Page 35 - Digital Edition SIRC Supplement

MARKET REPORT - JAPAN
Product and regulatory trends
Automobile Insurance
As a continuous trend of the Japanese market, profits in Japan’s
automobile insurance business had decreased due to factors
including an increase in accidents among the elderly drivers
and lower automobile use among the young.
Non-life insurers have therefore moved to improve profits
since 2008 through rate increases. These rate increases and
change in discount system enhanced the profitability of
automobile insurance and contributed to the solid results of
non-life insurers in fiscal 2014.
In recent years, competition in the existing automobile
insurance customer sales cycle has intensified because of
the growth of direct automobile insurance sold with lower
premiums via the internet. Under these circumstances, some
major non-life insurers have announced plans to introduce new
discount products this fall that specifically target young drivers.
Each company is expected to leverage its unique features in
ongoing initiatives to secure stable profits.
Revision of household earthquake insurance rates
The Japanese government and non-life insurance companies
jointly maintain the household earthquake insurance system.
Household earthquake insurance in Japan is included in
fire insurance policies as an optional addition, and covers
catastrophe losses from earthquakes, volcanic eruptions
and resulting tsunami. The system limits the liability of the
government and non-life insurance companies to JPY7 trillion
per incident in light of the limits on the ability of non-life
insurance companies to pay claims.
Rates for this insurance increased an average of 15.5%
nationwide in July 2014 to accommodate the increasing risk
of a major earthquake in the aftermath of the Great East Japan
Earthquake. However, the latest risk assessment has indicated
the need to increase rates again.
The General Insurance Rating Organization of Japan, which
comprises non-life insurers, and the Japanese government are
currently implementing a rate increase so that the government
and non-life insurers can secure sufficient funds to cover the
latest estimation of earthquake losses.
Numerous natural disasters and revised industrial &
commercial fire rates
Heavy snowfall centered in the Kantokoshin region during
February 2014 esulted in insurance claims paid of JPY322.4
Back to Contents SIRC Supplement • November 2015 • www.asiainsurancereview.com 33
billion, which was on par with the
claims paid for past major typhoons.
In recent years, claims paid as a
result of natural disasters such as
typhoons, torrential rains and heavy
snowfalls have been trending upward
in Japan. Given these circumstances,
direct insurance companies raised
industrial and commercial fire
insurance premiums from October
2015. The increase will average 1%
to 2% nationwide, with a maximum
of 40% in some regions. The premium
rate for industrial and commercial fire
insurance has not been significantly
revised in 8.5 years.
Sophistication of ERM
promoted and the role of
reinsurance
In the revised Insurance Core
Principles (ICPs) adopted by the
International Association of Insurance Supervisors (IAIS) in
October 2011, one of the provisions introduced requires the
authorities to supervise insurance companies and groups to
ensure they implement enterprise risk management (ERM) and
their own risk and solvency assessment (ORSA) practices. The
Japanese Financial Service Agency (FSA) in February 2014
revised its Comprehensive Guidelines for the Supervision of
Insurance Companies and aligned enterprise risk management
system guidance, which formed the basis for conducting
enterprise risk management system hearings.
At these hearings, the regulatory authority requested 25
life and non-life insurance companies to prepare and submit
an ORSA report on a trial basis. Then, ORSA went into effect
from 2015 onwards; Insurers are now required to submit an
ORSA report once a year.
Field tests conducted in 2014, in which insurance companies
calculated the economic value of insurance liabilities and other
items on a trial basis, were conducted for the second time
since their initial implementation in 2010. The calculation
method and confidence level (VaR 99.5%) are being
fundamentally coordinated with studies by organisations
including the IAIS and the European Union. The construction
of a regulatory and supervisory framework for enhancing the
sophistication of risk management among insurance companies
is steadily proceeding based on the direction of international
studies.
Japan is exposed to natural disaster risks such as typhoons
and earthquakes. Natural disasters also account for a significant
percentage of the risks that insurance companies in Japan
underwrite, and represent a market in which insurance
companies needs for reinsurance for risk management is
pronounced. The direction that supervisory authorities may
take is not yet clear, but tentatively, insurance companies
would likely need to manage risk to further reduce it, should
the calculation methods and confidence levels employed in the
2014 field tests be used.
While capital markets have recently gained prominence
as a means to transfer risks, Japan’s insurance companies
rely on traditional reinsurance as their primary technique
for transferring risks. The insurance industry as a whole is
projected to raise the sophistication of risk management,
which suggests that the function of reinsurance in insurance
companies risk management is likely to increase further.