LIFE INSURANCE BUSINESS IN JAPAN

Transcription

1 LIFE INSURANCE BUSINESS IN JAPAN The Life Insurance Association of Japan

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3 Contents 1. Summary of the Life Insurance Market in Fiscal a ) Insurance Business Results... 2 b ) Revenues and Expenditures... 7 c ) Assets... 9 d ) Liabilities and Net Assets e ) Member Companies and Sales Force Topics in the Life Insurance Industry a) Revisions to the Insurance Business Act b) Japan's Corporate Governance Code c) Principles for Responsible Institutional Investors (Japan's Stewardship Code) d) Follow-up Activities on Postal Privatization e) Efforts to combat Tax Evasion f ) The Social Security and Tax Number System Our Activities a) Empowering the Next Generation b) Efforts to Ensure Sound Operation c) Contribution to Society d) LINC (The Life Insurance Network Center) The Life Insurance Association of Japan Organization Chart Board Members Member Companies Appendix I. Voluntary Guideline List II. Japan Institute of Life Insurance III. Life Insurance Policyholders Protection Corporation of Japan... 38

4 1. Summary of the Life Insurance Market in Fiscal 2014 a) Insurance Business Results 1) Individual Insurance The number of new policies for individual insurance (including converted contracts) was million (102.1% y/y), and the amount of new policies 1 (reflecting the net increase arising from the conversion) was 67,431 billion yen (100.9% y/y) for fiscal By type of new policies for individual insurance (excluding converted contracts), medical life insurance ranked top in number (25.3% of the total), followed by whole life insurance (23.1%), term insurance (14.9%), cancer insurance (11.8%) and endowment insurance (9.0%). Of the total amount of new policies for individual insurance (excluding converted contracts), term insurance ranked top (31,099 billion yen, 44.5% of the total), followed by whole life insurance (15,208 billion yen, 21.8%), endowment insurance (4,653 billion yen, 6.7%), whole life insurance with interest-sensitive reserve fund (2,972 billion yen, 4.3%) and juvenile insurance (2,273 billion yen, 3.3%). The number of policies in force for individual insurance was million (105.5% y/y), and the amount of policies in force was 857,432 billion yen (100.0% y/y). As for the number of policies in force for individual insurance, medical life insurance ranked top (21.1% of the total), followed by whole life insurance (20.8%), cancer insurance (14.5%), term insurance (12.2%), endowment insurance (8.5%) and whole life insurance with term rider (7.2%). Of the total amount of policies in force for individual insurance, term insurance ranked top (237,329 billion yen, 27.7% of the total), followed by whole life insurance (157,989 billion yen, 18.4%), whole life insurance with term rider (154,620 billion yen, 18.0%), whole life insurance with interest-sensitive reserve fund (91,787 billion yen, 10.7%) and endowment insurance (42,160 billion yen, 4.9%). Table 1 New Policies and Policies in Force for Individual Insurance Fiscal Year New Policies (Number: million, Amount: billion yen, Y/Y: %) Policies in Force Number Amount Number Amount Y/Y Y/Y Y/Y Y/Y , , , , , , , , , , *The number includes converted contracts, and the amount reflects the net increase arising from the conversion. 1 The amount of major protections such as death protection. 2

5 1. Summary of the Life Insurance Market in Fiscal 2014 Figure 1: Percentage Distribution of Individual Insurance by Type (Number of New Policies) Whole Life Insurance Whole Life with Term Rider Whole Life with Interestsensitive Reserve Fund Term Insurance Variable Insurance Endowment Insurance Medical Life Insurance Cancer Insurance Juvenile Insurance Others *Excluding converted contracts Figure 2: Percentage Distribution of Individual Insurance by Type (Number of Policies in Force) Whole Life Insurance Whole Life with Term Rider Whole Life with Interestsensitive Reserve Fund Term Insurance Variable Insurance Endowment Insurance Medical Life Insurance 21.1 Cancer Insurance 12.2 Juvenile Insurance Others *Excluding converted contracts 3

6 1. Summary of the Life Insurance Market in Fiscal ) Individual Annuity Insurance The number of new policies for individual annuity insurance (including converted contracts) was 1.59 million (106.0% y/y), and the amount of new policies (reflecting the net increase arising from the conversion) was 8,632 billion yen (107.9% y/y). Of all the number of new policies for individual annuity insurance (excluding converted contracts), that of fixed individual annuity insurance accounted for 83.2% of the total and that of variable individual annuity insurance accounted for 16.8% of the total in fiscal Of the total amount of new policies for individual annuity insurance (excluding converted contracts), that of fixed individual annuity insurance was 7,001 billion yen (80.9% of the total) and that of variable individual annuity insurance was 1,653 billion yen (19.1%). The number and amount of policies in force for individual annuity insurance for this fiscal year were million (100.1% y/y) and 104,131 billion yen (100.3% y/y). As for the number of policies in force for individual annuity insurance, that of fixed individual annuity insurance accounted for 87.1% and that of variable individual annuity insurance for 12.9% of the total. Of the total amount of policies in force for individual annuity insurance, that of fixed individual annuity insurance was 88,052 billion yen (84.6% of the total) and that of variable individual annuity insurance was 16,078 billion yen (15.4%). Table 2 New Policies and Policies in Force for Individual Annuity Insurance (Number: million, Amount: billion yen, Y/Y: %) New Policies Policies in Force Fiscal Number Amount Number Amount Year Y/Y Y/Y Y/Y Y/Y , , , , , , , , , , , *The number includes converted contracts, and the amount reflects the net increase arising from the conversion. 4

7 1. Summary of the Life Insurance Market in Fiscal 2014 Figure 3: Percentage Distribution of Individual Annuity Insurance by Type (Number of New Policies) 16.8 Fixed Annuity Variable Annuity 83.2 *Excluding converted contracts Figure 4: Percentage Distribution of Individual Annuity Insurance by Type (Number of Policies in Force) 12.9 Fixed Annuity Variable Annuity 87.1 *Excluding converted contracts 5

8 1. Summary of the Life Insurance Market in Fiscal ) Medical Insurance Individual insurance products that provide medical coverage includes insurance policies with medical riders as well as medical insurance, which provide hospitalization and surgery protection as a base policy. The number of policies in force of medical life insurance which provides protection against hospitalization and surgery as a base policy was million (106.6% y/y), and that of cancer insurance was million (103.8%). With respect to insurance policies with hospitalization and surgery coverage (the sum of riders and medical insurance base policies among individual life insurance and individual annuity insurance), the number of policies with accidental hospitalization riders in force was million (101.7% y/y), those with sickness hospitalization riders in force was million (102.1% y/y), and those with surgical benefit riders in force was million (102.3% y/y). Table 3 Numbers of Policies in Force for Medical Insurance, Cancer Insurance and Insurance Contracts with Hospitalization and Surgery Coverage (Number: million Y/Y: %) Number of Policies in Force for Contracts with Number of Base Policies in Force Fiscal Hospitalization and Surgery Coverage Year Medical Cancer Accidental Sickness Surgery Insurance Insurance Hospitalization Hospitalization Y/Y (%)

9 1. Summary of the Life Insurance Market in Fiscal 2014 b) Revenues and Expenditures 1) Premium Income The total amount of premium income was 37,222 billion yen (107.2% y/y). Among the premium income, individual insurance was 24,546 billion yen (108.0% y/y), individual annuity insurance was 5,154 billion yen (119.5% y/y), group insurance was 1,119 billion yen (100.6% y/y), and group annuity insurance was 4,175 billion yen (108.4% y/y). Table 4 Breakdown of Premium Income (billion yen) Fiscal Year Total Premium Income Individual Insurance Individual Annuities Group Insurance Group Annuities Others ,454 20,447 4,802 1,115 3,812 4, ,289 22,734 4,679 1,114 3,925 3, ,140 24,099 4,374 1,109 3,683 3, ,738 22,721 4,312 1,112 3,851 2, ,222 24,546 5,154 1,119 4,175 2,226 Y/Y (%) ) Investment Results Due to the steady increase in the interests and dividends (7,085 billion yen, 103.0% y/y) and increase in others (3,082 billion yen) including the profits on asset management of special accounts (2,699 billion yen), the total investment income amounted to 12,310 billion yen (108.7% y/y). The investment yield on assets in general accounts was 2.58%. The breakdown of items of assets is as follows: domestic stocks (5.31%), foreign securities (5.50%), loans (2.28%), real estate (2.50%), and bonds (1.88%). Table 5 Investment Income (billion yen) Fiscal Year Interest and Dividends Securities Loans Real Estate Others Profit on Sales of Securities Foreign Exchange Profit Others Total ,265 4,764 1, , , ,293 4, , , ,475 5, ,184 3,238 11, ,877 5, , ,631 11, ,085 5, ,032 1,110 3,082 12,310 Y/Y (%) Table 6 Portfolio Yield Classified by Type of Asset (%) Fiscal Year General Account Assets Bonds Domestic Stocks Foreign Securities Loans Real Estate

10 1. Summary of the Life Insurance Market in Fiscal ) Insurance Benefits Paid The total amount paid by all life insurance companies under life insurance contracts in fiscal 2014 was 34,952 billion yen (103.5% y/y). Among the amount of insurance benefits paid, claims paid amounted to 12,971 billion yen (90.7% y/y), annuities paid amounted to 5,196 billion yen (115.5% y/y), benefits (other than claims paid and annuities paid) amounted to 4,066 billion yen (100.3% y/y) and surrender benefits paid amounted to 8,772 billion yen (109.7% y/y). Table 7 Breakdown of Insurance Benefits Paid (billion yen) Fiscal Year Insurance Benefits Paid* Claims Paid Annuities Paid Benefits Surrender Benefits ,049 17,243 2,876 3,975 5, ,208 16,143 3,134 3,804 5, ,685 15,296 3,360 3,936 5, ,778 14,307 4,499 4,053 7, ,952 12,971 5,196 4,066 8,772 Y/Y (%) *Including others 4) Basic Profit and Ordinary Profit The total amount of basic profit, which represents the profitability of the life insurance companies for the year, was 3,823 billion yen (107.9% y/y) in fiscal The total amount of ordinary profit was 3,510 billion yen (113.2% y/y). Table 8 Basic Profit and Ordinary Profit (billion yen) Fiscal Year Basic Profit* Ordinary Profit ,628 1, ,074 2, ,259 2, ,545 3, ,823 3,510 Y/Y (%) *Basic Profit = Ordinary Profit - Capital Gain/Loss - Nonrecurring Income/Loss 8

11 1. Summary of the Life Insurance Market in Fiscal 2014 c) Assets As of the end of fiscal 2014, total assets stood at 367,255 billion yen (104.8% y/y). Among the items, securities accounted for 81.5% of the total assets (299,429 billion yen, 105.1% y/y) followed by loans at 10.0% of the total (36,810 billion yen, 96.6% y/y). Among securities, Japanese government bonds ranked top with 148,761 billion yen (99.3% y/y) accounting for 49.7% of the total securities, followed by foreign securities at 73,280 billion yen (119.3% y/y), which is the record high, corporate bonds at 24,855 billion yen (99.8% y/y), stocks at 22,697 billion yen (125.9% y/y) and local government bonds at 13,868 billion yen (99.0% y/y). Bonds (total of government bonds, local government bonds and corporate bonds) (187,485 billion yen, 99.3% y/y) decreased for the first time in 11 years. Among the assets, the amount of bonds accounted for 51.1%, foreign securities for 20.0%, and stocks for 6.2% of the total in fiscal Table 9 Breakdown of Assets (Amount: billion yen, Ratio: %) Fiscal Year Cash/Deposits Call Loans Monetary Trusts Securities Ratio Ratio Ratio Ratio , , , , , , , , , , , , , , , , , , , , Y/Y (%) (Continued) Fiscal Year Loans Tangible Fixed Assets Others Ratio Ratio Ratio Total Assets , , , , , , , , , , , , , , , , , , , ,255 Y/Y (%) Table 10 Breakdown of Securities (Amount: billion yen, Ratio: %) Local Government Fiscal Government Bonds Corporate Bonds Stocks Bonds Year Ratio Ratio Ratio Ratio , , , , , , , , , , , , , , , , , , , , Y/Y (%) (Continued) Fiscal Foreign Securities Other Securities Bonds* Stocks Year Ratio Ratio Ratio Ratio , , , , , , , , , , , , , , , , , , , , Y/Y (%) *Including national government bonds, local government bonds, corporate bonds and other foreign securities 9

12 1. Summary of the Life Insurance Market in Fiscal 2014 d) Liabilities and Net Assets Total liabilities stood at 341,128 billion yen (102.6% y/y) as of the end of fiscal 2014, accounting for 92.9% of the total of liabilities and net assets. Meanwhile, total net assets were 26,127 billion yen (143.9% y/y), accounting for 7.1% of the total of liabilities and net assets. Table 11 Liabilities and Net Assets (billion yen) Fiscal Year Liabilities* Insurance Reserves Price Fluctuation Reserves Net Assets , ,379 1,500 9, , ,683 1,679 11, , ,433 2,127 16, , ,207 2,700 18, , ,031 3,081 26,127 Y/Y (%) *Including others e) Member Companies and Sales Force The number of member companies, which are all life insurers operating in Japan, stood at 41 as of the end of December 2015 including 5 mutual insurers. The number of member companies with foreign participation stood at 16 as of the end of December 2015, composed of 13 domestic companies with foreign capital and 3 branch offices of foreign companies. The number of tied sales agents decreased for the fifth successive year to 227 thousand (99.5% y/y).besides, while the number of corporate type sales agencies has been flat, the number of individual type sales agencies started to increase in fiscal 2014 for the first time in 17 years. Meanwhile, the number of sales representatives at agencies had been increasing since the banks are allowed to sell all types of life insurance products in fiscal However, it decreased to 992 thousand (97.7% y/y) in fiscal Table 12 Number of Member Companies and Agents/Agencies Fiscal Year Member Companies* Number of Sales Force (in thousands) Tied Agents Agencies Sales Reps at Agencies (5) (5) , (5) , (5) , (5) *Numbers in parentheses are those of mutual companies. As of the end of the fiscal year. Reference: Member Companies with Foreign Participation* (As of the end of December 2015) Domestic Companies with Foreign Capital Branch Offices of Foreign Companies AEGON Sony Life Crédit Agricole Life NN Life Aflac AIG Fuji Life Gibraltar Life Prudential Life Cardif Assurance Vie Allianz Life Manulife Life PGF Life Zurich Life AXA Life MassMutual Life AXA Direct Life MetLife *Foreign stake of 50% or more 10

13 2. Topics in the Life Insurance Industry a) Revisions to the Insurance Business Act As the business environment surrounding the Japanese insurance market is changing significantly, partial revisions were made to the Insurance Business Act on May 30, The aim is to restructure the framework of regulations on insurance solicitation in response to the changing environment, and to contribute to the government's economic stimulus plans by fostering enhancement of the financial industry. Along with the changes in social conditions in Japan, such as the declining birthrate and rapidly aging population, the Japanese citizens' needs for insurance products and services are changing. The method of selling insurance is also changing and becoming diverse, including the participation of large-scale insurance agencies such as insurance shops and insurance sales involving no face-to-face contact such as online shops. Based on the changes noted above, it has become increasingly important for the insurance industry to: offer more extensive range of insurance products and services in accordance with the customers' new demand emerging from the aging population etc. and; implement reinforced regulations related to the insurance solicitation and sales in line with the diversification of sales channels. In this context, discussions on issues including the solicitation and sales of insurance were held at the Financial System Council's Working Group on the Provision of Insurance Products/Services in response to consultation from the State Minister for Financial Services. The revisions are based on the results of these discussions and report. Below are the details of the revisions. 1) Introduction of obligation to confirm customers' intention and to provide necessary information (to be implemented on May 29, 2016) The current solicitation regulations do not explicitly provide guiding principles on solicitation. It only lists certain prohibited actions, such as delivery of a false statement or failure of disclosing important matters regarding the insurance contract. In practice, the lack of regulation was supplemented by supervisory requirements (i.e. the Comprehensive Guidelines for Supervision of Insurance Companies). Insurance companies were able to solicit insurance more proactively, by confirming the customers' preference and providing necessary information in accordance with supervisory requirements, by asking customers to sign "declaration of intent" and providing customers with statements that summarize key policy terms and conditions and important notices. However, as customers' needs diversify, insurance companies need to pay closer attention to each stage of the solicitation process, from understanding customers' needs to concluding the contract. By better understanding each customer's needs, insurance companies and agents will be able to recommend appropriate products, and by explaining insurance products with the necessary customer information, insurance companies will be able to earn better understanding and customer experience. In order to address these increasing needs, the revised regulation will legitimately define the following obligations concerning solicitation: the obligation to confirm the customers' intention, which requires insurance companies to propose a suitable insurance plan matching each customer's needs; and the obligation to provide information, which requires insurers to provide relevant information (e.g. product information) to customers so that they can decide whether to sign the proposed insurance contract. 11

14 2. Topics in the Life Insurance Industry 2) Introduction of obligation on insurance agents to have management systems in place to ensure appropriate solicitation (to be implemented on May 29, 2016) Under the current regulations, insurance companies are responsible for management and training of their agents and affiliated agencies, but when the agencies employ agents, such agencies themselves are not required to be responsible for management and training of their agents. As distribution channels diversify, with an increasing number of independent agencies selling products of multiple insurers, it is not efficient to require insurance companies to manage and train all their agencies based on detailed understanding of agencies' business activities. Accordingly, insurance agencies themselves need to have management systems in place to ensure appropriate solicitation, under and in addition to management and guidance by the insurance companies. The revised regulation will oblige not only insurance companies but also insurance agents/insurance agencies to have management systems in place to ensure appropriate solicitation according to the size and characteristics of their business. Under the revised regulation, insurers are still responsible for management and training of their tied agents, and are required to have management systems in place. 3) Relaxation of restriction on certain subsidiary business of foreign financial institutions (implemented on November 28, 2014) Under the former regulations, there was a restriction on the types of companies that could be held within an insurance group. Insurance companies were not allowed to have companies other than certain financial institutions provided by the Insurance Business Act such as insurance companies, banks and companies doing insurance business in foreign jurisdictions. This made it difficult for Japanese insurance companies to acquire and subsidize financial institutions doing business in foreign jurisdictions because such institutions often own certain types of financial institutions as their subsidiaries, such as asset management companies, that were not allowed to join the insurance group. As a result, the regulations put Japanese insurance companies at a disadvantageous position in their M&A strategies as they were required to dispose of subsidiaries upon M&As, thus preventing Japanese companies from entering overseas markets. It has been allowed as an exception since 2012 for insurance companies to hold ineligible subsidiary companies of certain types of acquired foreign financial institutions for a determined period (5 years) in principle. Under the revised regulation, the scope of this exception is expanded to include ineligible subsidiary companies of acquired foreign financial institutions that own companies doing insurance business in foreign jurisdictions as well. 4) Abolition of the approval requirement on insurance brokers to conduct brokerage business for long-term insurance contracts (implemented on August 29, 2014) As for insurance brokers, who solicit insurance independently of insurance companies for the benefit of their clients, they could not effectively be managed or guided by insurance companies and so they were covered by additional regulations (e.g. obligation of security deposits) which did not apply to insurance agents. Due to these entry barriers and restrictions on its business, the insurance broker scheme had not been used as much as initially intended. Accordingly, the revision of the Insurance Business Act eased certain regulations on insurance brokers to facilitate entry into the insurance brokerage industry and revitalize the business while protecting customers. Under the revised regulation, the approval requirement on brokerage business for long-term insurance contracts (5 years) was abolished, and the required minimum security deposit was lowered from 40 million yen to 20 million yen. Nevertheless, certain special regulations on insurance brokers remain, such as the obligation of good faith for the benefit of the customer and the obligation to disclose commissions. 12

15 2. Topics in the Life Insurance Industry b) Japan's Corporate Governance Code In the wake of focused discussions on corporate governance, Tokyo Stock Exchange (TSE) formulated the "Japan's Corporate Governance Code" and incorporated it as an Exhibit into its Securities Listing Regulations, after the discussions at the Council of Experts concerning the Corporate Governance Code, of which the Tokyo Stock Exchange and the Financial Services Agency act as joint secretariat, and the publication of "Corporate Governance Code [Final Proposal]" on March 5, This Code is only applicable to the companies listed on TSE. The Code and the associated rules entered into force on June 1, Unlike laws regulations, the Japan's Corporate Governance Code is not legally binding. The approach it adopts for implementation is "comply or explain" (either comply with the principle or explain why it has not done so). As the General Principles, it includes suggestions on "Securing the Rights and Equal Treatment of Shareholders", "Appropriate Cooperation with Stakeholders other than Shareholders", "Ensuring Appropriate Information Disclosure and Transparency", "Responsibilities of the Board" and "Dialogue with Shareholders". In response to these principles, listed life insurers are taking initiatives such as development of the fundamental policy concerning corporate governance and the standards regarding independence of outside directors, and publication of the corporate governance report. It is expected that the Japan's Corporate Governance Code and the Japan's Stewardship Code work together effectively, as 'the two wheels of a cart', to create a virtuous cycle in the future - meaning enhanced corporate value, sustainable corporate growth, and increased return on investment for investors and beneficiaries. (See the next section for details of the Japan's Stewardship Code) 13

16 2. Topics in the Life Insurance Industry c) Principles for Responsible Institutional Investors (Japan's Stewardship Code) In order to revitalize the Japanese economy, the Japanese government is taking various necessary economic policy measures against the prolonged yen appreciation and deflation to pursue growth strategies. In this economic context, in June 2013, the Cabinet approved the Japan Revitalization Strategy, which states that "principles for institutional investors to fulfill their fiduciary responsibilities, e.g. by promoting medium to long-term growth of companies through engagements (Japanese version of the Stewardship Code)" should be discussed and drafted by the end of the year. To this end, the FSA established the Council of Experts Concerning the Japanese Version of the Stewardship Code (hereinafter, "the Council") in August The Council held discussions several times to draw up the principles, and on February 26, 2014, it published "Principles for Responsible Institutional Investors (Japan's Stewardship Code)" (hereinafter, "the Code"). Under the Code, the FSA is required to publish and periodically update the list of institutional investors who have announced their acceptance of the Code. In the seventh version at the end of December 2015, 22 insurance companies have announced their acceptance, of which 18 are life insurance companies. A summary of the Code is as follows: Principles for Responsible Institutional Investors (Japan's Stewardship Code) "Stewardship responsibilities" refers to the responsibilities of institutional investors to enhance the medium to long-term investment return for their clients and beneficiaries by improving and strengthening the corporate value as well as sustainable growth of the investee companies through constructive engagement, or purposeful dialogue, based on in-depth knowledge of the companies and their business environment. This Code defines principles considered to be helpful for institutional investors who behave as responsible institutional investors to fulfill their stewardship responsibilities with due regard to their clients, beneficiaries and investee companies. The Principles of the Code: 1. Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it. 2. Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it. 3. Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with a view to the sustainable growth of the companies. 4. Institutional investors should seek to share understanding with investee companies and work to solve problems through constructive engagement with investee companies. 5. Institutional investors should have a clear policy on voting and disclosure of voting activity. The policy on voting should not be comprised only of a mechanical checklist; it should be designed to contribute to the sustainable growth of investee companies. 6. Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries. 7. To contribute positively to the sustainable growth of investee companies, institutional investors should have, in-depth knowledge of the investee companies and their business environment, as well as enough skills and resources to appropriately engage with the companies, and make proper judgments in fulfilling their stewardship activities. 14

17 2. Topics in the Life Insurance Industry d) Follow-up Activities on Postal Privatization Since the government announced its plans to privatize the nation's postal service in the cabinet's "Basic Policy" and established the government-owned Japan Post in 2003, after continuous discussions on postal privatization within the government, bills of the Postal Service Privatization Act and related acts were passed in Following this enactment, Japan Post Holdings Co., Ltd. and Japan Post Insurance were established and announced plans to be listed in December They were successfully listed on the Tokyo Stock Exchange on November 4, Increase in the Cap on the Amount of Insurance Coverage of Japan Post Insurance In response to the invitation on July 14, 2015 for public comments prior to conducting deliberations, from the perspective that an appropriate balance should be taken between the enhancement of the Japan Post Group s stock valuations and the sound development of the life insurance market, the Life Insurance Association of Japan (the ) had submitted its comments on August 3, and expressed its opinion at the hearing conducted by the Postal Privatization Committee on August 27, as follows. In advancing the Postal Privatization, it is essential that Japan Post Holdings and the other private life insurers recognize, and when appropriate, effectively use each other s strengths. We recognize that construction of such friendly relationships would lead to the medium to long-term benefit to consumers and sound development of the life insurance market. However, considering the virtual government ownership of JP Insurance and the lack of specific plans for its complete privatization, the "level playing field" is not ensured. Therefore, we can never agree to any easing of restrictions on the business, including the increase in the cap on the amount of insurance coverage of JP Insurance. However, in the "Observation on Future Postal Privatization" (the Observation) published on December 25, 2015 by the Postal Privatization Committee, it was expressed that the cap on the amount of additional coverage, which is allowed after four years from the date of conclusion, will be raised to 10 million yen from current 3 million yen and, as the result, the cap on the amount of total coverage will be raised to 20 million yen. Furthermore, the Observation mentioned "gradual easing of restrictions on the business". The found such statements in the Observation extremely regrettable and, on the same day, published the statement strongly requesting that future deliberations be made in a fair, neutral and careful manner, taking into the consideration following points. In carrying out discussions on "gradual easing of restrictions on the business" that has been mentioned in this Observation, concrete action plans should be specified publicly to eliminate the virtual government ownership of JP Insurance, such as by setting an appropriate time limit for the complete disposal of JP Insurance shares, which needs to precede the "gradual easing." When the JP Insurance is to increase the cap on the amount of coverage based on the current underwriting practice that does not apply medical examinations, it should re-review the appropriateness of its systems in place, such as criteria for underwriting that takes customers characteristics into account. 15

18 2. Topics in the Life Insurance Industry e) Efforts to combat Tax Evasion Foreign Account Tax Compliance Act On March 18, 2010, the Foreign Account Tax Compliance Act (FATCA) was enacted in the U.S. as part of the Hiring Incentives to Restore Employment Act of 2010, with the aim of preventing tax evasion by U.S. taxpayers using offshore financial accounts. Under the Act, foreign financial institutions outside of the U.S. are required to report certain information about financial accounts held by U.S. taxpayers directly to the U.S Internal Revenue Service (IRS). As of July 1, 2014, in accordance with the "Statement of Mutual Cooperation and Understanding between the U.S. Department of the Treasury and the Authorities of Japan to Improve International Tax Compliance and to Facilitate Implementation of FATCA", Japanese life insurance companies started implementing the due diligence procedures to identify certain financial accounts held by U.S. taxpayers when concluding life insurance policy. And also, they started reporting the account information to the IRS when the customers are identified as U.S. taxpayers. OECD Common Reporting Standard Following the increased demands for uniforming information exchanged between each country with the aim of preventing tax evasion in accordance with the Automatic Exchange of Financial Account Information (AEOI), the OECD also released a full version of Common Reporting Standard (CRS) for AEOI prepared by the OECD Committee on Fiscal Affairs on July 21, As for Japan, the Cabinet approved the implementation of the CRS, beginning January 1, 2018 (i.e. committed to first automatic exchange of information in 2018) on January 14, In Japan, relevant legislations to support CRS were published on March 31, 2015, which will come into force on January 1, The legislations will require life insurance companies in Japan to collect and report to the National Tax Agency, non-resident account holder information sorted by residence jurisdiction, after identifying the residence of the account holder by following due diligence procedures. f) The Social Security and Tax Number System On May 24, 2013, the Act on the Use of Numbers to Identify a Specific Individual in the Administrative Procedure was enacted, which prescribes the Social Security and Tax Number System. Under this system, mayors issue a single 12-digit Individual Number (as known as "My Number") to each resident in Japan, with the aim of improving administrative efficiency, enhancing public convenience, and realizing a more equal and fair society. Each person holding a resident record was notified of their own Individual Number from October 2015, which is used sequentially for administrative procedures related to social security, taxation, and disaster response beginning in January 1, Life insurance companies will need to apply the procedure such as obtaining Individual Numbers of policyholders and beneficiaries, including the numbers on payment records, and submitting the records to tax offices following the initiation of the system. On the other hand, if the Social Security and Tax Number System is expanded in the future to enable all life insurance companies to utilize the system, each insurance company will be able to access administrative information with the prior consent of their customers, even in daily operation. Each insurance company will be capable of making prompt and concrete claims procedure as well as providing appropriate maintenance service, and therefore, since life insurance sector plays a public role to support the public security, contributing to realize safe, secure and affluent life for the citizens. 16

19 3. Our Activities a) Empowering the Next Generation For fiscal 2014, the conducted activities, particularly focusing on active participation by women, health promotion and improvement of the service for the elderly. Also, it engaged in building of a better business environment concerning life insurance and of a better environment to help the life insurers grow along with the global economy. 1) Empowering Women Recognizing that the power of women is actually indispensable to enhance the vitality of society as a whole and to achieve the sustainable economic growth, the has conducted following initiatives to commit as a whole industry to create a social environment where women can participate more actively. The Project to Support Working Parents with Small Children In line with the Japanese Government's growth strategy which has promotion of active participation by women as one of its pillars, the aims to create an environment where working mothers need not to feel that they are compromising on child rearing. Since fiscal 2014, the has subsidized specific projects to increase the capacity as well as projects to improve the quality of day nurseries/clubs for after-school activities for children to contribute to the improvement of the environment for women to well manage to work and raise children at the same time. Developing the "Principles for Promotion of Active Participation by Women" Recognizing that the power of women is actually indispensable to enhance the vitality of society as a whole and to achieve the sustainable economic growth, the developed the "Principles for Promotion of Active Participation by Women" to share and penetrate action points necessary to create an environment where women can make the most of their abilities with member companies, and to promote member companies to take more voluntary and active measures under the leadership of the management. Collecting and Sharing the Member Companies' Initiatives to Promote Women's Active Participation With the aim of supporting the member companies with consideration of introducing voluntary and active measures to empower women and with establishment of an action plan, the compiled and shared specific initiatives of member companies such as support on childcare or on career-building. 2) Empowering Health Recognizing that extending healthy life expectancy is an essential element not only in improving people's QOL (Quality Of Life) but also in maintaining vibrant economy and society through enhancing companies' productivity and profitability and encouraging consumption etc., the implemented "Awareness-Raising Project for Health Promotion" described below. Holding Health Promoting Campaigns In collaboration with local governments and local media, the held health promoting campaigns with themes of exercise and diet in different regions. The provided people with opportunities to raise awareness of health and to learn how to manage their own health effectively through holding keynote lectures by celebrities and experts, panel discussions and walking events. As many as 180 thousand people participated in events in 2015 that the held or sponsored in 4 cities. Spreading Knowledge to Prevent Lifestyle-Related Diseases In joint names with Ministry of Health, Labour and Welfare and Liaison Council for Health Japan 21, the issued booklets to promote prevention of lifestyle-related diseases with the aim of spreading knowledge on preventing such diseases and the concept of self-medication. About one million copies of such booklets have been distributed and introduced through the 's health promoting event and other activities and activities by the Japan Institute of Life Insurance. Also, the compiled a booklet to share specific initiatives of the member companies regarding health promotion. 17

20 3. Our Activities Delivering a Smart-Phone Healthcare Related Application Software "Kenzo-kun" The developed and has been providing "Kenzo-kun", the 's original smart-phone healthcare app that supports health promotion broadly by its various functions, focusing on exercise and diet, for free. 3) Empowering Peace of Mind While delivering peace of mind to our customers, we need to improve our readiness to assist customers in view of the changing social environment and the diversification of their lifestyles and values. The has conducted following initiatives to further improve service for the elderly by the member companies. Efforts to Help Member Companies Improve Their Services for the Elderly In response to the sharp increase of the elderly population in Japan, life insurance companies need to improve their customer service for the elderly. The is therefore utilizing comments received during the Interactive Dialogue on Life Insurance, and shares information on specific best practices of member companies collected by the Secretariat of Consumers' Opinions. In fiscal 2014, the drew up and published the "Guidelines for Life Insurance Services for the Elderly", which outlines basic approach and considerations in order to serve the elderly in an appropriate and transparent way. The will continue promoting the efforts of each member company to further reassure the elderly customers in accessing life insurance services, giving due consideration to the characteristics of the elderly. 4) Empowering Insurance Framework The establishment of a sustainable social security system entails a well-functioning mechanism combining self-help, mutual help and public help, and particularly an environment that facilitates the self-help and self-reliance. Therefore, in addition to the efforts of life insurance companies to enhance their business and service basis to support such self-help, better infrastructure to help them grow along with the global economy is also required. In this context, the has conducted following initiatives. Efforts to Address Revisions to the Insurance Business Act and Encouraging Establishment of Management Systems for Appropriate Solicitation As the business environment surrounding the Japanese insurance market is changing significantly, partial revisions were made to the Insurance Business Act as of May 30, 2014 to introduce fundamental rules for insurance solicitation (e.g. obligation to confirm customers' intention and to provide necessary information) and obligation on insurance agencies to have management systems for appropriate solicitation in place (See page 11). The encourages the member companies' establishment and operation of management systems for appropriate solicitation by compiling and publishing potential questions and answers on main points of the revision and drawing up "Guidelines for Insurance Agents to Have Management Systems for Appropriate Solicitation in Place" and "Guidelines for Solicitation-related Activities"(See Appendix I on page 36). Requests on Tax Reform toward Enhanced Private Protection Scheme The requested expansion of the tax deduction scheme in 2015 and 2016 tax reform. Amid the ongoing discussion on the establishment of a sustainable social security system, the believes that it is important that public and private schemes fulfill their respective roles to support life security by the people. Based on this idea, the will continue to request expansion of tax deduction and other schemes that encourages self-help efforts toward enhanced private protection scheme. 18

21 3. Our Activities Comments on Global Standards for Insurance Supervision and International Financial Reporting Standards Amid the ongoing globalization of the insurance industry, discussions have been held on developing global standards for insurance supervision at the International Association of Insurance Supervisors and on developing International Financial Reporting Standards for insurance contracts at the International Accounting Standards Board. The submits various comments to input to such discussions in order for the standards to appropriately reflect the characteristics of the life insurance business in Japan. Furthermore, in order to strengthen the voice of the insurance industry, the is stepping up cooperation with insurance associations in other jurisdictions by joining the Global Federation of Insurance Associations (GFIA) which was established in October About the Global Federation of Insurance Associations (GFIA) The GFIA is a non-profit association established to represent national and regional insurance associations. Currently, its 40 member associations represent insurers and reinsurers in 60 countries that account for around 87% of total insurance premiums worldwide. Conclusion of Memorandum of Understanding (MoU) with Overseas Life Insurance Associations The has concluded MoU with Indonesia Life Insurance Association in February 2015 and with Korea Life Insurance Association in July 2015, with the aim of promoting the cooperative relationship and mutual understanding between both associations and to exchange views and information on matters and activities of common interest. b) Efforts to Ensure Sound Operation 1) Initiatives to Ensure Appropriate Business Operation Development of Voluntary Guidelines To enable life insurers to provide appropriate handling and best services for policyholders, from arranging the contract to the payment of benefits, the has prepared voluntary guidelines which include practical transactions and points to consider. These guidelines are referred to by each member company and their executives and regular employees, and are periodically reviewed by the. In fiscal 2014, the revised particular guidelines (Guidelines for System related to Reviewing Materials for Soliciting Life Insurance Products, Guidelines for Policy Overview, Guidelines for Important Notices, Guidelines for Pre-contract Documentation and Guidelines for Obtaining Faithful Disclosure from Customers) in accordance with the findings from the compiled measures for promoting the simplicity and clarity of solicitation materials, in order to make solicitation materials simpler and easier to understand. Collection and Sharing of Best Practices The conducts the "Value-Up Survey" to monitor the measures taken by member companies in accordance with the voluntary guidelines on a regular basis, once a year in principle. Through collecting and sharing examples of practices adopted by member companies to improve customer services including measures reflecting the opinions and requests from consumers and improving the PDCA cyclical process within member companies, the encourages them to adopt the guidelines in their management. Development of Manual for Earthquakes and for New Strains of Influenza To fulfill the social mission of the life insurance industry, the takes several measures to continue its important business such as payment of insurance benefits, even in extraordinary situations such as a serious disaster or a pandemic of a new strain of influenza. The has created a manual for earthquakes and a manual for new strains of influenza, and revises them based on past experience and in response to the regulatory environment. 19

22 3. Our Activities Measures against Earthquake Disasters In light of the lessons learnt from the Great East Japan Earthquake, life insurance companies reviewed and improved their countermeasures against disaster as well as their services and business procedures. Each life insurance company reviewed their business continuity plan (BCP) after the earthquake, and is striving to enhance their customer services in ordinary situations. The also set up the Center for Searching for Life Insurance Contracts in Disaster Areas after the Earthquake, and continues to operate it. Under this search system, all member companies search for relevant insurance contracts for people who struggle to claim insurance benefits because they have lost evidence of their contracts in a disaster. Currently, the scope of this system has been expanded to any cases where people have lost evidence of insurance contracts in an area covered by the Disaster Relief Act. Activities as Authorized Personal Information Protection Organization The was accredited as an Authorized Personal Information Protection Organization by the Financial Services Agency under the Act on the Protection of Personal Information in April The developed the Personal Information Protection Guidelines and provides guidance or recommendations on complying with the guidelines to each member company, and also receives related complaints from customers and shares them with member companies. 2) Initiatives to Ensure Business Soundness and Impartiality Measures against Moral Hazard In order to promote sound management of the life insurance system, the industry is striving to prevent moral hazard such as fraud related to hospitalization benefits and fraudulent acquisition of insurance benefits. The main countermeasures are as follows. Policy Data Registration System A policy data registration system was established to help detect those trying to receive insurance claims illegally by enrolling in several insurance policies for short periods. When life insurance companies receive an insurance policy (including riders like death benefit and hospitalization benefit), the relevant data of policyholders may be stored at the registration center within the. Life insurance companies refer to the registered details to judge whether to accept a contract or whether to pay claims for death or hospitalization benefits. Policy Data Inquiry System Life insurance companies and the National Mutual Insurance Federation of Agricultural Cooperatives (Zenkyoren) have jointly operated the Policy Data Inquiry System to contribute to the sound development of life insurance and cooperative systems since April Under the system, the data held by Zenkyoren and the data registered in the Policy Data Registration System by the can be cross-referenced. They refer to the registered details to judge whether to accept a contract or whether to pay claims for death or hospitalization benefits. Cross Reference System for Assessing Insurance Claims Upon receiving an insurance claim, participating insurance companies and three co-operatives (National Mutual Insurance Federation of Agricultural Cooperatives, National Federation of Workers and Consumers Insurance Cooperatives and Japanese Consumers' Co-operative Union) cross-reference other organizations' data on policyholders. They then use the information when deciding whether to accept a claim from a policyholder or to terminate or cancel an existing contract. Liaison Conference between Life Insurers and the Police In order to prevent the criminal abuse of life insurance, the holds liaison meetings with the National Police Agency. The "Liaison Conference between Life Insurers and the Police" is held between the 's 54 local offices and municipal police headquarters to exchange information on organized crime groups and prevent moral hazard. 20