Japan's insurance industry

During the heyday of the 80s and the first half of the 90s, like the rest of its economy, Japan's insurance industry grew as a jungle. A large amount of premium income and asset formation, which can sometimes be compared to even the most powerful US and limited domestic investment opportunities, has forced Japanese insurance companies to seek investment. The industry's position as a major international investor since the 1980s has placed it under the scanner of analysts worldwide.

Global insurance giants have been trying to gain a foothold in the market, looking at the overall size of the market. But the restrictive nature of Japanese insurance laws led to intense, sometimes sharp, negotiations between Washington and Tokyo in the mid-1990s. The resulting bilateral and multilateral agreements coincided with Japan's financial reforms and the Big Bang in Japan.

Based on the results of the 1994 negotiations on US and Japanese insurance, a number of liberalization and deregulation measures have since been implemented. But the process of deregulation was very slow and, most often, very selective in protecting the interests and market share of domestic companies. Despite the fact that Japan's economy is comparable in size to its US counterpart, the very basis of efficient financial markets – clear rules and rules of a competitive economic environment – is noticeably absent. And its institutional structure also differed from other developed countries.

The structure of the kieretsu – a corporate group with cross holdings in a large number of companies in various industries – was a unique phenomenon in Japan. As a result, there is no need for shareholder activation to get companies to adopt the optimal business strategy for the company. Although originally touted as a model in the days of Japan's prosperity, the vulnerability of this system became very apparent when the bubble of economic boom exploded in the 1990s. Japan's inability to keep up with software development elsewhere in the world also worked against Japan. Software has been the engine of global economic growth in the last decade, and countries that are lagging behind in the industry have been facing the fastest emerging economies of the 1990s.

Japan, the world leader in the brick and construction industry, has fallen behind in the New World economy since the Internet revolution. Japan now calls the girls a "lost decade" for its economy, which has lost its shine after 3 recessions in the last decade. Interest rates have dropped to historic lows to disrupt a falling economy – in vain. For insurers whose lifeblood is of interest to their investments, this has created a danger. Many large insurance companies have gone bankrupt in the face of "negative spread" and an increase in inefficient assets. While Japanese insurers have largely avoided scandals affecting their brothers in banking and securities, they are currently experiencing unprecedented financial difficulties, including catastrophic bankruptcies.

Institutional weaknesses

The Japanese market is gigantic, but it consists of only a few companies. Unlike its US counterpart, in which close to two thousand companies are fiercely competitive in the life segment, the Japanese market consists of only twenty-nine companies in the domestic and several foreign organizations. The situation is similar in the non-living sector: twenty-six domestic companies and thirty-one foreign firms offer their products. Therefore, consumers have much less choice than their American counterparts when choosing their carrier. There is less variety on the product side as well. Both life and non-residential insurers in Japan are characterized by "vanilla bean" offerings. This is more evident in car insurance, where until recently premiums have not allowed different risks to be reflected, such as gender, driving status, etc. Drivers were categorized into three age groups for the sole purpose of determining the premium, while rates in the US for a long time reflected all of these factors and more.

Demand also varies for different products. Japanese insurance products are more focused on savings. Similarly, although many Japanese life insurance companies offer several limited types of life insurance policies (in which benefits reflect the value of underlying financial assets held by the insurance company, thereby exposing the insurer to market risk), few take on such policy risks. At ¥ 100 = $ 1.00, the Japanese life-changing policy as of March 31, 1996 was only $ 7.5 billion, accounting for only 0.08 percent of all life insurance. In contrast, US variable life policies, which have been in place since 1995, were worth $ 2.7 trillion, or about 5 percent of the total, with many options, such as a variable universal life.

Japanese insurance companies in both parts of the industry competed less than their American counterparts. In a context where several firms are offering a limited number of products to a market where new entry is clearly regulated, implicit price coordination is expected to curb competition. However, Japan's inherent factors further reduce rivalry.

The absence of both price competition and product differentiation means that an insurance company can capture a firm's business and then hold it for almost an indefinite period. American analysts sometimes point out that keirez (corporate group) communications are just such an excuse. For example, a member of a Mitsubishi group of companies can usually buy the best deals around the hundreds or thousands of products and services he buys. But in the case of life insurance, such comparative pricing would be futile, since all companies would offer almost the same product at the same price. As a result, Mitsubishi Group has been the business of Tokio Marine & Fire Insurance Co., Ltd., a member of Mitsubishi keiretsu for decades.

On paper, life insurance contributions were more flexible. However, the role of the government remains large in this part of the industry – and thus influences the pricing of insurance products. The national postal system operates, in addition to a huge savings system, with a postal life insurance system commonly known as Kampo. Operations for Kampo are conducted in the windows of thousands of post offices. As of March 1995, Campo had paid out 84.1 million policies, or approximately one per household, and nearly 10 percent of the current life insurance market, as measured by current policies.

The funds invested in Campo mostly go to a huge fund called the Trust Fund, which in turn invests in several public financial institutions, as well as in numerous semi-governmental units involved in various government-related activities, such as ports and highways. Although the Ministry of Post and Communications (MPT) is directly responsible for Kampo, the Ministry of Finance manages the Trust Fund. So, theoretically, the Treasury can influence the revenue that Campo is able to earn and, accordingly, the rewards he is likely to collect.

Kampo has a number of characteristics that affect its interaction with the private sector. As a government agency, it is likely to be less efficient, increasing its costs, making it uncompetitive, and anticipating a decrease in market share over time. However, since Kampo cannot fail, it has a high tolerance for the risk that taxpayers may ultimately bear. This involves expanding market share to the extent that this postal life insurance system is able to lower its output. Although, apparently, a growth scenario is what prefers MPT, the IMF seems to be just as interested in protecting insurance companies under its wing from "excessive" competition.

The net effect of these contradictory incentives is that Campo seems to be holding back premiums accrued by insurers. If prices go up too much, Kampo will get an additional share. In response, insurers can return premiums. Conversely, if investment returns or higher efficiency reduce private sector premiums relative to basic insurance, Kampo will lose market share unless it changes.

The Japanese life insurance sector is also lagging behind its US counterpart in formulating inter-company cooperative approaches against threats of anti-choice and fraud. Although the number of companies in Japan is much lower, distrust and fragmentation have led to isolated approaches to addressing these threats. In the United States, the existence of industry-leading organizations such as the Bureau of Health Information (MIB) is the first line of defense against fraud and, in turn, saves the industry about $ 1 billion a year in terms of its protective value and cost. Major Japanese carriers are already late in initiating approaches similar to the formation of shared data storage and data sharing.

Analysts often complain about insurance companies for their unwillingness to adhere to sound international standards for disclosing their financial information to the investment community and their insurers. This is especially true of the mutual characteristics of companies compared to their "public" counterpart in the US. For example, Nissan Mutual Life Insurance Co., which failed in 1997, generally reported net assets and profits in recent years, even though the company's president admitted after the failure that the firm had been insolvent for years.

Foreign participation in life insurance

Since February 1973, when the American life insurance company (ALICO) first went to Japan to participate in the market, there are currently fifteen foreign life insurance companies operating (over 50% of foreign capital). However, companies such as American Family Life (AFLAC) were initially allowed to work only in the third sector, namely in the field of medical supplements, such as critical illness plans and cancer plans, which were not attractive to Japanese insurance companies. The major life insurance business remained out of reach of foreign carriers. However, the great turmoil in the industry in the late 1990s left many domestic companies in deep financial trouble. Japan, trying to protect itself, allowed foreign companies to buy patients and keep them afloat.

Foreign operators continue to enter the Japanese market. As one of the world's two largest life insurance markets, Japan is considered as strategically important as North America and the European Union. Consolidation in the Japanese life market, aided by the collapse of domestic insurers and constant deregulation, provides world insurers with prime opportunities to expand their business in Japan. The overall market share of foreign players is gradually increasing, with global insurers accounting for more than 5% in terms of premium income at the end of fiscal 1999 and more than 6% of operating businesses. These figures are about twice as high as five years earlier.

In 2000, AXA strengthened its operations base in Japan through the acquisition of Nippon Dantai Life Insurance Co. Ltd, a second-tier domestic insurer with a weak financial profile. To this end, AXA has formed the first holding company in the Japanese life sector. Aetna Insurance Insurance Co. This statement was prepared by Heiwa Life Insurance Co., while Winterthur Group acquired Nicos Life Insurance and Prudential UK acquired Orico Life Insurance. Also in the new market in the Japanese market is Hartford Life Insurance Co., an American insurer known for its variable insurance business, and the French Cardiff Vie Assurance.

In addition, a subsidiary of Manulife Century, a life insurance company, inherited the operations and assets of Daihyaku Mutual Insurance Insurance Co., which failed in May 1999. In April 2001, AIG Life Insurance Co. took over the activities of Chiyoda Life and Prudmental LLC Life Insurance LLC took over Kyoei Life. Both Japanese companies filed for court protection in October last year.

Foreign participants bring a reputation as part of international insurance groups, supported by favorable world services and strong financial capabilities. They also do not contain negative spreads that have suffered from Japanese insurers for ten years. Foreign players are more profitable to optimize business opportunities, despite the turmoil in the market. Although several major Japanese insurers still dominate the market in terms of shareholding, the dynamics change as existing business units move from domestic insurers, including failed companies, to new ones, in line with insurers' flight to quality. The list of companies with foreign participation is as follows:

The life of Ina Himawari

A prudent life

Manulife Century Life

Scandium of life

J. Edison Life

Aoba Life

Aetna Heiwa Life

The life of Nichides

Zurich's life


American family life

AXA Nichidan Life

A prudent life

ING Life

CARDIFF Approval Vie


It is expected that foreign insurers will be able to outperform their domestic competitors to some extent with innovative products and distribution, where they can benefit from broader experience in global insurance markets. One of the immediate problems for foreign insurers will be how to create a large enough franchise in Japan so that they can take advantage of these competitive advantages.

What harms the life insurance industry?

In addition to its own operational inefficiency, Japan's life insurance sector is also a victim of government policies designed to partially save banks from financial turmoil. By maintaining low short-term interest rates, the Bank of Japan encouraged a relatively wide spread between short- and long-term rates in the mid-1990s. This is a win-win for banks, which typically pay short-term rates on their deposits and charge long-term rates on their loans.

However, the same policy harmed life insurance companies. Their clients have blocked relatively high rates for typical long-term investment insurance policies. Lowering interest rates generally meant that the return on assets of insurers was falling. By the end of 1997, insurance company officials reported that the guaranteed rate of return averaged 4 percent, while the yield on Japan's long-term government bonds ranged below 2 percent.

Insurance companies cannot compensate for the negative spread even with the increase in volume. In 1996, they tried to get out of their dilemma by reducing the return on their retirement investments, only to witness a significant outflow of money under their management to competitors.

To add harm, insurance companies insure some of the cost of cleaning up the banks' inept assets. Since 1990, the Ministry of Finance has allowed to issue subordinated debt made to order for banks. They may credit any funds raised through such instruments as part of their capital, thereby facilitating, more than otherwise, the established capital / asset ratio requirements. This behavior seems to make sense, since debt holders, like shareholders, are almost last in line for bankruptcy.

Subordinated debt carries high interest rates precisely because the risk of default is higher. In the early 1990s, insurers believed that bank debt was next to impossible and tempted by high yields, lending large amounts to banks and other financial institutions on a subordinated basis. Small companies, perhaps not striving to catch up with their larger counterparts, were particularly large participants. Tokio Mutual Life Insurance Co., ranked 16th in Japan's life insurance industry, accounted for approximately 8 percent of its assets as subordinated debt as of March 31, 1997, while Nippon Life's industry leader held only 3 percent.

The rest, of course, is history. Banks and securities companies, also borrowed by insurers, began to fail in the mid-1990s. Last Fall of Sanyo Securities Co., Ltd. last fall was partly caused by a refusal by life insurance companies to transfer subordinated loans to a brokerage firm. Life insurers complained that they were sometimes not paid, even when bankruptcy conditions suggested they should have been. For example, Meiji Life Insurance was reportedly owed $ 35 billion ($ 291.7 million) of subordinated debt to Hokkaido Takushoku Bank, LLC when the bank collapsed in November. Незважаючи на те, що в банку Хоккайдо були хороші позики, які були передані Північно-Тихоокеанському банку, ТОВ, Meiji Life не отримали компенсації з цих активів. Мабуть, доведеться списати весь залишок позики.

Субординований борг є лише частиною історії поганої заборгованості. Страхові компанії відігравали роль майже в кожній масштабній напіввиробничій схемі кредитування, яка руйнувалася разом з міхуровою економікою на початку 1990-х. Наприклад, вони були кредиторами для юсенів (житлово-фінансові компанії) і їм доводилося брати участь у дорогому очищенні цього безладу. Більше того, як і банки, страховики розраховували на нереалізовані прибутки від власних пакетів акцій, щоб вирятити їх, якщо вони потраплять у біду. Менші страховики періоду міхурів купували такі акції за відносно високими цінами, в результаті чого в кінці 1997 року ціни на акції знизилися, усі, крім двох середніх рівнів (розмір 9 – 16), страхувальники життя мали нереалізовані чисті збитки.

Що лежить попереду

Аналітики визначили наступні короткотермінові виклики перед сектором:

Нові учасники ринку;

Тиск на заробіток;

Погана якість активів; і,


Нещодавні гучні збої декількох компаній із страхування життя підсилили тиск на компанії, що займаються життєзабезпеченням, щоб вирішити ці проблеми терміново та впізнаваними способами.

Ринок інвестицій був навіть гіршим, ніж очікувалося. Процентні ставки не зросли з історично низьких рівнів. Індекс Nikkei провис з січня 2001 року і впав до 9-річного мінімуму після недавнього теракту на американську землю. Нереалізовані прибутки використовуються для забезпечення певної подушки для більшості страховиків, але, залежно від опори страховиків на нереалізовані прибутки, мінливість нерозподіленого прибутку зараз впливає на рівні капіталізації, а отже, і на фінансову гнучкість.

Таблиця 1

Основні ризики, з якими стикаються японські страхові компанії


Фінансові ризики

Слабка японська економіка

Сильний тиск на прибуток

Відсутність впевненості страхувальника, політ на якість

Низькі процентні ставки, експозиція до внутрішніх, закордонних коливань інвестиційного ринку

Дерегуляція, посилення конкуренції

Погана якість активів

Недостатня мережа страхування страхувальників

Ослаблена капіталізація

Прискорення консолідації в секторі життєдіяльності за допомогою інших фінансових секторів

Обмежена фінансова гнучкість

Більшість аналітиків, мабуть, погодиться з тим, що страхувальники життя Японії стикаються з проблемами платоспроможності та ліквідності. Важкі договірні зобов’язання перед страхувальниками, зменшення прибутковості активів, а також незначне обмеження від нереалізованих прибутків на портфелях акцій поєднуються, щоб забезпечити постійну життєздатність деяких компаній далеко не певною. Багато інших, хоча очевидно платоспроможні, стикаються з ризиком того, що їм доведеться погасити непростих страхувальників раніше, ніж вони планували. Або питання платоспроможності чи ліквідності не викликає питання про те, як страховики будуть управляти своїми активами. Ще одним фактором, який слід враховувати, є старіння населення Японії. Як вказує пан Ясуо Сато, керівник програми страхової галузі, фінансового сектору, IBM Japan: "Галузі потрібно змінити бізнес-модель. Вони повинні зосередитися на житті, а не на смерті, і вони повинні акцентувати увагу на медичних добавках. і сектори тривалої допомоги, оскільки населення старіє ".

Японські страховики життя активно домагаються більшої сегментації, прагнучи до встановлення унікальних стратегій як у традиційному житті, так і в нежитловому бізнесі. Наприкінці 2000 р. Цей сектор став свідком виникнення кількох ділових партнерств та транскордонних альянсів із залученням великих внутрішніх страховиків. Передбачаючи посилення консолідації ринку, бурхливу конкуренцію та повну лібералізацію бізнесу третього сектору, компанії переглядають свою участь через дочірні компанії у нежитковій частині бізнесу, що вперше було дозволено у 1996 році.

У довгостроковій перспективі японські страховики, ймовірно, формують бізнес-альянси на основі демутуалізації. Широка консолідація на фінансових ринках Японії в найближчій перспективі також призведе до капітального ремонту сектора страхування життя. Хоча вітчизняні страховики життя оголосили різні стратегії ведення бізнесу у другій половині 2000 року для реагування на цю морську зміну, фактична користь різних запланованих альянсів для кожного страховика залишається невизначеною. Подальша консолідація ринку повинна принести користь для страхувальників, принаймні, надання більш широкого спектру товарів та послуг. Щоб досягти успіху, страхувальникам життя доведеться бути більш чутливими до різноманітних потреб клієнтів, одночасно встановлюючи нові бізнес-моделі для забезпечення своєї бази заробітку. Довгострокові перспективи здаються хорошими, враховуючи високий рівень економії населення Японії. Однак у короткостроковій перспективі Японія готова побачити ще декількох страховиків, які піддаються перед тим, як сектор посилить свою нижню лінію з ретельними реформами та розсудливими нормами інвестицій та розкриття інформації.