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U.S life insurers review their Japan strategy.

With the Oct. 11 vote by the lower house of Japan's Diet to privatize segments of the Japan Post--including its Kampo life insurance unit--Prime Minister Junichiro Koizumi soon may be able to declare victory in what long has been his top legislative battle.

But for foreign and domestic life insurers alike, the 338-138 vote marks just the first step in what is likely to prove to be an uphill climb to gain a "level playing field" with Kampo, the world's largest life insurer, executives at the American Council of Life Insurers annual conference said.

The world's second-largest economy, Japan long has been an attractive target for foreign life insurers, said Timothy Feige, a Japan-based senior vice president with Prudential Financial Inc. Feige noted that 55% to 40% of Prudential's total profits come from Japan.

David L. Pringle, vice president of federal relations for American Family Life Assurance Company of Columbus, added that Aflac's total is closer to 70%. Pringle also noted that Japan is the largest life market for American International Group Inc. and also has become a key market for Hartford Financial Services Group Inc.'s annuities business.

But Feige noted that 40% of the Japanese market is written by Kampo through the postal insurance system, totaling roughly $150 billion in U.S. dollars. In comparison,ACLI estimates that all U.S. life insurers combined account for $38 billion annually in policy premiums in Japan.

Such issues of scale long have concerned both foreign insurers and Japan's domestic life insurers, several of which have become insolvent in recent years in the face of declines in their captive agency forces and in both individual and group life sales, Feige said.

Given the luxury' of Kampo's size--including exclusive distribution through 24,700 post offices nationwide and through Japan Post's 280,000 employees, all of whom can act as agents for Kampo--privatization could have a great impact on the market's overall stability, he added.

"Where does a 500-pound gorilla sleep? Anywhere he wants," Feige said of Kampo. "It's a dangerous entity if privatization doesn't happen correctly."

Under Koizumis proposal, which now is expected to be passed by upper house of the Diet, Japan Post would be divided into four separate units representing its mail delivery, counter services, savings and insurance services by October 2007. A holding company would float shares in each of the units beginning roughly in 2010, with a plan to sell 100% of the government's stake in Kampo by 2017.

ACLI Conference

Among the highlights from the three-day event in Washington:

* NORTH DAKOTA Insurance Commissioner Jim Poolman said the onus is on financial regulators to demonstrate that proposed revisions to the National Association of Insurance Commissioners' Model Audit Rule actually provide benefits commensurate with the increased costs of complying with the Sarbanes-Oxley Act.

* A DIVERSE panel of experts assembled by the American Council of Life Insurers easily reached consensus on at least one fact about the U.S. retirement system--that none of the proposals to reform the federal Social Security program and the nation's private pension system are likely to come to pass in 2005.

* THE LONG-TERM-CARE market may finally be turning the corner toward a brighter future, a panel of observers said, but changes in both policy options and governmental incentives remain desperately needed if insurers are to build on the product's meager 8% market penetration.

* FORMER LOUISIANA Sen. John Breaux, vice chairman of a federal commission examining fundamental changes to the U.S. tax code, said it is very unlikely that a national sales tax or European-style value-added tax would win favor over the current income tax system.

Source: BestWire News
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Author:Lehmann, R.J.
Publication:Best's Review
Geographic Code:9JAPA
Date:Nov 1, 2005
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