On Japanese solvency standards: current situation and discussions for further reform

Solvency margin standards for Insurers were introduced to Japan for application from the end of fiscal 1996, referring to the Risk-based capital system already used in the United States, etc. However, during the financial crisis period, 1997-2000, 7 life insurance companies became bankrupt in spite of the their sufficient level of solvency margin ratios, the critisism has been growing that the present solvency standards incomplete and unreliable, should be reviewed and improved. The ”Program for Further Financial Reform,”published by the Financial Services Agency (FSA) in December 2004, claimed the need to review the calculation standard for the solvency margin ratio in order to improve insurers’financial soundness and further optimize their risk management. The FSA will conduct deliberations in order to implement specific revisions of the calculation standard for the solvency margin ratio and realize solvency evaluation based on economic value, and pay careful attention to EU SolvencyII project. This article deals with these problems and the discussions for reform about the Japazese solvency margin system.