Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

March 16, 2007

Q.

This week, the Financial Services Agency (FSA) imposed penalties on ten non-life insurance companies, with six of them receiving a harsh penalty in the form of business suspension. Could you tell us about your views on these penalties and what non-life insurance companies are required to do in the future?

A.

Inappropriate nonpayment of benefits for third-sector products has been revealed. The FSA issued a business improvement order for the ten non-life insurance companies involved. Six of them also received a penalty of partial business suspension. Since payments of insurance benefits constitute one of the basic and most important responsibilities of insurance companies, it is quite regrettable that inappropriate nonpayment regarding third-sector products was revealed at many non-life insurance companies. First of all, I want these companies to take the penalties seriously, thoroughly examine the causes of the nonpayment and undertake drastic corrective measures so as to ensure appropriate and timely payments of insurance benefits with due consideration of the standpoint of customers. The most important thing for insurance companies to do in the future is to think from the standpoint of customers rather than merely concentrating on compliance. Since they operate in a special business environment involving insurance agents, it is important that insurance companies prevent inadequacy in this regard by thoroughly redressing structural problems, should there be any.

Q.

When you announced the penalties, you asked the managers of some companies to clarify their management responsibility. Could you tell us about your view with regard to how management should assume responsibility, including resignation by top managers?

A.

Concerning the inappropriate non-payment of Mitsui Sumitomo Insurance last year, the FSA ordered partial business suspension until drastic business improvements were made, by taking into account the factors that I will explain. What I was thinking at that time was that this case of nonpayment was extremely serious and malicious, the status of business management and the management of benefits payment were quite insufficient and there were no extenuating factors such as implementation of improvement measures. Other circumstances concerning Mitsui Sumitomo Insurance's nonpayment in the third sector included the fact that it would have taken a long time to make drastic business improvements and it was impossible to estimate how long such improvements would take. On the other hand, concerning the administrative penalties against Tokio Marine Nichido and Nipponkoa, the FSA ordered a three-month partial business suspension, taking account the seriousness of their cases and the fact that a certain degree of business improvement had been made by the time the penalty was imposed. This penalty reflected our consideration of their ongoing efforts as an extenuating factor. Concerning the issue of how managers should take responsibility, I think that first of all, it is necessary to clarify the responsibilities of the executives and employees involved in these cases, and we intend to keep watch on what is to be done concerning this issue as part of the companies' business improvement plans.

Q.

I would like to ask a specific question about the insurance issue. How do you think the FSA has come to face a situation like this, in which it has imposed penalties against these ten companies? It has been alleged that these cases reflect an institutional problem of the industry. What is your view regarding this assertion?

A.

Non-life insurance companies' main products consist primarily of auto insurance, fire insurance and the like, and the primary feature of third-sector products is that they are a quite different type from the ones previously handled by non-life insurance companies. The difference between these and conventional products is whether the employees in charge of dealing with customers over the counter and sales people have acquired sufficient proficiency and knowledge based on training. I think this is a special feature of third-sector products.

In addition, as I said before, insurance companies' relationships with their agents, or the agent system itself in particular, is an outstanding feature. Since the age has come in which a broad range of companies like banks are allowed to sign up as agents, insurance companies must have a strong awareness of their relationship with agents.

I expect that from this viewpoint, plans for proper management of benefits payments will be presented and I have high hopes for such plans. I believe that insurance companies will make efforts in this respect.

Q.

A court judgment will be delivered on former Livedoor President Horie today. Could you tell us what points of this issue you are paying attention to? Concerning the FSA's future actions, particularly from the viewpoint of establishing market rules, what are your views on the relevant provisions of the Financial Instruments and Exchange Law and a bill to amend the Certified Public Accountants Law that was recently submitted?

A.

As the ruling has not yet been delivered, I find it difficult to make any comments, and although I would like to talk about this issue after the court judgment, I will refrain from doing so now. Since the securities market is an essential infrastructure of economic activities, it must be fair, transparent and trustworthy. In order to ensure the trustworthiness of the market, I think that appropriate disclosure of corporate financial information and fair transactions should be ensured. We will seek to smoothly enforce the Financial Instruments and Exchange Law while enhancing market surveillance functions. For details, I would like to provide explanations after examining the court judgment.

Q.

In the United States, Treasury Secretary Paulson held a conference on the internationalization of the U.S. financial market. As this shows, countries ahead of Japan in internationalization are reopening the debate on the internationalization of the financial market. What impact do you think such moves will have on Japan's efforts toward internationalization?

A.

At a G-7 meeting the other day, positive and negative features of internationalization were discussed and sorted out, and I believe that Mr. Paulson is considering the issue of how to prevent system risks and secure the soundness of the market not merely in his capacity as U.S. treasury secretary.

In this context, I have high hopes for Secretary Paulson's leadership, and I would be delighted to have an opportunity to participate in such debates in the future.

(End)

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