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Supervisory control over insurers to be tightened.

TOKYO, Feb. 14 Kyodo


The Financial Services Agency (FSA) on Wednesday announced measures to tighten supervisory control over Japan's hard-pressed insurance industry.

The measures include revamping the method used to calculate the ratio under which an insurer's solvency -- the minimum standard of their financial health -- is measured.

The new method will make insurers' solvency margin ratios more accurately reflect the market value of their assets by subtracting investments at affiliated banks and brokerage houses from assets.

The measures also include requiring life and nonlife insurance companies to reveal their ''base profit,'' in order to more accurately reflect profits from their core business.

Base profit will be calculated by subtracting extraordinary profits and losses, such as from the liquidation of securities holdings and write-offs of problem loans, from pretax profit.

Insurers would also be able to report only 50% of their ''expected profit'' and would have to include unrealized losses on unlisted domestic stocks and foreign stocks.

As a result, solvency ratios would be vulnerable to falls in stock prices because unrealized losses on unlisted domestic stocks and foreign stocks would be taken into account.

The tougher controls, to start with book closings for fiscal 2000 which ends March 31, are intended to help the FSA spot troubled insurers early.

The move by the FSA comes in the wake of a series of failures in the life insurance industry in the second half of last year.

Insurance firms will also be required to make public their solvency data at the end of the fiscal first half in September in addition to the fiscal year-end on March 31.

They will also have to report other data, such as total outstanding insurance contracts, on a quarterly basis.

The new requirement is likely to push down a revised solvency margin ratio because both the Japanese and foreign stock bourses have suffered from recent signs of a slowdown in the global economy, FSA officials said.

The current requirement that an insurer be slapped with prompt corrective action (PCA) measures if its solvency margin ratio sinks below 200% will remain in place.

At present, the severity of a PCA step imposed on a troubled insurer depends on the level of its solvency margin ratio. Such disciplinary steps include orders to improve management, a ban on introducing new business lines, and total or partial halting of operations.
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Publication:Japan Weekly Monitor
Date:Feb 19, 2001
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