Business of Foreign Life Insurance in Japan--- Series 2: Entries and Withdrawals in the Prewar Period ---In contrast to the 1880s when only four domestic life insurance companies
had been founded, in 1890s a boom in life insurance business occurred. Morethan forty companies were established between 1893 and 1899. Accompanying
the boom, excessive competition and reckless management became rampant
and raised serious concerns about the sound development of Japan’s life
insurance industry. Many newspaper articles criticizing the above issues andurging the necessity of government regulation and supervision of insurance
business were published during this period.
In response to the situation, a series of regulatory polices via such as laws oradministrative rules were put in force from July 1898 onward, when theCommercial Law became effective. Article 690 of the then Commercial Law
stipulated the provisions for reserve funds of insurance company for the firsttime. In June 1899, the Detailed Rules regarding Insurance Companies wereissued by the then Ministry of Agriculture and Commerce right after theenforcement of the Amended Commercial Law. However, the above regulatory
policies were only applied to domestic companies according to the Treaty ofAmity and Commerce.
Soon after the announcement of the Detailed Rules regarding Insurance
Companies, an Imperial Ordinance regarding Foreign Insurance Companies
was issued. According to this ordinance, foreign companies were required toapply for a business license in order to continue business in Japan by the end of1899. Meanwhile, running life insurance business and nonlife insurance
business at the same time was no longer allowed. A report as of December 18 ofthat year in Jiji Shimpo states that among the existing 141 companies inYokohama, only 68 companies had applied for business license. With respect tolife insurance, in 1899 only Equitable Life applied for the business license andreceived it in July 1901. Then in 1901 Standard Life, Sun Life andManufacturers’ Life, in 1902 New York Life and Mutual Life also succeeded with
their applications respectively. Besides the companies already mentioned, there
was only one more licensed foreign life insurance company in Prewar Japan.
Namely, China Mutual Life, a British company located in Shanghai China,
obtained its license in 1911.

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Unfortunately, however, foreign insurance companies’ business in Prewar
Japan did not prosper as expected and five of the seven companies hadwithdrawn by the end of 1926. Namely, Standard Life and Mutual Life in 1904,
Equitable Life in 1913, China Mutual Life in 1924, and New York Life in 1926
gave up their Japan business respectively. It was said that the requirement ofprovisions for deposit accounts by foreign insurance companies enacted in
19031 was largely responsible for the withdrawal of Standard Life and MutualLife. According to the provisions, foreign life insurance companies were required
to deposit 150 thousands yen with certain banks designated by the authorities.
Later in 1914, the amount of the deposit account was raised to an amount notless than 60% of the company's legal reserves.
In contrast, the main reasons responsible for the withdrawal of the otherthree companies were more likely to be related to their bad businessperformance in the Japanese market and/or their home market. Morespecifically, the withdrawal decision by China Mutual Life was made after its
approval for raising premium got rejected by the authorities in 1924. On theother hand, with respect to the two American companies - Equitable Life and
New York Life - it was speculated that their deteriorating performance in theirhome market and the Japanese market largely resulted from the ban on selling
tontine life insurance policies legislated by the State of New York in 1906. The
main characteristics of tontine policies provided by the two companies at thetime were that both the amount of coverage and policy dividend were muchlarger than the policies provided by most domestic companies.2 However, fromthe mid-1900s onwards, many domestic companies started to provide policies
with a large amount of coverage and/or policy dividend. In particular, theemergence of mutual companies from 1902 onwards greatly stimulated thecompetition in policy dividend. Consequently, it became very difficult for theforeign companies to create a competitive advantage via product differentiation.
As the only two foreign companies left in Japan after 1926, Sun Life andManufacturers' Life carried out their business until the end of 1941 when thePacific War started. According to the Enemy’s Property Control Act promulgatedand enforced in December 1941, Sun Life and Manufacturers' Life had totransfer all their policies in force to Kyoei Life, a domestic company established
These provisions were stipulated in Imperial Ordinance No.380 which was issued in 1900 andbecame effective in 1903.
2 In a tontine policy, dividend will only be paid after a significant number of policy years (five ormore) had elapsed.
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in 1935 as a reinsurance company for substandard insurance products sold bydomestic companies. All transfer procedures were completed in May 1942.
Since then, there was no foreign insurance company operating in the Japanesemarket.

To be continued…
YingYing Jiang, Ph.D.

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