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Japanese life insurance market and

the role of the Appointed Actuary

Masaaki YoshimuraGeneral Secretary of IAJ

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History of Japanese ActuaryModern life insurance companies formed around 1880First insurance regulation (old Commercial Law) 1898Establishment of the Institute of Actuaries of Japan 1899IAJ started qualifying examination for fellowship 1936Revision of Insurance Business Law 1939

Introduction of the Appointed Actuary* system

IAJ incorporated 19638 Trust Banks joined IAJ as supporting member 1964Non-life Ins. Cos. joined as supporting member 1970

IAJ started ASEA seminar for East Asian Countries

20th ICA held in Tokyo 1976* “Hoken Keirinin” in Japanese

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History of Japanese ActuaryIntroduction of the Certified Pension Actuaries * 198815 Banks joined IAJ as supporting member 19908th EAAC held in Tokyo 1995Drastic Revision of the Insurance Business Law 1996

IAJ became a full member of IFAA (IAA)

Centennial Anniversary of IAJ 1999IAJ Centenary Convention IAA Tokyo meetingASTIN / AFIR Colloquia

IAJ was entitled “designated corporation” by FSA 2000

* “Nenkin Suurinin” in Japanese

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About IAJ (Institute of Actuaries of Japan)More than 3500 individual membersMore than 100 supporting corporate membersOriginal Qualification ExaminationsMany committees and research groupsMany educational activities

Annual MeetingRegular Meetings and SeminarsASEA (Actuarial Seminar of East Asia) Actuarial Seminar for university students to know about “What is an Actuary”Publication of Transactions, research papers Publication of Actuary Journals (basically every 3 months)

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Number of Members

Fiscal Year 1965 1975 1985 1995 2000 2001 2003.July.31

Fellows 200 310 507 773 952 985 1,008

Honorary 3 5 6 9 6 7 8

Associates 347 596 801 899 772 784 801

Students 217 600 664 1,674 1,667 1,637 1,703

Supporting Members 32 58 69 106 131 118 109

Total 799 1,569 2,047 3,461 3,528 3,531 3,629

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Membership by types of industry

2003.July.31

Honorary Fellows Associates Students Subtotal　 SupportingMembers Total

Life 8 422 327 658 1,415 41 1,456

Non-Life 　 148 120 254 522 27 549

Trust Bank

　 160 92 142 394 6 400

Others 　 278 262 649 1,189 35 1,224

Total 8 1,008 801 1,703 3,520 109 3,629

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ASEA (Actuarial Seminar of East Asia)

Seminar for actuaries of East Asia for 3 weeks in August1st ASEA was held in1970 and it has been held 32 times by 2002 Nearly 500 actuaries from 13 different countries/regions in Asia Participants gain valuable experience, not only from the lectures but also from the stay in Japan and cultural exchanges among participants from various countries/regions.

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Organizational Chart of the IAJ General Meeting

Board of Directors MeetingPresident

Vice Presidents

Board of Councilors

Auditors

Standard Mortality Consultative Committee

Disciplinary Committee

Appeals Board

Secretariat

Committees(E&E function)

Committees(International function)

Committees(Planning function)

Committees(Practice &Research

function)

Committees(General Affairs)

Kansai Branch

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Relationship with Regulatory BodyLong-term relation since the establishment of IAJCoping with various inquiries on actuarial matters from Regulatory AuthoritySend delegates to important councils of Regulatory AuthorityIAJ was entitled “designated corporation” by FSA

Public-service corporation that perform services related to training actuarial specialistsEstablish coefficients to serve as the basis for computing Standard Valuation ReservesUndertaking other activities involving actuarial expertise.

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Japanese Life Insurance Market

EU Other19%

Others7% Asia Other

6%

UK12%

US29%

Japan26%

* Based on life insurance premium in 2000

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Life Ins. Products in Japan (～1980s)

1960s and 1970s “Endowment Insurance”, “Endowment with Term”

1970s“Cancer insurance” was introduced and many riders like

“Sickness” and “Hospitalization” are developed

1980s “Whole life with Term” with various riders

Almost all the products are “With-Profits”.

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Success of Japanese Life Ins.

The national character ?Economic growthManagement efforts

Product DevelopmentDistribution channel

Sound regulationNet level premium reserveConservative dividend policy

Sound Actuarial Practice

Company Regulation

IAJ

Policyholders/Public

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Japanese Equity Market Trend

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Jan-74 Jan-79 Jan-84 Jan-89 Jan-94 Jan-99

NIKKEI 225

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Japanese Interest Rate Trend

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Jan-85 Jan-90 Jan-95 Jan-00

10yr - JGB

Assumed Interest Rate

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Life Insurance Company Failures

Company Date Failed Policy Reserve Cut

Revised Guaranteed Interest Rate

Nissan Mutual 04/1997 0% 2.75%Toho Mutual 06/1999 10% 1.5%

Daihyaku Mutual 05/2000 10% 1.0%Taisho Life 08/2000 10% 1.0%

Chiyoda Mutual 10/2000 10% 1.5%Kyoei Life 10/2000 8% 1.75%

Tokyo Mutual 03/2001 0% 2.6%

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Measures takenAsset

Reduction of “Risky Assets”Investment Policy change

LiabilityProduct Design changeDividend cut, Premium Increase for saving products

CapitalInjection of Solvency Capital

Business Restructuring DemutualizationCoalition, Mergers and Acquisitions

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Negative Spread or Positive Spread?

Negative Spread Problem became very famous but …

The truth is ….

Negative spread on interest-rate factor* but Positive spread in terms of total gross premium for major products

* Based on the assumption of the initial premium calculation

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Statutory Role of the Appointed Actuary* Verification　(each year)

Adequacy of valuation reserveFairness and equity of dividendsContinuation of the insurance business

The Appointed Actuary* mustsubmit statement of opinion to the board of directorsprepare supplementary report to the statement of opinion submit copy of these documents to the supervisory authority

* “Hoken Keirinin” in Japanese

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Statutory Role of the Appointed Actuary* Involvement

Not only making the aforementioned confirmations each fiscal year, it is necessary for the company to make AA* participate in the following actuarial matters.

Calculation of premiumCalculation of valuation reserveCalculation of dividends to policyholdersCalculation of surrender valueCalculation of claim reserveSales planningMaking rules about agent commission etc.

* “Hoken Keirinin” in Japanese

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Success of Actuarial Profession Good Communication

Both with Regulatory Body and Companies, etc.

Sound RegulationImportant statutory role

Corporate GovernanceActive role in (financial) risk management

ProfessionalismSound Actuarial PracticeEfforts to improve actuarial skillsStrong Actuarial Organization to support member activities

CompaniesRegulatory

Body

Actuarial Organization/Member Actuaries

Policyholders/Public

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Thank you for your kind attention !