Australia: Insurance regulation in Japan

  1. The regulator

Under the Insurance Business Act (IBA) the Prime Minister of Japan has overarching authority as insurance regulator. Except for certain important powers such as granting and cancelling insurance business licences, most have been delegated to the Commissioner of the Financial Services Agency of the Japanese Government (FSA) and to the directors of the Local Finance Bureau and the Local Finance Branch Bureau of the Ministry of Finance (collectively LFB).

Insurers and reinsurers must be licensed by the Prime Minister. There is a separate category of registration for entities that only carry on small amount and short-term insurance business (SASTI).

Insurance brokers (Nakadachi-nin) must be registered.

Insurances agents must be registered and, for life insurance, every officer and employee of a corporate agent who individually acts as an agent must also be registered.

  1. Subsidiary/Branch

Japanese incorporated entities with a licence are Licensed Insurance Companies.

Branches of foreign insurers and reinsurers may also be licensed and are known as Licensed Foreign Insurers. Every Licensed Foreign Insurer must deposit ¥200 million with the government office.

Except in limited circumstances only Licensed Insurance Companies or Licensed Foreign Insurers may underwrite policies covering Japanese risks.

  1. FDI restrictions


  1. Control approvals

Prior authorisation (ninka) from the FSA is required to:

become an 'insurance holding company' (a company (i) of which more than 50 per cent of the total assets consists of subsidiaries' shares and (ii) which holds majority of voting rights in a Licensed Insurance Company).

acquire 20 per cent or more (or 15 per cent or more together with substantial influence on financial and business policy decisions) of the voting rights of a Licensed Insurance Company (Major Shareholder Threshold) – the ultimate controller as well as the direct controllers must apply.

The acquisition of five per cent or more of the voting rights in an insurer must be notified.

  1. Minimum capital
Licensed Insurance Companies ¥1 billion* capital
SASTI insurers ¥10 million* capital plus ¥10 million* (or more) deposit
Licensed Foreign Insurers ¥200 million* deposit
Insurance brokers ¥40 million* (or more) deposited guarantee

* ¥105.25 = US$1 at 1 January 2014

  1. Risk based capital

The IBA provides for calculation of a solvency margin ratio:

Solvency margin ratio (%) = Total amount of solvency margin / (Total amounts of risks x 1/2) x 100

Total amount of risks is calculated using different formulas for life and non-life, taking into account potential volatility or deviations in claims, interest rates, asset valuations, credit risk, business risks, minimum guarantee risk and catastrophe risks.

A solvency margin of:

200% or more
=sound condition, no intervention by FSA

Less than 200% and no less than 100%
FSA will issue "business improvement order"

Less than 100% and no less than 0%
FSA will order measures to improve capability of paying claims, eg suspension of dividends to shareholders and/or policyholders, change of terms for new business, prohibition on directors' bonuses.

Less than 0%
FSA will order partial or total suspension of business

  1. Group supervision

From the fiscal year ending March 2012 a group solvency margin requirement applies to the group (the holding company and its subsidiaries or the insurance company and its subsidiaries).

  1. Policyholder protection

There are two policyholder protection corporations: Life Insurance Policyholders Protection Corporation of Japan and the Non-Life Insurance Policyholders Protection Corporation of Japan.

They will protect up to 90 per cent of the policy reserves and may:

  • provide financial assistance for the transfer or payment of insurance contracts of a Bankrupt insurer
  • assume insurance contacts of a Bankrupt insurer
  • purchase rights to insurance claims of a Bankrupt insurer.

The corporations are funded by industry levies.

  1. Portfolio transfers

Yes as a comprehensive transfer. Insurance contracts can be transferred en bloc subject to certain conditions and procedures including public notice, the absence of more than one-tenth (or one-fifth in the case of transfer of all insurance contracts) of the policyholders objecting and prior authorisation from the FSA.

  1. Outsourcing

Insurers may only in very limited circumstances (usually limited to insolvency) delegate discretionary powers with respect to their substantial business or administration of its assets with the FSA's prior approval. Insurers may outsource "clerical works" to a service provider without restriction. If the service provider is another insurer, the service provider must obtain the FSA's prior approval.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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