PRESS  RELEASE

(Provisional Translation)
September 21, 2000
Financial Services Agency
Results of the Inspection on the Life Insurance Companies (19 companies)



Results of the Inspection on the Life Insurance Companies (19 companies) are as follows:

1. Assessment as of March 31, 1999

2.
Credit Quality Assessment
(billion yens)
   Category I (unclassified credits): 48,062.5
   Category II (credits subject to specific risk management): 2,984.4
   Category III (doubtful):   233.2
   Category IV (loss):   23.5

   Total Credits
  51,306.1

(Note) Round off to 100 million yens.

For
  further information, please contact:
  Mr. Fujimoto
  Evaluation Division, Inspection Department
  Financial Services Agency 03-3506-6069

(Provisional Translation)

Results of the Inspection on the Life Insurance companies (19 companies)

The Financial Supervisory Agency (FSA) carried out an intensive inspection on the Life Insurance companies on the basis of the companies' self-assessment report as of end-March 1999. Results of the inspection are as follows (see appendix for details)

(Note)  Results of the Daihyaku Life Insurance and Taisho Life Insurance are shown separately

1.
 Results of the credit-quality-assessment (as of end-March 1999; after the write-off/allowance)

(billion yens)

 

Classification

Total 
credits 

I

II

III

IV

Assessment by the FSA
(a)

48,062.5

2,984.4

233.2

23.5

51,306.1

Self-assessment
(b)

49,348.2

1,893.8

61.6

1.0

51,306.1

(a) - (b)

 -1,285.7

  1,090.6

   171.6

    22.5

--
 Note :  "Credit" refers to the sum of the following : loans, securities loaned, customers' liabilities for acceptances and guarantees, accrued interest, and suspense payments.


(Reference) Results of the credit-quality-assessment of the Daihyaku Life Insurance, the Taisho Life Insurance (as of end-March 1999; after the write -off/allowance)

(billion yens)

 

Classification

Total 
credits 

I

II

III

IV

Assessment by the FSA
(a)

697.5

126.5

42.0

2.6

868.8

Self-assessment
(b)

714.2

130.6

23.9

--

868.8

(a) - (b)

    -16.7

     -4.1

    18.1

     2.6

--


2.

 Adequacy of Write-off/Allowances (as of end-March 1999)

(billion yens)
Amount of the
write-off/allowance
based on the FSA
assessment
(1)		 Amount of the
write-off/allowance
based on
self-assessment
(2)		 Additional amount of
the write-off/allowance
required

(1) - (2)
1,639.4 1,457.5 181.4
Note: "Amount of the write-off/allowance based on the FSA assessment (1)" is calculated on the basis of the write-off/allowance standards employed by the companies.


(Reference) Adequacy of write-off/allowances of the Daihyaku Life Insurance, the Taisho Life Insurance (as of end-March 1999)

(billion yens)
Amount of the
write-off/allowance
based on the FSA
assessment
(1)		 Amount of the
write-off/allowance
based on
self-assessment
(2)		 Additional amount of
the write-off/allowance
required

(1) - (2)
80.3 58.6 21.7


3.

 Solvency Margin Ratios (as of end-March 1999)

(%)
Average solvency
margin ratio based on
 the FSA assessment
 (1)		 Average solvency
margin ratio based on
 self-assessment
(2)		 Differences


(1) - (2)
668.8 701.4 -32.6


(Reference) Solvency Margin Ratios of the Daihyaku Life Insurance, the Taisho Life Insurance (as of end-March 1999)

(%)
Average solvency
margin ratio based on
 the FSA assessment
 (1)		 Average solvency
margin ratio based on
 self-assessment
(2)		 Differences


(1) - (2)
191.2 310.8 -119.6

Summary of the operation

Objective


Inspected Life
insurance companies






On-site inspection
period


Average number of
inspection days per
company


Average number of
inspectors per
company


Average number of
inspected debtors per
company


Average sampling rate
(Amount basis)





Standard
of classification		 Inspection of soundness of asset, Y2K, etc.


19 Life Insurance companies:
  Sumitomo Life, Mitsui Life, Sony Life, Heiwa Life,
  Chiyoda Life, Dai-ichi Life, Asahi Life, Kyoei Life,
  Tokyo Life, Nippon Life, Yasuda Life, Nippon Dantai
  Life, Daido Life, Taiyo Life, Saison Life, Yamato Life,
  ING Life, Fukoku Life, ORIX Life


from May 27, 1999 to April 25, 2000



24.6 days / company




8.8 inspectors / company




1,564 debtors / company




66.7%
Note: All classified credits (categories II, III and IV)
were inspected exhaustively, while unclassified
credits (category I) were inspected on the sampling
basis.


Category I:  credit exposures which are not classified
as category II, III or IV.
Category II:  credit exposures for which an adequate
specific risk management is needed.
Category III:  credit exposures with serious concerns
in terms of their ultimate collection.
Category IV:  credit exposures which are judged to be
non-collectable or of no value.

REFERENCE


1. Accuracy of self-assessment results

2. Adequacy of write-off/allowance standards

3. Solvency margin ratios

4. Allowance ratios (self-assessment basis)

APPENDIX


1.
 Accuracy of self-assessment results

   Regarding self-assessment rules employed by the companies, some minor problems were found in majority of companies. The FSA requested them to improve their self-assessment rules.
Followings are major problems that were pointed out by the FSA.

1)
 Absence of clear definition of debtor classifications or absence of rules of correction process to reflect subsequent events that occur after the closing date of the accounting period.

2)
 The estimated disposal value of the collateral was not calculated in an objective and rational manner.

   Regarding the accuracy of self-assessment results, in the majority of the companies, there were some gaps (or differences) between assessment results by the companies and those by the FSA due to insufficient self-assessment rules as well as inaccurate classifications of credits (e.g. classification without examining debtors' financial condition sufficiently).

(billion yens,%)
  Classification

Total
credits
I II III IV
Assessment by the FSA (a)  48,062.5   2,984.4    233.2     23.5   51,306.1
Self-assessment (b) 49,348.2 1,893.8 61.6 1.0 51,306.1
(a) - (b) -1,285.7 1,090.6 171.6 22.5 --
((a) - (b))/ Total Credits   2.13 0.33 0.04 --
Note: "Credit" refers to the sum of the following: loans, securities loaned, customers' liabilities for acceptances and guarantees, accrued interest, and suspense payments.


*

Accuracy of classification
(Ratio of the difference between the amount of　classified credits based on FSA assessment and that based on self-assessment to total credits.)
(Ratios) (Number of companies)
less than 1.0% 7 companies
1.0% - less than 5.0% 7 companies
5.0% and over 5 companies


2.

 Adequacy of write-off/allowance standards

   Regarding adequacy of write-off/allowance standards employed by the companies, some minor problems were found in the majority of companies. The FSA requested them to improve their write-off/allowance standards.
Followings are examples of problems that were pointed out by the FSA.

1)
 The amount of (specific) allowance for individual "In Danger of Bankruptcy" debtors, classified as Category III was not calculated in an objective and rational manner.

2)
 Historical bad debt ratio used for estimating general allowance for bad debt is not calculated in an objective and rational manner.

   Regarding the accuracy of estimation of write-off/allowance, due to the differences between the credit quality assessment by the companies and that by the FSA, the majority of the companies needed additional write-offs/allowance.

(billion yens, %)
Total
Credits



(1)		 Amount of
write-off/
allowance
based on FSA
assessment
(2)		 Amount of
write-off/
allowance
based on Self-
assessment
(3)		 Additional
amount of the
write-off/
allowance
required
(4)=(2)-(3)		 Insufficiency
ratio



(4) / (1)
51,306.1 1,639.4 1,457.5 181.4 0.35
Note: 'Amount of write-off/allowance based on FSA assessment (2)' is calculated on the basis of companies' write-off/allowance standard of individual company.


*

Adequacy of write-off/allowance
(Insufficiency ratio) (Number of companies)
less than 0.2% 7 companies
0.2% - less than 0.6% 3 companies
0.6% and over 9 companies


3.

 Solvency Margin Ratios

   Regarding accuracy of solvency margin ratios, the FSA found errors, besides inaccurate self-assessment results, on calculation of the ratios by, for example, misestimating unrealized gains/losses of real estates causing decrease in solvency margin, and misevaluation of credit level causing increase in credit risk, The FSA requested majority of the companies to correct the ratios reflecting the inspection results.

(billion yens, %)
  Amount / ratio
based on the
FSA assessment
(1)		 Amount/ratio
based on
self-assessment
 (2)		 Differences


 (1)-(2)
Total solvency margin
A		 16,200.4 16,514.3 -313.9
1/2 × total risk beyond
normal estimation
B		 4,844.9 4,708.9 136.0
Average solvency
margin ratio
A / B		 668.8 701.4  -32.6
(Note) 'Solvency margin ratio is calculated with the risk beyond the normal estimates quantified under given assumption as the denomi nator, and the solvency margin composed of capital, funds, reserves, etc. which provide for the risk as the numerator (see below). Financial conditions of insurance companies are considered sound if the ratio is above 200%.
(Note)


4.

 Allowance ratios (self-assessment basis)

(1)
 Ratio of general allowance of bad debt

1)
 Credits to "Normal" debtors

Average 0.18%
(Allowance ratio) (Number of companies)
less than 0.10% 5 companies
0.10% - less than 0.20% 7 companies
0.20% and over 6 companies
other 1 company

2)
 Credits to "Need Attention" debtors

Average 7.48%
(Allowance Ratio)  (Number of companies)
less than 5.00% 7 companies
5.00% - less than 10.00% 6 companies
10.00% and over 3 companies
other 3 companies

(2)
 Allowance ratio for credits to "In Danger of Bankruptcy" debtors, classified as category III.

Average 84.95%
(Allowance ratio) (Number of companies)
less than 70.00% 6 companies
70.00%-less than 90.00% 4 companies
90.00% and over 6 companies
other 3 companies

(Note)
For each credits to "In Danger of Bankruptcy" debtors, classified as Category III, banks are required to make specific allowances, unlike general allowances.