July 8, 2016
Financial Services Agency
FSA Launches Field Tests of Economic Value-Based Evaluation and Supervisory method
The FSA has decided to conduct field tests covering all insurance companies, with the aim of considering the economic value-based evaluation and supervisory method.
A summary of the tests is as follows:
1. Purposes and Objectives
○Under the global circumstances in which the economic value-based solvency regime can contribute to recognizing the financial condition of an insurance company appropriately and lead to enhancement in risk management by insurers, discussion toward the introduction of such regime is being developed at organizations including the IAIS (International Association of Insurance Supervisors).
○In Japan, the FSA conducted field tests covering all insurance companies in June 2010 and June 2012, with the aim of introducing the economic value-based solvency regime. Accordingly, the FSA is currently considering the economic value-based solvency regime, as the FSA proclaims in its Annual Strategic Direction and Priorities in 2015 that while continuing to follow and contribute to international discussions, we will work on an in-depth study on the solvency regulation in Japan.
○Based on those circumstances, the FSA will conduct field tests that include trial calculations of the economic value of assets and insurance liabilities, etc. for all insurance companies, to comprehend to what practical extent insurance companies are dealing with the calculation and solvency condition at the current low interest rate environment. Findings obtained in the tests, including any practical issues, will be utilized for further consideration including following and contributing to international discussions.
○In a questionnaire, all insurance companies are requested to calculate the economic value of their assets, insurance liabilities, qualifying capital resources and various capital requirements, and submit a report on any findings practically encountered.
○Calculation methods and assumptions, such as interest rates and risk coefficients provided by the FSA, are used. Though the calculation methods are generally consistent with those being examined under ICS (Global Insurance Capital Standard) by the IAIS, those calculation methods do not indicate any future direction of consideration in Japan.
○For insurers that have already used internal models, etc. and have managed their risks voluntarily based on the economic value of insurance liabilities, an additional questionnaire regarding, for example, the actual operation of internal models is carried out.
○After the reports are collected and put together, a summary of the tests, including general tendencies and any issues identified in the process, will be made public. Note that the results for individual companies will not be made public.
3. Time line
June 2016: All insurance companies to be requested to conduct field tests
March 2017 (target timing): A summary of results to be made public
Financial Services Agency
Insurance Business Division, Supervisory Bureau
(ext. 3497, 3343)
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