated

corporations.

The features of this insurance are as follows:

- The insurance can be arranged only for those houses that have passed inspec-

tions carried out before the houses are completed.

This procedure is considered to be similar to that of the British Engine.

- The obligations of the insurance companies are set out in law; they include loss

prevention, the collection of related information, information provision, and

inspection and research.

- The system has been structured such that individual customers are also protect-

ed from losses caused by deliberate acts or gross negligence on the part of con-

struction companies, the insured. This feature represents a fundamental differ-

ence compared to insurance companies that are governed by the Insurance

Business Law.

(2) Consumer Cooperative Law

The Consumer Cooperative Law has been in effect since April 1, 2008. The

mutual aid business based on the Consumer Cooperative Law manages both life

and non-life insurance, including the risks of mortality, fire, earthquake and

motor accidents. This is the same as the above small-claims and short-term insur-

ance businesses. Companies that provide guarantees against housing defects are

also permitted to manage the insurance business as well as other businesses.

According to documents published as a partial amendment to the Consumer

Cooperative Law, the aggregate sums insured are stated as 1,091,586 billion yen,

the number of policyholders was 100.63 million, and the paid losses under the

mutual aid programs amounted to 651.3 billion yen for fiscal 2004.

The Consumer Cooperative Law has adopted the principle of specialized

operations, the same as that adopted by the Insurance Business Law, for large

cooperative to ensure sound operation. Consequently, the cooperative are

required to employ a mutual-aid actuary, to provide documentary evidence of

their calculation methods, and to appoint an accounting auditor. On the whole,

although these requirements are transitional, it is appropriate to point out that

regulations for large-scale mutual-aid businesses, which are similar to those for

small-claims and short-term insurance businesses, have been strengthened.


16

(3) Laws Associated with the Reform of Public Corporations

Public corporations are defined in the Civil Code, and there is a movement

to revise the Civil Code for the first time in one hundred years. In addition,

some public corporations are engaged in commercial activities, it has been deter-

mined that the principles of main government offices and the principles associat-

ed with the establishment of public corporations are to be revised. These revi-

sions are expected to be effective from December 2008. Following the revisions,

public corporations will be broadly categorized as a general foundation and gener-

al foundations and as general incorporated associations. Moreover, by adopting a

new system of recognition for public corporations, judgment as to the public

interest will be made objectively. In addition, a predetermined standard of pref-

erential tax treatment will be applied. As of April 2008, there are more than

20,000 public corporations. Several thousand of them are believed to be manag-

ing mutual-aid businesses. To be recognized as public corporations, these compa-

nies are required to have more than 50% of their overall operations for the public

benefit, as described below.

ARatio of operations for the public benefit =A + B + C

A = Amount calculated in accordance with provisions stipulated in Cabinet

Office regulations as expenses incurred from the execution of operations for

the public benefit

B = Amount calculated in accordance with provisions stipulated in Cabinet

Office regulations as expenses incurred from the execution of profit-earning

operations

C = Amount calculated in accordance with provisions stipulated in Cabinet

Office regulations as current expenses incurred from management of the rele-

vant public corporation

As a result, it is necessary for those who seek to obtain recognition as a new

public corporation to increase the present amount described in A, or to meet the

required ratio by increasing the total amount of A, B and C.

(1) Letters of Request to the Life InsuranceAssociation of Japan (LIAJ) and the GeneralInsurance Association of Japan (GIAJ)

The Financial Services Agency announced the “Supervisory notes following

the termination of the transition period associated with specific insurance busi-

nesses” on March 7, 2008. The details of the notes are as follows.

I. Following the introduction of the revised Insurance Business Law, the sys-

tem of small-claims and short-term insurance businesses has been adopted

3. Stance of theFinancial ServicesAgency

17


since April 2006. In line with this, the Financial Services Agency has pre-

pared and published the “Comprehensive Supervisory Policies for Insurance

Companies (Supplementary Volume) (Supervisory Policies for Small-Claims

and Short-Term Insurance Businesses),” a summary of supervisory notes asso-

ciated with small-claims and short-term insurance businesses.

In November 2006, Local Finance Bureaus who oversee specific insurance

businesses were given instructions to take appropriate measures in accordance

with supervisory policies to ensure that specific insurance businesses manage

operations appropriately, and that policyholders can confidently buy insur-

ance products.

In the “Overview of Annual Supervisory Policies for Insurance Companies

for Program Year 2007” (http://www.fsa.go. jp/en/news/2007/

20071119-1.html), it was stated that, with respect to an actual understanding

of specific insurance businesses and the smooth transition to small-claims and

short-term insurance businesses, the protection of policyholders needs to be

prioritized as an important supervisory issue through appropriate supervisory

measures during the transition period.

II. In accordance with the provisions set out in the supplementary provisions

of the revised Insurance Business Law, specific insurance businesses can carry

on their business until the end of March 2008, the end of the transition peri-

od. Moreover, specific insurance businesses which have filed applications for

an insurance license or applications for the registration of small-claims and

short-term insurance businesses before the end of the transition period, can

continue to carry on the specific insurance operations during the examination

period.

On the other hand, if no applications are submitted, they will not be able

to underwrite new policies after April 1st 2008. In this case, while continuing

to manage operations such as claims payment, the business will close by the

end of March 2009, in principle, by taking measures including the transfer

of insurance policies held by the relevant company to other insurance

companies.

Developments before and after the end of the transition period are illus-

trated as below.

(Please see “Attachment”)


18

III. The transition period associated with specific insurance businesses ended atthe end of March 2008. As described in II above, however, the length of theperiod during which specific insurance businesses can carry out a specific insur-ance business after the end of the transition period varies depending on thenature of each specific insurance business. The period for the portfolio transferof specific insurance businesses who elected to close their businesses also varies.

In response to this environment, it was decided to take the following meas-ures to ensure the smooth transfer of specific insurance businesses to small-claims and short-term insurance businesses, and the protection of policyholders. 1. Local Finance Bureaus are given instructions to take measures for specific

insurance businesses, including the provision of repeated explanations aboutthe procedures that need to be taken in accordance with the status and tran-sition types of specific insurance businesses.

2. To ensure that policyholders are fully aware of points to note following theend of the transition period, the details related to small-claims and short-term insurance businesses on the website of the Financial Services Agencywill be updated and improved regularly.

3. Requests are sent to LIAJ and GIAJ to examine measures that facilitate thesmooth transfer of specific insurance businesses.

The specific details are as follows:

19

1. Stance on specific insurance businessesThe instructions in (1) to (3) below are given to Local Finance Bureaus whichsupervise specific insurance businesses to ensure that, following the end of thetransition period, the Bureaus issue an explanation to specific insurance businessesonce again, taking into account the actual conditions and the action that needsto be taken in the future based on the nature of each specific insurance business,in compliance with the Insurance Business Law and supervisory policies. (1) Stance on businesses that file registration applications for small-claims and

short-term insurance businessesIf specific insurance businesses filed registration applications by the

end of March 2008, they can continue to execute the specific insurancebusiness until the relevant applications are rejected. After the registrationsare completed, specific insurance businesses can receive preferential meas-ures associated with insured amounts. The limitation on insured amountsunder non-life insurance associated with small-claims and short-terminsurance business that used to be specific insurance businesses has beenrelaxed to five times the upper limit of the ordinary insured amount, sub-ject to the implementation of reinsurance arrangements.

Specific insurance businesses, who are seeking to receive the measuresduring the transition period, must be fully aware of the above details, andexplanations are given once again as needed on the measures that need tobe taken and on individual issues in view of laws and ordinances andsupervisory policies.

(2) Stance on businesses that do not file registration applications for small-claims and short-term insurance businesses

When no registration applications are filed by the end of March 2008,explanations will be given once again as needed. For instance, the under-writing of new policies, including the renewal ones, cannot be executedfrom April 1, 2008, and certain measures must be taken, including thetransfer of existing ones, before March 31, 2009 (or before the dates thatare determined by supervisory agencies, if any unavoidable reasons arerecognized), and that, during the above period, it is possible to manageoperations associated with the in-force policies (such as the receipt ofinstallment payments of insurance premiums, and the making of claimspayment).

(3) Due consideration to policyholders when specific insurance businesses areclosed

When specific insurance businesses cease their business, explanationswill be given once again as needed about the need to obtain approvals fromsupervisory agencies in advance, and examinations that are carried out bythe supervisory agencies to see if there are any problems from the perspec-tive of protecting policyholders.

In addition, when a so-called simple closure is expected, as muchinformation as possible will be provided; including how businesses whoexecute the same business continue to provide coverage (through otherinsurance companies and group insurance of mutual-aid organizations).


20


2. Stance on policyholders To ensure that policyholders are fully aware of the issues associated with theoperations of specific insurance businesses after the end of the transition period,the content on the website of the Financial Services Agency (For the Public - ForPolicyholders - “Mutual-Aid Associations Without Governing Laws”) will beregularly updated.(1) Legal positions of insurance businesses under the transition

The legal position of insurance companies, small-claims and short-term insurance businesses, and specific insurance businesses will bedescribed clearly.

(2) The main points to note when contracts are concluded with specific insur-ance businesses and mutual-aid associations without governing laws

Points to note, such as what kind of measures are taken by specificinsurance businesses, and what will happen to insurance policies that areconcluded with specific insurance businesses, will be described.

(3) Questions & Answers associated with mutual-aid associations without gov-erning laws and small-claims and short-term insurance businesses

Frequently asked questions and answers associated with the outline ofthe system of the small-claims and short-term insurance business, and spe-cific insurance businesses will be presented. In addition, the contactaddress details of each Local Finance Bureau for inquiries will be presented.

3. Requests to LIAJ and GIAJThe Life Insurance Association of Japan and General Insurance Association ofJapan will be asked to examine measures that facilitate the smooth transfer ofspecific insurance businesses, in accordance with the purpose of the Associationsto serve the public interest.

(2) Other Trends of the Financial Services Agency

Following the above transition measures, business-suspension orders and busi-ness-closure orders have begun to be issued to specific insurance businesses that areinsolvent or that have a number of problems with their solicitation methods.Examples of the above include the case of Zenkoku Yogo Fukushikai in February2008, and the case of FJ Kyosaikai in April 2008.

(3) Missions of the Small-Claims and Short-Term Insurance Business

One of the problems of the third sector identified by the Financial ServicesAgency is that there is no standard rate that is similar to the mortality rate used as theindustry standard. The only methods of addressing this data shortage are to collectdata and to deal with the situation by varying provisional insurance premium rates.A structure that enables considerable flexibility in changing insurance premium rates,the second of the above methods, is found in the small-claims and short-term insur-ance business. Consequently, a number of new registrations are expected to be filedas small-claims and short-term insurance businesses in fiscal 2008.

21


3. James Vickers Chairman, Willis Re International

Lessons from Solvency II for the JapaneseInsurance Market

It is tempting to ask why Japanese Insurance Companies, other than those with

subsidiary companies in the EU, should pay any particular attention to the regulatory

changes being proposed by the EU Commission under the overall heading of Solvency

II. One response would be to point out that approximately a third of the global Non

Life Premium income and 40% of the Global Life premium income will come under

the control of Solvency II. Another answer to this question is that at a time when vir-

tually every local regulator is looking to update and enhance their own local insurance

regulations the Solvency II project represents the largest and most ambitious regulato-

ry change attempted to date. The unique features of the EU and its desire to har-

monise regulation across the whole of the EU gives the Solvency II project some very

particular features, which are not necessarily applicable to other countries. However,

the underlying technical applications and the process of implementation, which are

being followed, offer many important lessons for the Japanese Insurance Industry and

other national markets as they start to implement their own regulatory reforms.

Rating Agencies are paying very close attention to Solvency II and the International

Association of Insurance Supervisors (IAIS) is similarly monitoring progress and seek-

ing to promote the best practices coming out of the Solvency II project on a global

basis. Finally, there is strong investor interest, particularly as to how Solvency II will

assist in the development of an Enterprise Risk Management culture within the regu-

lated insurance companies in which they are shareholders.

Solvency margins in EU member countries are regulated under the current

Solvency I Directive, which provides for a capital buffer to provide policyholder pro-

tection. Whilst Solvency I has been successful in providing policyholder protection, it

has fallen short in some other areas and the following are the key perceived drawbacks:

• Current regulation lacks sufficient risk sensitivity. This leads to sub-optimal out-

comes by imposing inconsistent f inancial requirements on some

organisations/classes of business.

• Does not provide regulators with the tools to foster higher quality risk manage-

ment and control

• Current national regulation restricts the proper functioning of the single market

for insurance within the EU

• There are inefficiencies in the supervision of Groups with operations in different

EU member countries

• International accounting and regulatory standards are developing and these are not

properly reflected in current regulation.

The Solvency II project is designed to address the shortcomings of Solvency I

and to achieve a number of broad objectives

• Deepen the single market for insurance services

• Enhance policyholder protection through capital requirements which can provide

early warning of deterioration in solvency levels

• Improve the (international) competitiveness of EU insurance organisations

Introduction

Solvency II Objectives

22

• Promote further and better regulation by stimulating further improvements in the

quality of risk management

The Solvency II regime is designed to offer incentives, in the form of reduced

capital requirements, which support the implementation of appropriate risk manage-

ment systems and sound internal controls. The EU Commission is proposing that

Solvency II follows the Basel II regime covering Banks in setting up a three pillar

structure for regulatory purposes. Each of the three pillars covers a different aspect of

the Solvency II requirements and approach:

Pillar 1 contains two capital requirements, the Minimum Capital Requirement

(MCR) and the Solvency Capital Requirement (SCR). The SCR reflects the amount

of capital required for a firm to continue to write business with no interference from

the regulator. The MCR represents the absolute minimum level of capital required

below which the regulator has the authority to effectively shut down the company.

Between the MCR and SCR will exist a layered ladder of supervisory intervention.

Pillar 2 will focus on the supervisory activities of regulators with the aim of iden-

tifying firms with a higher risk profile. Those identified firms may be required to

hold capital at a higher level than suggested by the SCR calculation and/or reduce cer-

tain risks. Pillar 2 also refers to the supervisory review process, which complements

the capital requirements (Pillar 1) and disclosures (Pillar 3).

Pillar 3 requires the disclosure of additional information that supervisors feel

they need in order to perform their regulatory functions.

Solvency II will introduce an economic risk based approach that will reward good

risk management and enhance policyholder protection. At the same time it will place

emphasis on the responsibility of senior management to manage their businesses in a

responsible fashion. It will also help to foster one of the EU Commission’s key objec-

tives: greater supervisory convergence across the entire EU community.

3. Lessons from Solvency II for the Japanese Insurance Market

23


The objectives of the Solvency II project, are simple to grasp and in line with the

aspirations of many other regulators around the world. However there is one key

aspect that differentiates the Solvency II project and this is the method of consultation

and implementation the EU Commission are adopting.

As always in the case of major regulatory reform, there are many interested par-

ties all of whom have a legitimate interest in the outcome. These interested parties

include both the insurance industry itself, individual EU member state experts, con-

sulting professionals and CEIOPS (The Committee of European Insurance and

Occupational Pensions Supervisors).

To start with, the EU Commission have adopted a fully transparent timeline set-

ting out all the key milestones. The timeline incorporates a feedback process called

Qualitative Impact Studies (QIS) in which input from insurance organisations is

actively sought. The overall timeline is as set out below though the planned target

date for full implementation has been put back to 2012.

The aim of the QIS questionnaires is to fine-tune the approach to the assess-

ment of liabilities and capital requirements of insurance companies and to ensure that

any unintended or unanticipated consequences are minimised or eliminated.

Overview of QIS 3 The Third Quantitative Impact Study (QIS 3) focus was primarily on suit-

ability, practicality, and reliability with the intention to:• Identify the potential balance sheet impact of applying the standard model• Further test the suitability, calibration and applicability of suggested calibrations• Encourage feedback on the effect of applying QIS 3 specifications to insurance groups• Encourage feedback on calibration of internal models to standard calculation.

The key issues, which arose from the QIS 3 study, were:

• Methodology / Calibration for non-life underwriting risk• Lapse Cat risk component for linked business• Annuity provisions - are these market consistent?• Recognition of Market Risk mitigation techniques• Design of Minimum Capital Requirement (MCR)

Solvency II Process

24


• Use of Internal models• Modelling of Non-Life Catastrophe risk• Methods allowable for taking advantage of reinsurance• Reinsurance default risk capital charge

How to treat the use of internal models is one of the delicate technical issues,which is being addressed under Solvency II. In their QIS 3 response, many firms pro-vided supplementary information from their own internal models. This provided aninvaluable insight into both the accuracy of the standard calculation, and the effectthat the widespread use of internal models could have on the industry capital reten-tion. In order to try to address the problem of how regulators view the use of internalmodels it was agreed that CEIOPS set up an Internal Model Expert Group to advisethe Commission on the implementing measures that will flesh out the detail of theinternal model regulatory requirements.

The broad principle being adopted is that the SCR standard formula should pro-duce a higher capital charge than an internal model equivalent in order to provide afinancial incentive for firms to invest in the (hopefully) more accurate internal modelapproach. However, if this difference is disproportionately large, smaller firms whosimply do not have the resources to go down the internal modelling route will then bepenalised thus producing a distortion in the market which the EU wish to minimise.The findings from the QIS3 responses suggested that the internal model SCR calculat-ed capital risk charge was considerably lower than the standard calculation result - byas much as a factor of 50% for both Life and Non-Life companies.

This can be attributed to four broad reasons:(1) Increased sophistication and granularity of internal models,(2) General calibration issues within the standard formula,(3) Necessary conservatism of the standard formula calibration, and(4) Internal models providing a better fit to risk for certain types of firm (e.g. spe-

cialist writers)

Overview of QIS 4As a follow up to the QIS 3 study QIS 4 was released in April 2008 with a

response deadline of the end of July and the first consultation on the results beingreleased in September/October. The two primary targets for QIS 4 are :• Finalise the standard solvency calculation element of Solvency II • Finalise group supervision considerations

The key changes in the standard calculation methodology being proposed underQIS 4 are:— Non-Life underwriting risk factors were considered penal under QIS 3, resulting ina significant proportion of firms being classed as insolvent despite fulfilling currentregulatory requirements. As a result of the QIS 3 response, these risk factors havechanged, both up and down, on 8 of the 15 business types in QIS 4. For example,motor risk factors have decreased, whilst those relating to credit and surety haveincreased.— In QIS 3 the European market average reserving factors were not influenced by his-torical data, unlike the corresponding premium factors. In QIS 4, reserving factors canbe modified, subject to local supervisory approval.

25


GroupsQIS 4 provides the first opportunity to focus on group issues and the identification ofgroup diversification effects, which can be split into three constituent parts:— Non-Life Geographic Diversification,— Third Country Diversification and— Operational Risk Diversification.

The level of diversification benefit available to groups in respect of the Solvency IIcapital requirement could have a significant bearing on the capital efficiency of groupsversus stand alone enterprises. This has further implications within the industry withrespect to competition and consolidation.

Although it is expected, that many groups will utilise the internal modellingoption, QIS 4 will go some way to defining the level of diversification allowed throughany modelling approach. The resulting conclusions drawn from the QIS 4 responsecould have significant ramifications for the entire industry as it was recognised that thetreatment of Groups under QIS 3 could lead to a distortion in the market.

— QIS 3 feedback indicated that participants found the Eligible Capital three tier clas-sifications confusing. QIS 4 is clarifying this by developing a list of six characteristicsthat define which tier a capital instrument belongs to. Additionally, QIS 4 provides asummary table of characteristics, key features, and instruments to further explain thethree tiers structure. Instruments considered include:— Paid up capital— Subordinated mutual member accounts— Hybrid capital instruments— Subordinated debts— Unbudgeted mutual calls— Letters of credit

ProportionalityQIS 4 proposes a significant development of the solvency calculation methodolo-

gy, allowing more calculation options for (re)insurance companies, and defining thesimplified calculation options as part of its proportional approach. The full simplifiedapproach can be used in calculating a firm’s technical liabilities or SCR where the com-puted result falls below €50m for Life companies or €10m for Non-Life companies. Apartially simplified approach can be applied to minor risk areas, which are defined ascomprising no more than 5% of the total gross technical provisions / SCR This is sub-ject to an overall cap of 15% of the total gross technical provisions / SCR being calcu-lated using the simplified approach.

QIS 4 also provides a bridge between the standard calculation and the partialinternal model, by allowing firms to use company-specific parameters for non-lifeunderwriting risk. These can be incorporated in the standard calculation, subject tolocal supervisory approval. There are now six broad modelling steps available to firms:(1) Small firms exempted from Solvency II, with gross premiums of less than €5 mil-

lion.(2) The SCR simplified approach, which replaces sections of the standard calculation

with more basic formulae.(3) The SCR standard calculation, which takes the form of the QIS spreadsheet

released by CEIOPS.

26


(4) The SCR entity specific calculation, where firms can replace factors within thestandard calculation, based on their understanding and experience of their ownrisk.

(5) The SCR partial internal model, where firms can internally model risk sections andcombine them with the standard calculation.

(6) The SCR full internal model, where firms can internally model their entire risk.

Minimum Capital Requirement (MCR)The Minimum Capital Requirement (MCR) calculation methodology is also

closely linked to the future of group supervision. The current draft Solvency IIrequires all subsidiaries to hold their MCR locally, whilst all capital in excess of theMCR can be held centrally. The Minimum Capital Requirement (MCR) calculationmethodology has changed in QIS 4 to a linear factor-based approach, which can besimply calculated independently of the SCR by the local regulator. There are someconcerns with the linear approach, as it loses risk sensitivity by excluding certain keyrisks whilst not rewarding or encouraging good risk management. By divorcing theMCR from the SCR calculation, a ladder of supervisory intervention becomes difficult,as firms will have different relative gaps between their MCR and SCR. It also creates thepossibility that in certain cases the MCR could theoretically be greater than the SCR.

The QIS process has lived up to the expectation of the EU commission as the num-

ber and quality of response has grown as the process developed. Over 1,000 responses to

QIS 3 were received and a considerable increase in this number is anticipated for QIS 4.

The responses have highlighted some of the practical issues and unintended consequences

at each stage of the Solvency II development and have allowed the EU commission to

make amendments, which largely reflect the views of the respondents.

In broad terms, the rating agencies welcome the introduction of Solvency II as they

see that it has the potential to deliver more intelligent and risk sensitive supervision as

well as helping to embed ERM techniques into individual organisations. Other positive

benefits include more transparency of information under Pillar 3 as at present regulatory

returns are currently only public documents in a limited number of EU member coun-

tries.

However, there are some negatives as rating agencies do anticipate that there may be

an increase in the number of insurance company failures under Solvency II compared to

the excellent record to date in continental Europe. This is because the regulation as draft-

ed provides a greater level of risk tolerance than many European supervisors and

Governments have historically been prepared to grant. Against this background one rat-

ing agency estimates that approximately 25% of the EU’s insurers will need to

• Raise capital

• Buy more reinsurance of other risk mitigants

• Reduce risk

• Write less business

• Merge or be acquired

• Close to new business

Rating Agency Perspective

27


There are concerns that Solvency II will accelerate consolidation with the EU

but it is also fair to point out that regardless of Solvency II the ability of an insurer to

survive as an independent organisation depends on:

• Being very good at what they do, and either

• Having scale and/or diversity, or

• Having a defendable niche

At the same time, rating agencies are wary about the highly political nature of

the Solvency II project and the ultimate control/influence over national insurance

markets. These include issues of national policyholder guarantee schemes, the possi-

ble rise in uninsurance/unaffordable risks, as insurance companies become more risk

sensitive (e.g. earthquake, flood, construction defects etc) and disincentives for insur-

ers to hold equity investments. They are also concerned over the ability of the EU

insurance industry and regulators to execute the implementation of Solvency II.

There is a shortage of experienced actuaries in the EU and in many cases, insurers’ IT

systems will require overhaul. Supervisors are also under resourced and under skilled,

particularly as regards reviewing the internal models which insurers that are more

sophisticated will wish to utilise. The use of internal models is also likely to be chal-

lenging for rating agencies who will have to invest additional resource to rate the effec-

tiveness of individual companies’ internal models, which will ultimately be reflected

an insurers’ overall rating.

Although Solvency II is a European standard, there is considerable interest from

many other countries as the globalisation of financial markets creates a strong incen-

tive for consistent regulatory standards. Solvency II is not the first principles based

regulatory regime supported by a risk-based capital requirement. Australia and

Switzerland already have such regimes and some captive domiciles (e.g. Isle of Man

and Guernsey) have been subject risk based capital since the early 1980’s.

As a representative Body, counting regulators and supervisors from other 190

jurisdictions the IAIS works to actively promote are working to promote financial sta-

bility. They issue papers and provide guidance and training support on issues related

to best practice insurance supervision on a global basis. The IAIS are developing

Insurance Solvency Requirements (ISRs) as follows

• Structure of Regulatory Requirements

• Capital resources for Solvency Purposes

• The Valuation of Assets and Liabilities, including Technical Provisions for solven-

cy purposes

• Asset Liability Management

• Enterprise Risk management for Capital Adequacy and Solvency Purposes

• The use of internal models for Risk and Capital management Purposes by Insurers

• The Role of the actuary

These ISRs are all well represented in the Solvency II proposals. In this regard,

the IAIS are supportive of Solvency II and are closely monitoring the Solvency II

process to help refine their own guidelines. Through the incorporation of the lessons

InternationalAssociation of InsuranceSupervisors (IAIS)

28


from Solvency II into their best practice guidelines, the IAIS will be an active global

promoter of Solvency II to regulators non-EU countries such as Japan.

ERM is rapidly gaining acceptance as the benchmark best practice Risk manage-

ment technique and by participating in the QIS questionnaires and preparing for the

implementation of Solvency II, European Insurance Companies are building a strong

platform for their own Enterprise Risk Management (ERM) strategies. Whilst there

are a number of iterations of ERM at its’ heart lies the ability of management to

embed into their organisations an holistic view of the risks the organisation is facing as

a whole and to manage their organisation on a daily basis to mitigate the risks in the

most efficient fashion. ERM has been enthusiastically taken up by many insurance

companies but also by other stakeholders such as shareholders and importantly by reg-

ulators.

Firstly, the actual process itself with a very public feedback system as represented

by the QIS process has been of great help in engaging market participants and fine

tuning proposals. The Japanese insurance market has a number of insurance associa-

tions, which provide input to supervisory authorities, but the value, which can be

gained by making the feedback process even more open, is being clearly demonstrated

by the QIS questionnaires.

The treatment of Groups is a growing issue in Japan as a number of the larger

insurance companies have started to take advantage of recent legislation changes to

amend their corporate structures into holding companies. The drive behind this

move has primarily been a desire by management to diversify their business activities

by line of business and by territory. Having previously, regulated single entity insur-

ance organisations Japanese insurance regulators now face the issue of dealing with

Groups. As has been seen in QIS 3 and QIS 4 the regulation of capital in Insurance

Groups needs to be sensitive to ensure that it does not lead to smaller single insurance

entities being discriminated and market competition being distorted. The changes the

EU Commission will introduce following the completion of the QIS 4 feedback will

provide a valuable insight for all regulators in how to manage this issue.

The globalisation of the Japanese insurance industry requires the management of

Japanese insurers to study Solvency II to ensure that their European subsidiaries are

fully compliant. Similarly, the Japanese FSA needs to enhance their co-operation with

EU regulators to ensure the smooth regulation of the European subsidiaries of

Japanese Insurance Groups. Cross-national co-operation of insurance supervisors is

another of the challenges being addressed under Solvency II. Insurers want the effi-

ciency of being subject to only one regulator whereas national regulators have a keen

interest in protecting their own national policyholders’ interests. The concept of a

“supervisory college” which brings all supervisors under one umbrella for one group is

being discussed in the EU and its development needs to be carefully monitored by

Japanese Regulators.

The perceived reliability of internal models in the banking industry has been put

under pressure with the recent global credit crisis. Against this background, a move to

Lessons for the JapaneseInsurance Market

Enterprise Risk Management

29


promote the further use of internal models in the insurance industry is bound to be

controversial and require additional detailed study. In particular, the processes of ver-

ification and the implementation of internal models will need great care. An evolu-

tionary approach is likely to be the best way forward as insurance organisations and

regulators build up their experience of working with internal models. At the same

time regulators have to take care that smaller organisations who are not able to devel-

op their own internal models and have to rely on industry standard models are not

excessively disadvantaged as compared to larger groups who have the resources to

build their own more sophisticated internal models. The treatment of models is a key

area where an exchange of information between the EU insurance industry and the

Japanese insurance industry will greatly assist the Japanese insurance industry as the

use of internal models develops in the Japanese market.

The application of Minimum Capital Requirements (MCR) and Solvency

Capital Requirements (SCR) and the layered ladder of supervisory intervention

between the two, is another key issue for all regulators. On one side is the need for

absolute clarity in the technical calculation of MCR and SCR requirements and the

appropriate level of intervention. These needs have to be balanced against the inter-

ests of policyholders and other stakeholders in an insurance company. Finding an

appropriate balance is another area where the Solvency II project is able to offer valu-

able insights to the Japanese Insurance Industry.

This article has only given a brief overview of the debate surrounding the

Solvency II project but it is clear that there are a myriad of valuable lessons for the

Japanese insurance industry to learn. The unique nature of the EU and the conse-

quent need to obtain support from a wide range of companies and national regulators

is making the process both very open and very thorough. Careful study of the

Solvency II project will provide all members of the Japanese insurance industry with a

deep insight into the issues to be faced when seeking to update and modernise insur-

ance regulation. Ultimately, Japan must adopt its own regulatory practices, which

reflect its own legal system and cultural background and not seek to replicate a

European derived system. However, the process of Japan’s own regulatory develop-

ment will be greatly assisted by learning from Solvency II, adopting some of its better

practices and avoiding some of its pitfalls.

30

In Japan, corporate social responsibility (CSR) is already a feature of many

companies. The system as it stands has become a feature of such companies in the

last five years or so. During which “What is CSR?” became a matter of enquiry,

but even before that Japanese companies had already incorporated environmental

initiatives and compliance measures with some zeal. Thus, question of how CSR

differs from the existing system has often been raised.

Presently, it is becoming a commonly held notion that CSR is an integral

aspect of management. Since CSR contains great deals in their stakeholder, it is

easy to bind company’s operation, organizational strategy, HR strategy, supply

chain management together. In the leading companies, CSR is not handled by the

general affairs or the compliance sections, but instead, held in the departments

that are closer to actual management, such as the management planning depart-

ment.

Where CSR is concerned, there are no textbooks. International guidelines

exist, such as the Global Reporting Initiative (GRI), but observing these is no

guarantee of a “success.” With Japanese companies, there are many who observe a

“triple bottom line” (corporate actions are evaluated with respect to economic

implications, social implications, and environmental implications), but that is by

no means indispensable. In other words, CSR is an idea and a set of actions han-

dled by each enterprise, and it is a creative set of management actions.

In reality, there are some Japanese companies that are strategically undertak-

ing CSR, and activating their employees. They are obtaining the support of cus-

tomers and shareholders. If we evaluate the matters from this point of view,

Japanese companies are currently enhancing their brands through CSR, and in

fact, it can probably be said that a bipolarization is apparent between those compa-

nies improving the corporate brand through CSR, and those that are failing to

achieve proper results.

There are also probably many companies who consider the implementation of

CSR actively for handling scandals. As CSR incorporates elements of governance

and compliance, many Japanese companies have used it as a means of enhancing

their compliance as well.

There are many companies putting compliance departments and setting man-

uals for dealing with these scandals. But with only these measures, it is difficult to

tackle the problems arising effectively. The incidents currently arising in Japan are

not just composed of criminal conduct such as embezzlement and breach of trust,

instead, there are many cases where the perpetrator feels they are acting for the

good of the company. And cases where simply following the orders of superiors

without personal responsibility leading to the scandal. This kind of incident can-

not be adequately tackled simply by the compliance manuals. To deal with such

corporate scandals, the company’s vision and missions must be bound together

with the actual means of doing business. For example, it would be a desirable out-

come for corporations if an employee can judge by oneself whether the course of

action is right or not. In other words, it is desirable that the compliance is highly

4. Mitsuo Ogawa President, Craig Consulting

CSR in Japanese Corporations and the Trendin the Insurance Industry

1. CSR Activity Connected toCorporate Value

2. The Reaction to Corporate Scandals

31

recognized in the corporate culture, so that the employees unconsciously incorpo-

rate the regulations into their work. This suggests the use of CSR to deal with the

scandals.

Among the leading companies, it is not just a matter of settling on a CSR

vision and clarifying the direction of the company. The leading companies are

opening dialogues with stakeholders (calling in experts from outside the company

and launching a discussion of company initiatives) and hearing the voices from

third parties for improving the direction of the company. For example, in

Japanese insurance companies, where sales through agents are common, there are

moves to ensure that customer voices are heard directly by setting up new depart-

ments to collect feedback, so as to ensure through stakeholder dialogue that the

voice of the common customer is fully understood.

Additionally, there are now many cases where NPOs and NGOs are taking

issue with corporate management. There are examples where assertive NGOs

investigate corporate actions and then announce their findings directly via the

Internet. There is one example where NGOs investigated corporation’s sub-

sidiaries, finding that they used child labor in its Asian manufacturing. This was

then announced in the public and it led to a boycott against the company, causing

much brand damage. It should be recognized that corporations not fully incorpo-

rating CSR are facing these kinds of management risks as well.

What sorts of activities are being undertaken by Japanese corporations?

The types of actions being undertaken by each company are detailed in CSR

reports and corporate homepages, so it is comparatively easy to find out the whole

picture. As the above suggests, CSR varies with each company, and there is an

infinite variety of CSR systems in evidence. But speaking generally, it is common

to start with CEO’s message, CSR vision with missions and CSR reports relating

to the areas important to the company and for the stakeholders.

When analyzing the activity of each company, two types of activity emerge;

policies which must be established as being open to the public (“Must” items), and

measures appropriate to the company (“Want” items).

Regarding “Must” items, they are commonly categorized by each stakeholder.

For example, where Japanese companies are concerned, each company may man-

date diversity and a work-life balance (a balance between “work” and “family and

leisure”) as the “Must” items. These “Must” items can be evaluated according to

the degree of employee participation, and the durability of the activities. For this

reason, the company might be announcing a policy of encouraging volunteer

work, however, it is difficult to obtain recognition of such activity from those out-

side the company unless quantitative evidence of its effectiveness comes to light in

the form of participant numbers and years of continuous operation.

On the other hand, “Want” items represent suitable activities for the company.

In Figure 1, the representative CSR activities in Japan are summarized. A

good example will be the volunteer group run by Toyota, “omocha no shu-rizu.”

This group is formed by Toyota’s retired employees, and they utilize their crafts-

3. The CSR in LeadingEnterprises


32

manship to repair children’s toys for free. Obviously, this kind of activity is well

suited to Toyota’s manufacturing oriented culture.

The “Want” items possess an originality of the company. Also, this is by no

means a compulsory activity, but with the degree of independent participation

being a key point.

Denso is a major manufacturer of industrial parts, and they are also a leading

company where CSR is concerned. They have a program called “Denso Eco-

Ranger 21.” They use mountains near their factories for children’s field trip,

allowing children to experience nature fully. The guide will be a company

employee. This program is a fine example of CSR since it contains important ele-

ments of CSR like nature, employee participation and youth education.

Mazda Motor Corporation’s “Mazda Specialist Bank” is a program where

employees have their particular skills such as, storytelling and sleight of hand,

recorded in a company’s database. They are then dispatched to appropriate places

for volunteer opportunities according to their skills. Mazda’s program has a strong

regional element, and it skillfully incorporates employee participation and regional

service into a good example of CSR. Their activities and accomplishments are col-

lected for publication on their homepage.

Figure. 1 The activities of the leading companiesCompany Name Policies & Emphasis Examples of CSR Activity

Toyota

Mazda

Denso

IBM Japan

NEC

Shiseido

Sompo Japan

Aeon

Know-how in Toyota manufacturing andpeopleContributing to the invigoration of regionaleconomies and industriesManufacturing and communication

Contributing to IT technology in globalsociety to the maximum extent possibleUtilizing IT and networks, realizing a ubiq-uitous society, solution of global problemsSelective CSR areas: Makeup, Women,Cultural capital (aesthetics)

Emphasizes: Welfare, Environment, Art

Regionally integrated social activity

Omocha no shu-rizu, collaboration withNPOs, introduction of children to artistsMazda Specialist Bank

Denso MuranBoys and Girls Development ClubWorld Community GridEducational improvement programNEC IT education for mothers with childrenNEC enterprise social developmentPersonal grooming lessons for the elderlyBeauty consultancyHanatsubaki FoundationSeiji Togo Memorial Sompo Japan Museumof Art, and similar contributions to artYellow receipt happiness campaign

4. CSR in Japanese Corporations and the Trend in the Insurance Industry

33


CSR must be a sustainable action. In other words, for the company incorporat-

ing CSR, it is undesirable to undertake donations or reforestation activities only

when they gain profit, but abandon them when their profits slide. In the 1980s, cor-

porate patronage of the arts was common in Japan. They donated money to muse-

ums, galleries and local music ceremonies. However, once their business went slow,

these activities did not last long. As a result of these experiences, CSR is emphasized

that it should be a sustainable action.

So what can be done with regard to continuing CSR irrespective of corporate

earnings? As much as possible, the corporation should stick to social activities close

to its main business activities. The most sustainable approach to CSR is through

using the technologies and business model acquired by the main corporate activities,

which are strengths or competencies of the company. The reason for this is that

with CSR having a close connection to daily business, CSR in turn has a positive

feedback on its business which is a different from the one time contribution

explained in the above.

As Figure. 2 explains, Japanese companies are striving for maximizing their

profit in 1980s. Companies with good earnings were recognized as good companies

at that time. (Figure. 2 - ①) However, rather than a devotion to the profits, voices

rose in support of a new view that companies should also have a social significance.

(Figure. 2 - ②) An example is the legally mandated compliance requirement to

employ disabled persons. Even if there is a social meaning to this, companies gradu-

ally came to realize that it was something they must do, and that there are advantages

to the enterprise from undertaking socially responsible activities on a sustainable

basis. (Figure. 2 - ③) In other words, it came to be realized that CSR brings advan-

tages to the enterprise but, if these are not coupled with economic gains, then CSR is

difficult to continue in a sustainable manner.

4. Activities through theCore Business

Figure. 2 Compatibility with corporate and social merit

34

It was also realized that relying just on the enthusiasm of a few volunteering

employees is also not sustainable. As the above mentioned, Toyota and Denso schemes

may be a basic model, but the point will be that the companies utilize their strengths

and build mechanisms for their employees to cooperate and take the action voluntarily.

The development of CSR in the Japanese insurance industry is remarkable, espe-

cially in the non-life insurance market. For example, Tokio Marine Nichido Fire

Insurance has long been involved in mangrove planting. The president of the compa-

ny has been involved in planning the planting in South East Asia. In recent years, a

100-year mangrove planting proclamation was announced. This was a strong declara-

tion to the effect that, whatever happened, mangrove planting would continue for

100 years, and this tree planting is becoming a trademark feature of the company.

Having company members with actual planting stories assist in school environmental

education and speaking directly to students, was a great aid in this practice.

Another effort worthy of mention by the same company is that they relate to

the industrial cooperation with academic research into the arrest of global warming.

(See Figure. 3)

Tokyo University and others are conducting simulations into the consequences

of global warming, particularly with regards to possible consequences for Japan in

terms of the increased incidence of typhoons when global warming continues. This

kind of collaborative research is not just a matter of research contributions; but also

involving company members’ participation in the research. The results are not just

the dissemination of research findings into global warming. As global warming is set

5. CSR Activity in theJapanese InsuranceIndustry


Figure. 3 Tokio Marine & Nichido’s global warming research

35


to influence on a global scale, the company can participate in developing these find-

ings as a good reference for new businesses. Also, it is not difficult to imagine what

kind of effects these kinds of programs might have on raising employee motivation.

Therefore, such “Want” items can be evaluated as favorable long-term investments

which improve corporate value directly.

In Sompo Japan, a CSR vision of a following statement comes straight from the

top; “In my tenure, I promise Sompo Japan will become the best company for

women to work comfortably.” Needless to say, a work-life balance is heavily con-

cerned for the issue of female employment, but the company also investigated how

CSR training might be fulfilled in its corporation. A CSR literacy-training program

was instituted for new employees. There are another CSR training where employees

freely express their opinions on both the CSR reports of own company and those of

others. These CSR trainings are diffused throughout different levels of the employ-

ment. This sort of policy in which increasing internal corporate understanding,

directly contributes to achieving the goals of senior management mentioned above.

Non-life insurance companies, in the same manner as Tokio Marine Nichido

Fire Insurance, are active in climate change research. Emissions trading and carbon

offsets (to offset carbon dioxide emitted) are an aspect of handling global warming

likely to be subject to particularly proactive activities for them.

Also, if we observe the activities of overseas reinsurance companies, for example

in Lloyds, statistically minded underwriters are assisting with mathematics education

in local elementary schools. By utilizing their own knowledge of risk management,

they conduct educational activities using their “know-how” from their core business,

and they can also contribute to society through environmental education at their

local schools. Such a system can also be anticipated from Japanese non-life insurance

companies in the future.

Compared with non-life insurance companies, life insurance companies in

Japan have yet to regularize their CSR. Infectious diseases and ecological effects are

greatly influenced by the effects of global warming. Life insurance companies have a

great deal of leeway in tackling social problems given their competencies in these

areas. Much can be expected of them.

As has been seen, Japanese CSR is diverse. It encompasses many issues, and

places corporate strengths and special competencies center stage. Corporations are

ridding themselves of the view that CSR activities must be tangential to the main

business, and that they merely comprise corporate giving. Instead, CSR can be

thought of as part of a corporate strategy, improving corporate value in the final

analysis. So, what are the issues emerging hereafter?

The major issue is not to allow CSR to be restricted to the HQ and concerning

only some of the employees, but instead, making CSR to permeate every level of the

company. If it is simply viewed by regional offices as yet another new initiative from

head office, its penetration rate will be unable to increase in the company and this

will impair the growth in corporate value, even they have a great policy in CSR.

Obviously, the most important factor in CSR is the employee element. If

6. The Issues from Hereon

36

employees cannot be made active partners in CSR, then there is no way that cus-

tomers, clients, and shareholders can be brought on board. The effectiveness of even

the most well leveraged brand or market opportunity will be halved unless CSR is

accompanied by employee mobilization.

As stated previously, CSR policy can be divided into “Must” and “Want” items,

but this also means that the “Want” item is connected to the solution to social prob-

lems through the application of management resources. How the CSR activity is

connected to employee efforts is a key point if success is to be attained.

So, how is CSR activity related to improvements in employee motivation? The

key is to involve employees in the activity. As it is a system of employee participa-

tion, much of the content yields a contribution to society at large.

As stated, performing the social activities in a manner that engages the strengths

of the enterprise is what constitutes a sustainable activity. It is thus possible to con-

tribute to such issues as environmental problems, youth development and regional

issues, while engaging every aspect of the corporation’s management resources, and

employing the corporation’s business models and technology. Utilizing employee

action in the same manner is also necessary.

If employees participate in making contributions to the society, opportunities

can be created for them to make use of their accumulated skills and experience. In

other words, they will come to see the skills and techniques they acquired as being

useful to society and will therefore be delighted to possess them. There is nobody

who fails to be moved when their actions are appreciated by those around them. If

we put it rather grandiloquently, their lives thus far are affirmed, and they gain self-

confidence when they engage in these activities.

If this is the case, they will come to want to further their skills for the good of

society and be further encouraged by those around them. The motivating factors

behind the efforts of the young people of today are not just wages and promotion,

there is also a desire for personal development, and an urge to do good for the world

and for others. CSR activities can have a direct influence on this new motivation for

work.

If employees can utilize their skills and experience in social activities, then they

can come to see their company as a place where they can accomplish this, and so take

pride in it. Pride in one’s company aids employee attachment, and the positive

effect on other employees of having more of these highly motivated co-workers is

great. With this, CSR activity can engender the creation of a virtuous cycle.

A highly developed corporate culture can be created from the positive work atti-

tude engendered by CSR. Pride in one’s skills and experience, pride in one’s post,

colleagues, and company, all of these make the employee think well of the company

to the extent that they wish to tell others outside the company, which in turn is likely

to have a positive effect on the company’s reputation with society at large. If the joys

of participation in CSR activity can be embedded in the company, then the scandals

mentioned at the beginning can be avoided through the corporate culture, as embod-

ied in thoughts such as “this kind of activity is unacceptable,” based on values which

are held unconsciously by the employees. This is the ultimate aim of CSR.


37

5. Underwriting & Planning Department The Toa Reinsurance Company, Limited

Trends in Japan’s Non-Life Insurance Industry

(1) Trends in the Domestic Market

Japan's non-life insurance industry recorded sluggish premium income for fiscal

2007, reflecting lower housing starts in the wake of the amendments to the Building

Standards Act, which adopted stricter building certification standards, and lower sales

of automobiles. Meanwhile, premium income rose for commercial insurance, such as

liability insurance and marine insurance, supported by the buoyant business perform-

ance of corporate customers.

Subprime-related losses that initially raised concern have turned out to be on the

whole modest, with the exception of certain domestic non-life insurance companies

recording considerable loss provisions.

New developments in the industry included the entry of three new insurance

companies: H.S. Insurance, established by HIS Co., a major travel agent, and others;

SBI Insurance, a joint venture between SBI Holdings, a financial holding company,

and Aioi Insurance; and Adlick Insurance, a joint venture between Advance Create, a

non-life insurance agent, and Aioi Insurance. In addition, Mitsui Sumitomo Insurance

announced that it would establish Mitsui Sumitomo Insurance Group Holdings, a

holding company, and list its shares on the stock exchange, also announcing the inclu-

sion of three group life and non-life insurance companies among its subsidiaries.

(2) Expansion into Overseas Markets

In response to a decline in the size of the domestic market, reflecting the falling

birthrate and an aging population, Japanese non-life insurance companies have been

taking steps to strengthen their overseas operations. In fiscal 2007, active overseas

initiatives included the acquisition of Kiln Ltd. by Millea Holdings (Tokio Marine

Holdings) of the United Kingdom. Recent major overseas initiatives are summarized

as follows

1. Industry Trends

Date Company Name Recent Overseas Initiatives

June 2007 NIPPONKOA Establishment of a representative office in New DelhiInsurance

June 2007 Aioi Insurance Acquisition of a license to operate branches in Tianjin, China

September 2007 Sompo Japan Insurance Acquisition of permission to establish a Shanghai branch ofSompo Japan China

October 2007 Mitsui Sumitomo Announcement of the commencement of non-life insurance Insurance operations for local companies in Germany

November 2007 Tokio Marine & Establishment of Tokio Marine Middle East in the Dubai Nichido Fire Insurance International Financial Centre

December 2007 Mitsui Sumitomo Commencement of operations of Mitsui Sumitomo Insurance Insurance (China)

December 2007 Tokio Marine & Establishment of a Takaful joint venture company in EgyptNichido Fire Insurance

March 2008 Millea Holdings Acquisition of Kiln Ltd. of the United Kingdom

(Tokio Marine Holdings)


38

(3) Product Development Trends

Primary insurance companies have been simplifying their products to prevent the

recurrence of problems associated with the nonpayment of claims, for example by consol-

idating products whose coverage overlaps that of other policies, and abolishing special

clauses with low demand.

As these primary insurance companies will continue to promote products and spe-

cial clauses that entertain strong demand, the consolidation is expected to have almost no

impact on premium income. While simplifying the details of products, primary insur-

ance companies have been shoring up their sales agents' training to prevent administra-

tive errors in product explanation, contract management and claim payment obligations.

(4) Sales Channel Trends

Restrictions on bancassurance sales have been phased out since April 2001 as part of

the liberalization of financial regulation. They were finally removed altogether in

December 2007 with the end of restrictions on products including whole life insurance,

term insurance, medical care insurance and motor insurance. With the slowdown in the

loan business, banks have been actively promoting sales of insurance from which banks

can generate commission income. Regional banks are characteristically focusing on prod-

ucts with reasonably simple insurance details, such as medical care and cancer insurance,

so that bank staff can easily explain products to customers. On the other hand, major

banks sell not only medical care and cancer insurance, but a wide range of other prod-

ucts, such as mortality insurance and nursing care insurance.

Japan Post, which was privatized in October 2007, has also begun bancassurance

sales of the motor insurance of seven primary insurance companies.

(5) Trends in Small-Claims and Short-Term Insurance Businesses and Unregulated Co-Operatives

The Insurance Business Law has not in the past been applicable to unregulated co-

operatives, even though they sell insurance-type products, because such services were con-

sidered to be mutual aid among specific parties. These unregulated co-operatives were

requested to initiate procedures to become insurance companies or small-claims and

short-term insurance businesses, or to terminate their operations, by March 2008.

Consequently, many co-operatives are expected to terminate their operations because

they cannot provide the human resources or systems that are required for registration, or

because their products do not meet the requirements. Small-claims and short-term insur-

ance businesses are a new category of insurance company that has been approved in line

with the revision of the Insurance Business Law enforced in April 2006. Although the

sum insured and period of products they can handle are restricted, establishing small-

claims and short-term insurance businesses is easier than establishing insurance compa-

nies as the minimum capital required is 10 million yen, whereas capital of 1 billion yen is

required for insurance companies.

Companies that have launched small-claims and short-term insurance businesses

5. Trends in Japan’s Non-Life Insurance Industry

39

have characteristically developed niche markets, in which major life and non-life insur-

ance companies have not been operating, including earthquake insurance not linked with

fire insurance (stand-alone EQ), pet insurance and insurance for people with diabetes.

The combined fiscal 2007 revenue of the 25* companies in the General Insurance

Association of Japan decreased due to lower revenues in the core motor and fire insurance

sectors. Factors such as increased expenses caused ordinary income and net income to

decrease as well.

Net premium income decreased 0.9 percent, or ¥67.1 billion, compared with the

previous fiscal year to ¥7,470.0 billion. Marine insurance remained strong because of

energetic shipping activity, but premium income decreased in the core motor and fire

insurance sectors.

Net claims paid decreased ¥0.7 billion, compared with the previous fiscal year to

¥4,336.7 billion. Although there was an increase in claims paid in the motor and person-

al accident insurance sectors, claims paid in the fire insurance sector decreased because of

fewer typhoons and other natural disasters. These factors counterbalanced each other,

resulting in net claims paid that were essentially unchanged from the previous fiscal year.

Operating and general administrative expenses related to insurance underwriting

increased 5.3 percent, or ¥61.8 billion, compared with the previous fiscal year to

¥1,222.8 billion. Factors included expenses incurred as companies upgraded internal sys-

tems to restore trust after problems including the non-payment of claims. Moreover, the

expense ratio increased 1.0 percentage point to 33.2 percent.

Although net premium income decreased, the total underwriting loss of ¥63.9 bil-

lion represented an improvement of ¥40.9 billion compared with the total underwriting

loss of ¥104.7 billion for the previous fiscal year, due to a reduction in payout of insur-

ance benefits due to typhoons and other natural disasters.

Ordinary income including investment income decreased ¥36.4 billion compared

with the previous fiscal year to ¥378.4 billion. Net income decreased ¥14.2 billion com-

pared with the previous fiscal year to ¥236.8 billion.

* Adlick Insurance Company, Limited is not included in the above 25 members of the GeneralInsurance Association of Japan because it began operations in fiscal 2008.

(1) Better Regulations

The Financial Services Agency has set the so-called “better regulation,” an improve-

ment in the quality of financial regulations, as one of the major themes of its financial

administration. “Better regulation” is a supervisory method based on the principle of a

more advanced supervisory regime that monitors compliance based on rules, which mon-

itors whether insurance companies voluntarily improve structures for business manage-

ment and operational executions in accordance with more sophisticated principles and

goals. In accordance with the above policy, the Financial Services Agency will take meas-

ures to improve communication with financial institutions, strengthen the capacity of the

provision of information, enhance cooperation with overseas supervisory organizations,

strengthen market research capabilities, and improve the quality of staff.

2. Overview of Results for Fiscal 2007

3. Regulatory Topics for Fiscal 2007


40

5. Trends in Japan’s Non-Life Insurance Industry

(2) Review of the Calculation Method of Solvency Margin Ratio

The solvency margin ratio represents the level of capacity of insurance companies to

make payments against risks that exceed ordinary projections. This ratio was introduced

when the Insurance Business Law was revised in 1996. Since the further revision of the

Insurance Business Law in 1999, should the ratio fall below 200 percent, the FSA directs

the companies to take early remedial action.

The method of calculating the solvency margin ratio has been reviewed when neces-

sary in the past, and the FSA is currently reviewing it again to ensure that the present cal-

culation standards reflect the present state of the financial markets, and to identify

improvements that need to be made to the method to bolster risk management and the

financial strength of insurance companies. In accordance with the proposal to revise the

calculation method, insurance companies are required to deal with risks of fluctuations of

the prices of shares and bonds held with a low probability by taking into account risks

that could take place once in twenty years, instead of taking into account risks that could

take place once in ten years as practiced currently.

(3) Revision of the Insurance Law

The Ministry of Justice has submitted a proposal to revise the Insurance Law, which

sets out the basic rules of insurance contracts, for the first time in a hundred years.

As the current Law does not define third sector insurance products, such as cancer,

hospitalization, and nursing care insurance, these products have been handled in accor-

dance with the clauses of the policy provisions of insurance companies. The revised

Insurance Law will set out prescriptions associated with third sector products, in addition

to non-life and life insurance. Moreover, with respect to disclosure, at present, the details

that should be notified to insurers are not clearly defined, and violations of the duty of

disclosure, caused by failing to submit notification, have resulted in cases of non-pay-

ments of claims. To rectify these problems, the method of notification will be changed

in that policyholders will henceforth reply to questions asked by insurance companies.

Losses from major natural disasters during fiscal 2007 were as follows.

(1) Earthquake

(2) Wind and Flood Damage

Not applicable

Although only a few natural disasters took place during the period, a series of large

fires occurred, including those of Shin-Etsu Chemical and Mitsubishi Chemical, adverse-

ly affecting performance in the fire insurance sector. Primary insurance companies are

looking closely into this issue.

4. Fiscal 2007 Data on Losses from MajorNatural Disasters

Name of Loss Date of Loss Claims Paid (JPY Million)

2007 Niigata Chuetsuoki July 16, 2007 7,798Earthquake

41


6. Life Underwriting & Planning Department The Toa Reinsurance Company, Limited

Trends in Japan’s Life Insurance Industry

In one of the most significant events to impact the Japanese life insurance

industry in recent years, restrictions on bancassurance sales were completely lifted in

December 2007. Until then, bancassurance sales had been limited to products such

as individual annuity insurance, single payment endowment insurance and single

payment whole life insurance. However, banks are now able to sell every type of

insurance, and a succession of life insurance companies that use bancassurance sales

as their primary sales channel have been established. Moreover, intensifying compe-

tition in the life insurance industry has spurred activity such as alliances, group

restructuring and capital increases.

An overview of newly established life insurance companies, alliances and other

major developments since April 2007 follows.

(1) Japan Post Insurance Established

On October 1, 2007, the Postal Privatization Law established the Japan Post

Group, and member company Japan Post Insurance Co., Ltd. began operations.

With total assets of approximately JPY112 trillion, Japan Post Insurance surpassed

Nippon Life Insurance Company as Japan’s largest life insurance company.

However, sales of its main product, endowment insurance, have been sluggish due to

the impact of low interest rates. The annual aggregate of sums insured under new

contracts has decreased for 11 consecutive years, with the result that Japan Post

Insurance has moved to acquire new contracts by relaxing age restrictions and

increasing the maximum policy limit from JPY10 million to JPY20 million. Japan

Post has submitted an application to sell such new products. At the same time,

Japan Post Insurance has also received authorization as part of its strategic plan to

conduct commission sales of corporate insurance products covering senior managers

that are underwritten by eight life insurance companies.

(2) Demutualization and Public Listing of Dai-ichiMutual Life Insurance

In October 2007, Sony Financial Holdings Inc., the holding company of Sony

Life Insurance Co., Ltd., conducted a public offering. Subsequently, one of Japan’s

four major life insurance companies, Dai-ichi Mutual Life Insurance Company,

announced its intention to become a stock company and list its shares in 2010.

Other formerly mutual life insurance companies that became stock companies to

facilitate fund procurement and improve management transparency to market are

Daido Life Insurance Company in 2002, Taiyo Life Insurance Company in 2003

and Mitsui Life Insurance Company Limited in 2004.

1. Life Insurance Industry Trends

42

(3) Newly Established Life Insurance Companies

A succession of new life insurance companies was established as a result of the

lifting of all restrictions on bancassurance in December 2007. As of June 2008,

there were 44 Japanese life insurance companies.

a) Dai-ichi Frontier Life Insurance Co., Ltd.

Dai-ichi Mutual Life Insurance Company established this wholly owned subsidiary,

with no proprietary sales network, to specialize in the supply and underwriting of

bancassurance products. Initially, it is handling individual annuity insurance prod-

ucts. It is the first wholly owned domestic life insurance subsidiary established by a

Japanese life insurance company.

b) Crédit Agricole Life Insurance Company Japan Ltd.

France-based Crédit Agricole Group established this wholly owned subsidiary in

anticipation of the lifting of bancassurance sales in Japan. It is the first entry to the

Japanese life insurance market for approximately five years. Its initial strategy was to

sell variable annuity insurance for the mass retirement of Japanese baby boomers.

c) Allianz Life Insurance Japan Ltd.

The Germany-based Allianz Group also established a wholly owned subsidiary,

Allianz Life Insurance Japan Ltd., to sell variable annuity insurance through the ban-

cassurance channel.

d) SBI AXA Life Insurance Co., Ltd.

Three companies established SBI AXA Life Insurance Co., Ltd.: SBI Holdings Inc.,

AXA Japan Holding Co., Ltd., and SOFTBANK CORP. It is the first life insurance

company in Japan to specialize in Internet sales, and handles term insurance and

medical care insurance.

e) Lifenet Insurance Company

Lifenet Insurance Company was licensed as a life insurance company, which deals

with term insurance for death benefit and whole life insurance for medical care using

the internet as its main sales channel. Financial institutions and investment partner-

ships established the company, and there is no insurance company among its share-

holders.

(4) Corporate Restructuring

Several companies also restructured internal group businesses due to the lifting

of restrictions on bancassurance. As a result of the merger of the AXA Group and

the Winterthur Group, Winterthur Swiss Life Insurance Co., Ltd., which had

already become a wholly owned subsidiary of AXA Japan Holding Company

Limited, changed its name to AXA Financial Life Insurance Co., Ltd. Going for-

ward, it will work with AXA Life Insurance Co., Ltd. as both companies restructure

sales channels in stages with a policy of specializing in bancassurance sales through

financial institutions.

6. Trends in Japan’s Life Insurance Industry

43


In the meantime, 80 percent of the shares of The Kyoei Kasai Shinrai Life

Insurance Company, Limited were acquired by Fukoku Mutual Life Insurance Co.,

and the company began selling insurance under the new name Fukokushinrai Life

Insurance Company, Limited. The new entity will take over sales of the life insur-

ance products that Fukoku Mutual Life had been retailing through financial institu-

tions.

(5) Alliances

The alliance between the newly privatized Japan Post Insurance and Nippon

Life Insurance Co. was the largest announced during fiscal 2007. Nippon Life will

provide Japan Post Insurance with its expertise in new product development, admin-

istration, systems development and risk management. In addition, the alliance will

strengthen Nippon Life’s relationship with Japan Post Insurance’s main sales chan-

nel, Japan Post Holdings and its group companies.

Other companies also worked on alliances. Sompo Japan Insurance Inc. and

Dai-ichi Mutual Life Insurance invested in their respective subsidiaries Sompo Japan

DIY Life Insurance Co., Ltd. and Dai-ichi Frontier Life Insurance Co., Ltd. to

strengthen an alliance covering life and non-life insurance. Sony Life Insurance Co.,

Ltd. and Sony Bank Inc. created an intragroup alliance, and Meiji Yasuda Life

Insurance Company and The Bank of Tokyo-Mitsubishi UFJ, Ltd. formed an

alliance between industries with the objective of expanding transactions with small

and medium-sized companies by referring customers to each other.

(6) Insurance Companies that Increased Capital

A number of companies increased capital, primarily the life insurance sub-

sidiaries of non-life insurance companies, due to factors including more stringent sol-

vency margin regulation, which governs the guaranteed minimum benefit for vari-

able annuities. An overview follows.

Sompo Japan Himawari Life Insurance Co., Ltd. JPY20.0 billionTokio Marine & Nichido Financial Life Two increases totalingInsurance Co., Ltd. JPY15.0 billionMitsui Sumitomo MetLife Insurance Co., Ltd. JPY5.1 billionSumitomo Life Insurance Co. JPY50.0 billion*Aioi Life Insurance Co., Ltd. JPY10.0 billionSompo Japan DIY Life Insurance Co., Ltd. JPY3.5 billionING Life Insurance Japan Co., Ltd. JPY10.0 billion

* Sumitomo Life is a mutual company, and increased its capital through subscriptions rather thanissuing shares.

44

The fiscal Year 2007 results for 40 life insurance companies in Japan are as follows:

• Total Amount of New Contracts

During fiscal year 2007, the total insured amount under new individual insurance

contracts for all 40 companies decreased 13.7% from the previous fiscal year to

JPY58.6 trillion, due to continuing weakness in the market for death benefit prod-

ucts. Sales of individual annuities, which had been positive until the previous fiscal

year, also decreased 10.2% to JPY8 trillion because of stagnating sales through

bancassurance channels.

• Business in Force

As of the end of fiscal year 2007, individual insurance contracts in force decreased

4.5% to JPY979.4 trillion. Results at foreign-affiliated companies and subsidiaries

of non-life insurance company were solid, although the performance of large com-

panies was sluggish. On the other hand, individual annuities in force increased

2.5% from the previous fiscal year to JPY87.9 trillion, the fifth consecutive annual

increase. Group insurance in force, which decreased in fiscal year 2006, increased

3.4% to JPY374.2 trillion. And group annuities decreased 2.4% to JPY32.3 tril-

lion.

• Annualized Premiums

The total of annualized premiums from the new contracts of individual insurance

and individual annuities decreased 10.2% from the previous fiscal year to JPY2.2

trillion. In-force business produced a steady result in annualized premiums, rising

1.4% from the previous fiscal year to JPY19.6 trillion, due to an increase in indi-

vidual annuity but a drop in death benefit products.

• Premium Revenues

Premium revenues decreased, for the second consecutive fiscal year, 1.8% to

JPY27.9 trillion, because of sluggish sales of increasing term life insurance for cor-

porate owners due to a change in the Japanese tax system.

• Total Assets

Total assets, which are posted at the price current at the end of the fiscal year,

decreased 2.8% to the level of JPY213 trillion due to the drop in stock prices.

All restrictions on bancassurance were lifted in December 2007, but variable

annuities continued to account for a large percentage of new products launched for

that channel. The number of new death benefit and medical care products launched

for the channel remained limited. Standards for the sales system for death benefit

and medical care products are not yet fully in place at financial institutions, and so

future developments remain a subject of interest.

Fiscal 2007 trends for other main products are outlined below.

(1) Increase in Products with Less Declaration

With the continued decline in new contracts, life insurance companies are work-

ing to attract senior citizens who had difficulty buying conventional products because

2. Life Insurers: Trends in BusinessPerformance


3. Product Trends

45


of pre-existing physical conditions. In 2005, Sumitomo Life became the first to

launch a product with a reduced number of declaration items, the whole life insur-

ance product Senkyaku Banrai. In fiscal 2007, five companies launched six such

products, primarily in the medical care segment. Among them, American Life

Insurance Company launched a whole life insurance product and a bancassurance

medical care insurance product limited to two declaration items, the smallest number

ever. Moreover, in fiscal 2008 the Japan Mutual Insurance Federation of Agricultural

Cooperatives launched a cooperative medical product with less declaration.

SBI AXA Life Insurance Co., Ltd., a newly established company that specializes

in the Internet channel, launched a term insurance that is not a product with less

declaration but does offer a sum insured of up to JPY40 million depending on the

declarations. This is the first product of its kind, as the typical sum insured for poli-

cies written according to declarations alone is JPY15 million.

(2) Variable Annuities

While all restrictions on bancassurance have been lifted, variable annuities

remain the main bancassurance product. However, formerly brisk sales of individual

annuities weakened, with the sum insured for new contracts written in fiscal 2007

decreasing 10.2 percent compared with the previous fiscal year. Moreover, the suc-

cessive establishment of life insurance companies to serve the bancassurance channel,

primarily with variable annuity products, indicates that competition will intensify.

Two types of variable annuity products are now available, one with minimum

guarantees for items such as accumulated capital and death benefit, and another that

is simplified guarantee expenses in order to increase fund management efficiency.

For the first type in particular, companies are using various features to differentiate

their products from those of other companies. Products include those with ratchet-

type for accumulated capital and death benefit, products that set asset management

targets when the contract is written and secure the gains when these targets are

achieved, and roll-up products that have a policy reserve guarantee minimum that

increases every year at a fixed rate until it reaches a cap.

(3) Cancer Insurance

Fiscal 2007 was notable for the introduction of a large number of cancer insur-

ance products.

Zurich Life Insurance Company launched a product that only pays a single

diagnosis benefit if the insured is diagnosed with cancer. The diagnosis benefit

increases in stages every year, and if the insured is not diagnosed with cancer during

the term of indemnity, the policy pays a no-claim benefit equivalent to total premi-

ums paid.

Sumitomo Life launched a product that allows a policyholder diagnosed with

incurable cancer to claim the sum insured under a whole life policy without refer-

ence to life expectancy. For some time, many companies have been selling living

needs riders that allow policyholders to claim the sum insured if diagnosed with a

46

six-month life expectancy, but doctors found such life expectancy declarations diffi-

cult. A key feature of the Sumitomo Life product is the lack of reference to length of

life expectancy, although a fixed amount such as interest and premiums for 3 years is

deducted from the sum insured.

(4) Products with Claim Payments Easily Understood byPolicyholders

An important topic in the life insurance industry during fiscal 2007 was the

investigation to life insurance companies ordered by the Financial Services Agency

(FSA) into the non-payment of claims. The FSA demanded a report on whether

additional payments were needed for specified benefits or obligations in all instances

requiring payment of claims and other disbursements over the past five years. As a

result of this investigation, all life insurance companies strengthened claims examina-

tion systems to ensure appropriate payment of insurance benefits, and also took steps

such as adding system check functions to prevent nonpayment. Some companies

also recognized that the products themselves had become too complex because of

their many riders, and moved to simplify products. For example, the Japan Mutual

Insurance Federation of Agricultural Cooperatives placed indemnity in riders within

the master contract. In other examples, Dai-ichi Mutual Life Insurance linked the

payment of surgical operation benefit to the operations covered by public medical

care insurance, and Tokio Marine & Nichido Life Insurance simplified its cancer

insurance into diagnosis and hospitalization benefits.

(5) Expenses for Obtaining Medical Certificates

Although not a new product, the number of companies that pay a set JPY5,000

for policyholders to obtain a health certificate has increased. This expense is paid to

policyholders if they could not receive the claim, benefit or other issue although they

applied. More than 10 companies, centered on foreign-affiliated firms such as three

companies in the AIG Group, are paying this expense to make payment of insurance

claims more appropriate and to lighten the burden of expense for policyholders mak-

ing claims. On the other hand, Sumitomo Life has taken steps such as accepting a

death certificate in lieu of a medical certificate in a specific form for applications for

death benefits in working to lighten the burden on policyholders by limiting the

instances in which policyholders must obtain a medical certificate from a doctor.

Although new overseas developments were less numerous than in fiscal 2006,

Dai-ichi Mutual Life Insurance concluded a contract with India’s national bank,

Bank of India, and Union Bank of India to establish a joint venture life insurance

company. This was the first time a Japanese life insurance company has invested in

the Indian primary market.

Elsewhere, Tokio Marine & Nichido Fire Insurance, which is another member

of Tokio Marine & Nichido Life Insurance’s holding company’s group, decided to


4. Overseas Strategies ofLife InsuranceCompanies

47


cooperate with Egypt Kuwait Holding Company, S.A.E. to establish two Takaful

joint ventures in Egypt. One is a general Takaful, corresponding to a non-life insur-

ance company, and another is a family Takaful, corresponding to a life insurance

company.

The Insurance Business Law was amended in April 2006. As a result, in order

to enhance business soundness and protect consumers, co-operatives not controlled

under any specific law must acquire approval to become either an insurance compa-

ny or a small-claims short-term insurance provider during a transitional period, or

else transfer existing contracts to another company and terminate operations. At the

March 31, 2008 deadline for registration applications, 31 life and non-life had regis-

tered. Among them, 10 companies handle life and medical care insurance.

Limitations on the products of small-claims short-term insurance providers

include a maximum death benefit of JPY3 million according to disease and a maxi-

mum term for life insurance and medical care insurance of one year. At the same

time, the operating and minimum capital requirements for small-claims short-term

insurance providers have been relaxed compared with ordinary insurers.

Consequently, new companies have been established, such as MC S.S. Insurance

Co., Ltd., established jointly by Mitsubishi Corporation and Aon Affinity Japan Ltd.

However, reserves, solvency margin ratio and other requirements are set at the same

level as those for insurance companies.

For several years, FSA supervision of insurance companies has characteristically

focused on enhancing policyholder protection, including the appropriate sales struc-

ture and the structure of systems for payout of insurance benefits.

In addition an insurance law proposal was passed in May 2008. While insur-

ance contract is regulated under the Commercial Code, the new proposal seeks to

create a separate law for insurance contracts. The Commercial Code only specifies

life insurance and non-life insurance, so new insurance definition has been added for

medical care and personal accident insurance.

In addition, over the past several years regulations governing reserves have been

strengthened to enhance insurance company soundness in the areas of medical care

and personal accident insurance risk and the risk associated with the guaranteed min-

imum benefit for variable annuities. However, a significant revision of the method

of calculation of the solvency margin ratio, which is an indicator of the soundness of

insurance companies, is also planned. It will entail revision of the risk coefficient

based on performance, and includes an increase in the confidence level from 90 per-

cent to 95 percent.

6. Trends in theSupervision ofInsurance Companies

5. The Small-ClaimsShort-Term InsuranceBusiness

Sup

ple

men

tal D

ata:

Res

ults

of

Japa

nese

lis

ted

non-

life

ins

uran

ce c

ompa

nies

for

fis

cal

2007

, en

ded

Mar

ch 3

1, 2

008

(Non

-Con

soli

date

d B

asis

)(U

nit:

Mil

lion

s of

Yen

, %

)

48

The Toa Reinsurance Company, Limited

h t t p : / / w w w . t o a r e . c o . j p

6, Kanda-Surugadai 3-chome, Chiyoda-ku, Tokyo 101-8703, Japan

Printed in Japan on recycled paper with soy ink.

japan’s insurance market - toare.co.jp · pdf filetrends in the insurance business law...

Documents