Japan Insurance Country Overview
2013
Table of Contents 1. Macroeconomic Picture ................................................................................................... 3 2. Insurance Market in Japan ............................................................................................... 4 2.1 2.2 2.3 2.4
Overall Market ................................................................................................................................. 4 Distribution System.......................................................................................................................... 4 Non-Life Segment ............................................................................................................................ 5 Profitability ...................................................................................................................................... 5
3. Competitive Scenario ....................................................................................................... 6 3.1 Major Life Insurance Companies ..................................................................................................... 6 3.2 Major Non- Life Insurance Companies ............................................................................................ 6
4. References ....................................................................................................................... 8
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1. Macroeconomic Picture
Source: IMF
As per the central government report estimates the economy has grown around 2% in fiscal year 2012 on an actual GDP basis, rebounding from negative growth of 0.6% in the last year, ironically backed by demand due to reconstruction from the earthquake, etc. So the Japanese economy is beginning to enjoy a gradual revival. Japan’s economy slipped into recession after peaking in March 2012. It now appears to have hit bottom in November 2012 and to have bottomed out. It is expected to continue expanding, supported by (1) the recovery of the US and Chinese economies, (2) the continuation of reconstruction demand and a large-scale supplementary budget, and (3) the ongoing depreciation of the yen and the ascent of stock prices accompanying the BOJ’s bold monetary easing. With regard to the last, we anticipate that the yen will gradually weaken against the US dollar. Also, in comparison to the real economy, it still cannot be said that stock prices are overvalued at their current levels. Japan’s economy slipped into recession after peaking in March 2012. It now appears to have hit bottom in November 2012 and to have bottomed out. It is expected to continue expanding, supported by (1) the recovery of the US and Chinese economies, (2) the continuation of reconstruction demand and a largescale supplementary budget, and (3) the ongoing depreciation of the yen and the ascent of stock prices accompanying the BOJ’s bold monetary easing. With regard to the last, we anticipate that the yen will gradually weaken against the US dollar. Also, in comparison to the real economy, it still cannot be said that stock prices are overvalued at their current levels.
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2. Insurance Market in Japan 2.1 Overall Market
An unprecedented combination of catastrophe events in the last two years have tested the insurance and reinsurance industry in Japan as never before, focusing global attention on risk assessment and risk management in Japan and in the Asia Pacific region. The magnitude and destruction of the March 11, 2011 Great East Japan Earthquake and Tsunami, and the extent of the human tragedy, captured the World’s attention, while the response of the Japanese people commanded the respect and admiration of all. In terms of net insurance premiums, Japan is the second largest market in the world second only to the U.S, with a share of around 13%. In FY2012, premium volume was $ 542.6 Bn, compared to $ 522 Bn in FY2011. Yet, in the face of these adverse events, the insurance and reinsurance industry has continued to demonstrate its qualities of resilience.
2.2 Distribution System Life insurance companies are increasingly diversifying sales channels selling products through in-house sales representatives, manned sales offices, direct marketing, and Internet sales channels. Sales channels diversified even further due to the December 2007 full deregulation of OTC sales at banks and to the major life insurance companies opening manned sales offices specifically designed for OTC sales. Also, although still a small percentage of the total, Internet-based sales are increasing. Life products are mainly traditional individual endowments, whole life, and term insurance. The large sales force of agents dominates as a distribution channel, and focuses mainly on simple life protection and saving products, which account for 87 percent of the sales. Financial institutions, particularly banks, distribute saving products, including variable annuities, and are now distributing around 13 percent of the individual life products. All other types of nonlife insurance are offered. Here again, the main distribution channels are the large sales forces controlled by the insurers. Brokers play a minor role, placing less than 5 percent of the premium.
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2.3 Non-Life Segment Written Premium Trend ($ Bn)
Non-Life Segmental Break Up ($ Bn)
Nonlife premiums have been declining in the past decade, due in part to a significant decline in production of return-of-premium products1, which began losing their attractiveness due to low interest guarantees. Life premiums have been flat for the last decade. The decline in saving and mortality protection products with the aging population has been offset by growth in health related and living benefits products like hospitalization, cancer, and long term care insurance. The nonlife sector is dominated by motor insurance. Voluntary and mandatory motor insurance together account for 62 % of the market, down from 68 percent in 2002. Fire insurance follows, with a 14.5 % share.
2.4 Profitability Combined Ratios
Japan’s non-life insurers processed record claims in 2011 because of the devastating effects of the Tohoku earthquake and subsequent tsunami. In 2012, the claims ratio for the Japanese non-life insurance industry deteriorated by almost 16 percentage points to 83.4%, due to that year’s exceptionally high catastrophic losses. The tsunami that followed the earthquake separately resulted in fire-related losses, which rose 350% from the average in previous years, and accounted for nearly 30% of net claims paid during the year. These catastrophic events also highlighted the need for the non-life industry in Japan and elsewhere to revisit risk models to make sure related losses, such as those from a quake-driven tsunami, are better priced into insurance products.
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3. Competitive Scenario The low interest rate environment plus a declining equity market have shaped the insurance market, creating more efficient players and influencing regulation. The major events occurred in the late 1990s and early 2000s, but restructuring of the market continues. Failure of seven mid-size companies resulted in mergers and acquisitions, creating larger players but also opening the market for more foreign participants.
3.1 Major Life Insurance Companies
The Japanese life insurance market consists of only 47 companies, as compared with 875 in the United States, around 190 in the United Kingdom, and 231 in France. Nippon accounts for 21 percent of the life premium in 2012 and the next four largest life insurers for another 43 percent. The preferred operating form in the life sector is through a subsidiary, and through a branch in the nonlife area.
3.2 Major Non- Life Insurance Companies
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The sector is highly concentrated; only 52 insurers operate in the Japanese nonlife sector, compared to 3,441 in the United States, 790 in the United Kingdom, and 259 in France. The five largest nonlife insurers, belonging to three insurance groups, account for 85% of the nonlife premium. Foreign insurers are present as branches, subsidiaries, and representative offices and are active in all lines of business. About one-half of the insurers operating in the Japanese insurance market are now foreign-owned. Foreign-owned companies have a 20 percent market share in the life sector and a less than 10 percent share in the nonlife sector In the last decade and more, market consolidation and merger and acquisition activity in the Japanese market has led to the creation of major insurance groups with global interests, and substantial reinsurance programs, in some cases among the largest catastrophe programs in the world. In future, the expectation is that further market consolidation will ensure that Japanese demand for capacity continues to grow, even before allowing for potential growth in the demand for protection against natural perils in the primary market, or for changes in original policies which may be introduced in the future to expand the cover given. In spite of these challenges, there is I believe good reason to be positive about the prospects for the insurance and reinsurance industry in Japan.
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4. References International Monitory Fund (IMF) Life Insurance Association of Japan - www.seiho.or.jp General Insurance Association of Japan - www.sonpo.or.jp Toa Reinsurance Company limited T&D Holdings, Inc. Mizuho Corporation Bank limited
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