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September 17, 2010
Financial Services Agency

FSA Launches Field Tests of Economic Value-Based Solvency Regime

The Financial Services Agency has decided to conduct field tests covering all insurance companies, with an aim of introducing economic value-based solvency regime.

A summary of the tests is as follows:

1. Purposes and Objectives

  • Under the global circumstance that economic value-based solvency regime can contribute to recognising the financial conditions of an insurance company appropriately and lead to enhancements in risk management by insurers, the discussion towards the introduction of such regime is being developed at organizations including the IAIS (International Association of Insurance Supervisors). Similarly in Japan, the FSA proclaims in its Annual Supervisory Policies for Insurance Companies etc. in 2009 that the FSA "will consider the introduction of solvency regime based on economic value, taking companies' practical conditions adequately into account."
  • Based on those circumstances, the FSA will conduct, as an experimental action, field tests that include trial calculations of the economic value of insurance liabilities etc. for all insurance companies, to comprehend to what practical extent insurance companies are holding for the calculation of insurance liabilities on an economic value basis. Findings obtained in the tests, including any practical issues, will be taken into consideration in future examination for the introduction of economic value-based solvency regime.

2. Overview

  • In a questionnaire, all insurance companies are requested to (1) calculate the value of insurance liabilities based on economic value and (2) measure interest rate risks, etc., considering interest rate risks in assets and liabilities comprehensively, and (3) submit a report on any findings practically encountered .
  • Uniform calculation methods and assumptions, such as interest rates and risk coefficients provided by the FSA, are used. The calculation methods are generally consistent with those being examined by organizations such as the IAIS and other jurisdictions including EU. As to the confidence level for the calculation of risks, the enhanced level (95%) set out in the new rules that will come into effect from the year ending March 31, 2012 is applied under this test.
  • For advanced insurers that have already used an internal model 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 has been prepared.
  • Once collected, the responses will be put together and a summary of the tests, including general tendencies and any issues identified in the process, will be made public. Note that the results of individual companies will not be made public.

3. Time line

June 2010: All insurance companies to be requested to conduct field tests
March 2011 (target timing): A summary of results to be made public

Contact

Financial Services Agency
Tel +81-(0)3-3506-6000 (main)
Insurance Business Division, Supervisory Bureau (ext. 3750)

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