Demographic Trends in Japan and the Future of Life Insurance

Demographic Trends in Japan and the Future of Life Insurance Naoko KUGA, M.E.,M.A.and M.T., NLI Research Institute, Inc. kuga@nli-research.co.jp

1 Outline Demographic Trends in Japan Effects of Declining Birthrate and Aging Society on Life Insurance Business Case Studies of Declining Birthrate and Aging Society in Japan

2 Demographic Trends in Japan

3 Population Trends Japan faces a dramatic population decrease due to the declining birthrate and aging population Japan s population will have shrunk by 3% by 255 People aged 65 and older will account for 4% of the total population Fig. Actual and projected population of Japan by age, 195-255 ten thousand people Source: National Institute of Population and Social Security Research,211, Ministry of Internal Affairs and Communications in Japan,21

4 Population Trends Elderly households will account for 4% of the total households in Japan in 23 Single elderly households have been increasing Fig. Actual and projected number of total households (left axis) vs. elderly households broken down by household type (right axis) in Japan,198-23 6, 5, thousand households etc Parent-and-child households Couple-only households Single-person households Total house holds(left axis) Elderly households thousand households 48,82 3, 25, 4, 35,824 19,31 2,376 2, 3, 2,181 3,797 15, 2, 3,58 5,685 1, 1, 4,33 1,43 7,173 798 4,655 1,245 885 198 1985 199 1995 2 25 21 215 22 225 23 Source: Government of Japan, 211 5,336 5,

5 Population Trends Japan has the highest percentage of elderly people in Asia 4 35 3 25 2 15 1 5 Fig. Actual and projected percentage of elderly people in Asia : the 1 highest countries in 21, 195-255 % 195 196 197 198 199 2 21 22 23 24 25 Source: United Nations, 21 Japan Hong Kong Republic of Korea Israel Singapore Thailand China Sri Lanka Lebanon Kazakhstan 22.7 35.5

6 Population Trends Japan faces a dramatic population decrease due to the declining birthrate and aging population Japan s population will have shrunk by 3% by 255 People aged 65 and older will account for 4% of the total population Fig. Actual and projected population of Japan by age, 195-255 ten thousand people Source: National Institute of Population and Social Security Research,211, Ministry of Internal Affairs and Communications in Japan,21

7 Background on Declining Birthrate in Japan Rate of unmarried people has been rising in Japan Fig. Rate of unmarried people in Japan by age and gender, 198-21 Male Female 1 % 91.8 2-24years 94. 1 % 2~24years 89.6 8 25-29 71.8 8 77.8 6 55.2 47.3 6 25~29 6.3 4 3-34 35.6 4 34.5 2 21.5 8.5 2.6 35-39 career-unmarried rate 2.1 198 1985 199 1995 2 25 21 2 24. 3~34 23.1 9.1 35~39 1.6 5.5 4.5 career-unmarried rate 198 1985 199 1995 2 25 21 Source: National Institute of Population and Social Security Research, 211

8 Background on Declining Birthrate in Japan Dating with the opposite sex has been turning negative Herbivore men and single women have been increasing in Japan 8 % Fig. Rate of unmarried men and women not dating with the opposite sex in Japan by gender 6 4 Male Female 48.6 47.3 39.5 38.9 49.8 41.9 4.3 52.8 52.2 44.7 61.4 49.5 About 5% of them have no interest in dating 2 1987 1992 1997 22 25 21 Source: National Institute of Population and Social Security Research, 211

9 Background on Declining Birthrate in Japan Average age of first marriage has been increasing Birth rate has been decreasing 35 3 25 2 15 1 Fig. Average age of the first marriage in Japan by gender, 195-211 5 years old 25.9 23. Male Female 3.5 28.8 25 2 15 1 5 Fig. Number of births (left axis) vs. the total fertility rate (right axis) in Japan, 195-21 1,births 234 3.65 17 % 1.39 4. 3.5 3. 2.5 2. 1.5 1..5 195 196 197 198 199 2 21 195 196 197 198 199 2 28 21. Source: Ministry of Health, Labor and Welfare,211, National Institute of Population and Social Security Research, 211

1 Background on Declining Birthrate in Japan Though Japan had the lowest birth rate, recently the birth rates of Hong Kong, Macao, Singapore and Republic of Korea have been lower than that of Japan 7. 6. 5. 4. 3. Fig. Actual total fertility rate in Asia: the1 lowest countries in 25-21, 195-21 3. Hong Kong Macao Singapore Republic of Korea Japan Cyprus Georgia Thailand China Armenia 2. 1. 1.3. 195-1955 1955-196 196-1965 1965-197 197-1975 1975-198 198-1985 1985-199 199-1995 1995-2 2-25 25-21 Source: United Nations, 21

11 Background on Declining Birthrate in Japan Female college enrollment rate has been rising in Japan 6 5 4 % Fig. College enrollment rate in Japan by gender Male Female 56. 45.8 3 2 2.5 1 4.9 1967 1972 1999 1982 1987 1992 1997 22 27 211 Source: Ministry of Education, Culture, Sports, Science & Technology in Japan, 212

12 Background on Declining Birthrate in Japan The number of dual-income households has surpassed that of single-income households with a housewife in Japan since around1995 due to rising female college enrollment rate and the recession Fig. Number of single-income households with a housewife 1,2 1, and dual-income households in Japan, 198-211 ten thousand households 1,114 1,12 8 6 614 797 4 2 Single-income household Dual-income household 198 1983 1986 1989 1992 1995 1998 21 24 27 21 Source: Government of Japan, 211

13 Effects of the Declining Birthrate and Aging Society on Life Insurance

14 Effects of Declining Birthrate and Aging Society on Life Insurance Japan's life insurance market has been shrinking due to the declining population, declining birth rate, tendency of late marriage and rising unmarried rate Fig. Amount of policies in force of individual life insurance in Japan, torillions trillions of of yen yen 1996-211 1,6 1,4 1,2 1,496 6 % of the peak 1, 8 865 6 4 2 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 Source: The Life Insurance Association of Japan, 211

15 Effects of Declining Birthrate and Aging Society on Life Insurance The life insurance penetration in Japan is higher than in almost all other Asian countries 16 14 12 1 8 6 4 2 % 13.9 1.1 8.8 Taiwan Hong Kong Japan South Korea 7. 4.3 3.4 3.3 2.8 2.7 1.8 1.2 1.1.8.8.7.7.6.6.4.3.2.2.2.1.1.1. Singapore India Malaysia Israel Thailand PR China Macao Indonesia Lebanon Philippines Source: Swiss Reinsurance Company Ltd, 211 Fig. Life insurance penetration in Asia : premium as a % of GDP in 211 Vietnam Bangladesh Bahrain Sri Lanka Pakistan United Arab Emirates Jordan Iran Oman Saudi Arabia Kazahstan Kuwait Qatar

16 Effects of Declining Birthrate and Aging Society on Life Insurance How large will the market size be? Based on the projected population shrinking by 3% by 255, it is estimated that the size of Japan s life insurance market will shrink accordingly. We try to estimate the number and amount of individual life insurance of new policies and policies in force up to 255.

17 Effects of Declining Birthrate and Aging Society on Life Insurance Calculation procedure New policies Number NN time,gender,age = (NN 29,gender,age / P 29,gender,age )(P time,gender,age ) Amount NA time,gender,age =(NA 29,gender,age / P 29,gender,age )(P time,gender,age ) Policies in force Projected population Number FN time = FN t-1 + NN t - DN time Amount Cancelled and invalid policies FA time = FA t-1 + NA t - DA time The actual number and amount of policies in force broken down by age and gender are not available, therefore we calculated only the total number and amount. Source: Calculated by using The Life Insurance Association of Japan, 211, and National Institute of Population and Social Security Research, 21

18 Effects of Declining Birthrate and Aging Society on Life Insurance Total population will decrease to 7% of the present by 255 Population of people under 4 will decrease monotonically Population of people over 4 will initially increase due to the influence of the Baby Boomer generation and their children, and then decrease 5, 4,5 4, Fig. Projected population of Japan by age, 212-255 ten thousand people Total (right axis) 6 and over ten thousand people 14, 12, 3,5 1, 3, 2,5 2, 1,5 4-49 5-59 3-39 8, 6, 4, 1, 5 under 1 1-19 2-29 212 215 218 221 224 227 23 233 236 239 242 245 248 251 254 2, Source: National Institute of Population and Social Security Research, 21

19 Effects of Declining Birthrate and Aging Society on Life Insurance 3 25 2 15 1 5 ten thousands The number of new policies will decrease by 4% by 255 People under 4 make up a high percentage of the number of new policies. Therefore the decrease in the population of people under 4 will influence the total number of new policies. The age composition will shift towards the older age range Fig. Projected number of new policies of individual life insurance in Japan, 212-255 3-39 5-59 under 1 1-19 2-29 4-49 Total (right axis) ten thousands 6 and over 1,4 1,2 1, 8 6 4 2 215 225 235 245 255 Fig. Age composition of new policies of individual life insurance in Japan, 215 vs. 225, 235, 245 and 255 2 4 6 8 1 % 7.5 6.7 6.6 6.3 6. 6.5 5.6 5.2 5.2 5. 16.8 16.7 15.2 14.4 14.5 18.3 18.9 17.5 16.5 2.4 17.5 16.2 17. 16.1 19.1 15.2 14.3 14.5 16.1 12.8 17. 19.2 22.6 25.1 27.6 212 217 222 227 232 237 242 247 252 1-19 2-29 under 1 3-39 4-49 5-59 6 and over Source: Calculated by using The Life Insurance Association of Japan, 211, and National Institute of Population and Social Security Research, 21

2 Effects of Declining Birthrate and Aging Society on Life Insurance The small population size of young people who tend to make higher volume policies will decrease by 5% by 255 The age composition will be older, but not so much compared with the number of policies 2 18 16 14 12 1 8 6 4 2 Fig. Projected amount of new policies of individual life insurance in Japan, 212-255 trillions of yen 3-39 2-29 4-49 5-59 1-19 under 1 Total (right axis) 6 and over trillions of yen 212 217 222 227 232 237 242 247 252 7 6 5 4 3 2 1 215 3.3 6.3 225 3. 5.7 235 3.1 5.3 245 3. 5.5 255 2.95.3 Fig. Age composition of new policies of individual life insurance in Japan, 215 vs. 225, 235, 245 and 255 2 4 6 8 1 % 22.6 23.2 21.6 2.8 21.6 1-19 2-29 under 1 29.3 27.1 28.6 27. 26.1 3-39 2.7 19.7 21.1 19.8 22. 4-49 Source: Calculated by using The Life Insurance Association of Japan, 211, and National Institute of Population and Social Security Research, 21 9.1 11.8 11.4 11. 11.7 7.3 8.5 1.2 11.6 12.5 5-59 6 and over

21 Effects of Declining Birthrate and Aging Society on Life Insurance The number of policies in force will be 9% of the current number The number of policies in force has been increasing with private medical life insurance in recent years For the present, the increasing tendency of private medical life insurance influences the total number, but after a while it will start to decrease The amount of policies in force will decrease by 5% by 255 Fig. Projected number and amount of policies in force of individual life insurance in Japan, 212-255 14, 12, 1, 8, 6, 4, 2, ten thousands trillion of yen Total number(left axis) Total amount(right axis) 9 8 7 6 5 4 3 2 1 Decrease by 5% 212 217 222 227 232 237 242 247 252 Source: Calculated by using The Life Insurance Association of Japan, 211, and National Institute of Population and Social Security Research, 21

22 Business Case Studies of Declining Birthrate and Aging Society in Japan

23 Business Case Studies of Declining Birthrate and Aging Society in Japan Despite the recession and the decreasing population, sales of convenience store has been increasing. Fig. Convenience store sales (left axis) and convenience store customers (right axis) in Japan, 28-211 12 1 trillions of yen Sales Number of customers 133 137 139 billion people 144 18 16 14 8 12 6 1 8 4 7.9 7.9 8. 8.7 6 2 4 2 28 29 21 211 Source: Japan Franchise Association, 211

24 Business Case Studies of Declining Birthrate and Aging Society in Japan 7-Eleven customers have aged faster than Japan's population. Japan s leading convenience store operator Population of Japan (hundred thousand people) 人口セブン 7-Eleven - イレブン来店者数 customers 1999 211 1999 211 Fig. Number of customers of 7-Eleven in Japan and population of Japan by age, 1999 vs.211 people 2 4 6 8 1 12 14 Under 2 2-29 17% 36% 5 and 3-39 4-49 959persons over 19% 12% per day per store 16% 12% 21% 19% 17% 3% 1,59persons per day per store 1,267 21% 15% 13% 14% 38% hundred thousand people 1,278 18% 11% 14% 14% 44% hundred thousand people Source: Seven & i Holdings Co., Ltd. and National Institute of Population and Social Security Research, 211

25 Business Case Studies of Declining Birthrate and Aging Society in Japan The number of senior and female customers has increased in the fresh food-type Lawson stores 4 % The second largest convenience-store operator in Japan Fig. Ratio of elderly people in Lawson stores by age, usual Lawson vs. fresh food-type 5-65 65-9 years 3 2 23.5 4.9 25.3 5.5 27.2 28.2 7.1 7.9 1 18.6 19.8 2.1 2.3 usual LAWSON years after remodelling fresh food-type Source: Lawson, Inc., 211 6months-1year 1year-1year and a half over 1year and a half

26 Business Case Studies of Declining Birthrate and Aging Society in Japan Alcoholic beverage market has been shrinking in Japan Consumer s preferences for alcoholic beverages have been changing in lower alcoholic ones 1, Fig. Breakdown of alcohol consumption in Japan by beverage type, 2-21 thousands KL 8, 6, 4, 2, Source: National Tax Agency in Japan, 21 2 21 22 23 24 25 26 27 28 29 21 Beer Sake Low-malt beer Liqueur Other Brewed Drinks etc.

27 Business Case Studies of Declining Birthrate and Aging Society in Japan Ratio of drinking habits has declined among young men and women, as well as among the men under 6-yearolds. On the other hand, it has risen among over 6-year-olds. Fig. Ratio of drinking habits by gender and age, 23 vs. 21 6 5 4 3 2 1 % 2.2 23 21 14.7 35.6 31. 48.5 4.9 5. 42.5 41. 47.3 26.1 24. 2-29 3-39 4-49 5-59 6-69 7 and over Male Source: Ministry of Health, Labour and Welfare in Japan, 21 c 7. 23 21 11.311.512.612.3 1.1 6.6 3.8 4.3 4.6 1.3 1.7 2-29 3-39 4-49 5-59 6-69 7 and over Female

28 Business Case Studies of Declining Birthrate and Aging Society in Japan Japan s non-alcoholic beverage market has been growing in recent years Non-alcoholic beverages are consumed as not only an alternative of alcoholic beverages, but also are enjoyed by people who abstain from alcoholic beverages Fig. Actual and projected consumption of non-alcoholic beverages thousands KL 25 in Japan, 28-212 +122% 2 +131% 17 27 15 13 1 64 5 15 28 29 21 211 212 (projected) Source: Suntory Holdings Limited, 212

29 Conclusion

3 Conclusion Demographic Trends in Japan Japan faces a dramatic population decrease due to the declining birthrate and aging population Elderly population has been increasing Elderly households will account for 4% of the total households in 23, and single elderly households have been increasing Birth rate has been decreasing Rate of unmarried people has been rising Dating with the opposite sex has been turning negative Herbivore men and single women have been increasing Average age of first marriage has been increasing Female college enrollment rate has been rising The number of dual-income households has surpassed that of single-income households with a housewife

31 Conclusion Effects of the Declining Birthrate and Aging Society on Life Insurance Japan's life insurance market has been shrinking due to the declining population and birth rate, tendency of late marriage and rising unmarried rate The amount of policies in force will decrease by 5% by 255 Business Case Studies of Declining Birthrate and Aging Society in Japan Convenience store sales have been increasing The reason for the increase is that the convenience store operators realized the demographic trends ahead of the actual changes and adopted effectively Alcoholic beverage market has been shrinking On the other hand, sales of non-alcoholic beverages have been increasing rapidly due to the changes in consumer's preferences and demographic trends

32 Conclusion Although the existing market is shrinking, we have to learn from other industry s case studies, and adopt a proactive approach to increase new targets such as elderly people or unmarried people by recognizing the demographic trends quickly and accurately. By so doing, we might be able to mitigate or change the expected market shrinking scenario to some extent.

33 Thank You! kuga@nli-research.co.jp