Comprehensive Guidelines forSupervision for Insurance
Companies(Main Document)

July 2021

Financial Services Agency

Comprehensive Guidelines for Supervision for Insurance Companies
Item

I. Basic ideas
I-1 Basic Concept for Supervision of Insurance
I-2 Background Surrounding the Guidelines for Supervision
I-3 Positioning of the Guidelines for Supervision for Insurance Companies

II. Supervisory Evaluation Points for Insurance
II-1 GovernanceII-1-1SignificanceII-1-2Main Supervisory Focus
II-1-2-1
II-1-2-2
II-1-2-3

II-1-3In the Case of an Insurance Company That Is a Company With a Board of Auditors
In the Case of a Company With a Nominating Committee, etc.
In the Case of an Insurance Company That Is a Company With an Audit and Supervisory
Committee

Supervisory Method and Actions

II-2 Soundness of Financial Condition
II-2-1

Appropriateness of Accumulation of Liability Reserves, etc.
II-2-1-1
II-2-1-2
II-2-1-3

II-2-1-4
II-2-2

Appropriateness of Solvency Margin Ratio (Prompt Corrective Action)
II-2-2-1
II-2-2-2
II-2-2-3
II-2-2-4
II-2-2-5
II-2-2-6
II-2-2-7

II-2-3

Margin Ratio Providing Basis for Order Category
Reports on the Progress of Plans, etc.
Operation of Article 3(3) of the “Order Providing for on operations”
OthersSignificanceSupervisory Method and Actions

Clarification of Separate Accounting of Life Insurance Companies
II-2-4-1
II-2-4-2
II-2-4-3

II-2-5SignificanceSupervisory Method and Actions
Standards for Judging the Reasonableness Prescribed in Article 3(1) of the “Order
Providing for Categories”

Early Warning System
II-2-3-1
II-2-3-2

II-2-4SignificanceAccumulation Method
Risk of Minimum Guarantee for Variable Pension Insurance, etc.
II-2-1-3-1
Accumulation of Premium Reserves
II-2-1-3-2
Contingency Reserve III
Accounting

SignificanceMain Supervisory Focus
Supervisory Method and Actions

Internal Control Environment for Product Development
II-2-5-1
II-2-5-2
II-2-5-3

SignificanceMain Supervisory Focus
Supervisory Method and Actions

II-3 Control Environment for Enterprise Risk Management
II-3-1SignificanceII-3-2

Identification of Risks and Risk Profile
II-3-2-1
II-3-2-2

II-3-3SignificanceMain Supervisory Focus

Measurement of Risks
II-3-3-1
II-3-3-2
II-3-3-3

Significance
Measurement of Risks
Stress Test
II-3-3-3-1
Main Supervisory Focus
II-3-3-3-2
Disclosure of Outline of Stress Tests
II-3-3-3-3Disclosure of Indicators of Loss Ratio Sensitivity

Item
II-3-4II-3-5II-3-6II-3-7II-3-8II-3-9II-3-10II-3-11II-3-12II-3-13

Risk Management Policy
II-3-4-1
SignificanceII-3-4-2
Main Supervisory Focus
Own Risk and Solvency Assessment
II-3-5-1
SignificanceII-3-5-2
Own Risk and Solvency Assessment
II-3-5-3
Management Plan Solvency Assessment
Control Environment for ReportingII-3-6-1
SignificanceII-3-6-2
Main Supervisory Focus
Business Continuity Management (BCM)
II-3-7-1
SignificanceII-3-7-2
Preparations to Be Made in Normal Times
II-3-7-3
Actions to Crisis
II-3-7-4
Post-Crisis Actions
II-3-7-5
Control Environment for Crisis Management Regarding Reputational Risk
Comprehensive Management of Assets and Liabilities
II-3-8-1
SignificanceII-3-8-2
Main Supervisory Focus
Control Environment for Insurance Underwriting Risks
II-3-9-1
SignificanceII-3-9-2
Main Supervisory Focus
Risk Management for Reinsurance
II-3-10-1
Risk Management for Retention/Cession
II-3-10-2
Risk Management for Assumed Reinsurance
II-3-10-3
Disclosure of Policy for Reinsurance
Control Environment for Assets Management Risks
II-3-11-1
SignificanceII-3-11-2
Main Supervisory Focus
Control Environment for Managing Liquidity Risks
II-3-12-1
SignificanceII-3-12-2
Main Supervisory Focus
Control Environment for Operational Risks
II-3-13-1
Control Environment for Managing Administrative Risks
II-3-13-1-1
SignificanceII-3-13-1-2
Main Supervisory Focus
II-3-13-2
Control Environment for Managing Information Technology Risks
II-3-13-2-1
SignificanceII-3-13-2-2Main Supervisory Focus
II-3-13-3
System Integration Risks/Project Management
II-3-13-3-1
SignificanceII-3-13-3-1-1
System Integration Risks
II-3-13-3-1-2“Risk Characteristics” of System Integration
and Risks Reduction Measures
II-3-13-3-1-3
Importance of Project Management
II-3-13-3-2
Main Supervisory Focus
Control Environment for Other Operational Risks
II-3-13-4-1
SignificanceII-3-13-4-2
Main Supervisory Focus
Supervisory Method and Actions
II-3-13-4

II-3-14II-4 Appropriateness of BusinessII-4-1

Control Environment for Legal ComplianceII-4-1-1
II-4-1-2
II-4-1-3

II-4-2SignificanceMain Supervisory Focus
Supervisory Method and Actions

Control Environment for Managing Insurance Solicitation
II-4-2-1
II-4-2-2
II-4-2-3
II-4-2-4
II-4-2-5

Establishment of Control Environment for Managing Proper Insurance Solicitation
Points of Attention in Solicitation of Insurance Contracts
Matters Related to Wholesale Insurance Contracts, etc.
Life Insurance Contracts for Other Persons
Automobile Liability Insurance

Item
II-4-2-6

Entrustment of Insurance Solicitation to Banks, etc.
II-4-2-6-1
Entrustment/Management of Insurance Solicitation to Banks, etc.
II-4-2-6-2
Handling of Undisclosed Financial/Insurance Information
II-4-2-6-3
Insurance Solicitation Guidelines of Banks, etc.
Confirmation of Parties Restricted from Insurance Solicitation by
II-4-2-6-4
Bank, etc.
II-4-2-6-5
Matters Related to Article 212-2(3)(i) of the Regulation
II-4-2-6-6
Matters Related to Article 234(1)(viii) of the Regulation
Matters Related to Article 234(1)(v) of the Regulation
II-4-2-6-7(in the case of a specified insurance contract, Article 234-27(1)(i) of the Regulation)

II-4-2-6-8

II-4-2-7
II-4-2-8

II-4-3Obligation of Insurance Agents to Develop Systems (Matters Related to Article 294-3 ofthe Act)

II-4-2-10
II-4-2-11

Books and Documents
Business Reports

Response to Complaints, etc. (Including Response to the Financial ADR System)

II-4-3-3

II-4-3-4
II-4-3-5

II-4-4-2

SignificanceMain Supervisory Focus
Supervisory Method and Actions

Prevention of Damage that May be Inflicted by Anti-Social Forces
II-4-9-1
II-4-9-2
II-4-9-3

II-4-10SignificanceMain Supervisory Focus

Measures such as Verification at the Time of Transaction
II-4-8-1
II-4-8-2
II-4-8-3

II-4-9SignificanceMain Supervisory Focus
Supervisory Method and Actions

Prevention of Customers' Misrecognition, etc.
II-4-7-1
II-4-7-2

II-4-8SignificanceMain Supervisory Focus
Supervisory Method and Actions

Development of a System to Protect Customers’ Interests
II-4-6-1
II-4-6-2
II-4-6-3

II-4-7

Accountability to Customers and Principle of Suitability
II-4-4-1-1
Points of Attention in Protecting Customers
Measures Concerning Business Operations Prescribed in Article
II-4-4-1-2
100-2 of the Act, etc.
II-4-4-1-3
Principle of Suitability in Specified Insurance Contract
Control Environment for Managing the Payment of Insurance Proceeds, etc.

Control Environments for the Management of Information Related to Customers, etc.
II-4-5-1
II-4-5-2
II-4-5-3

II-4-6SignificanceEstablishment of Internal Control Environment for Dealing with Complaints, etc.
II-4-3-2-1
SignificanceII-4-3-2-2Main Supervisory Focus
Response to the Financial ADR System
II-4-3-3-1
In Cases Where There Is a Designated ADR Body
II-4-3-3-1-1
SignificanceII-4-3-3-1-2
Main Supervisory Focus
II-4-3-3-2
In Cases Where There Is No Designated ADR Body
II-4-3-3-2-1
SignificanceII-4-3-3-2-2Main Supervisory Focus
Statements in Various Documents
Supervisory Method and Actions

Customer Protection, etc.
II-4-4-1

II-4-5II-4-2-6-9
Internal Audits on Insurance Solicitation by Banks, etc.
II-4-2-6-10
Matters Related to the Fair Trade Commission Guidelines
Re-Entrustment of Insurance Solicitation
Direct Payment Service

II-4-2-9

II-4-3-1
II-4-3-2

II-4-4

Persons Responsible for Compliance With Laws and Regulations
Concerning Insurance Solicitation, etc.

SignificanceMain Supervisory Focus
Supervisory Method and Actions

Ensuring of Appropriate Presentation

Item
II-4-11

Response to Persons with Disabilities
II-4-11-1
II-4-11-2
II-4-11-3

SignificanceMain Supervisory Focus
Supervisory Method and Actions

II-5 Others
II-5-1

Outsourcing of Administrative Processes of Insurance Companies
II-5-1-1
II-5-1-2

SignificanceMain Supervisory Focus

II-5-2

Information Disclosure Regarding Corporate Social Responsibility (CSR), etc.

II-5-3II-5-2-1
SignificanceII-5-2-2
Main Supervisory Focus
II-5-2-3
Supervisory Method and Actions
Compensation StructureII-5-4II-5-3-1
SignificanceII-5-3-2
Main Supervisory Focus
II-5-3-3
Supervisory Method and Actions
Ensuring Smooth Execution of Orderly Resolution
II-5-4-1

Measures to Ensure the Effectiveness of Stay Decision in Contracts Governed byForeign Laws
II-5-4-1-1
SignificanceII-5-4-1-2
Main Supervisory Focus
II-5-4-1-3
Supervisory Method and Actions

Points of Attention in the Conduct of Administrative Processes Regarding

III. Inspection/Supervision of Insurance

III-1 Basic Concept for Inspection and Supervising Operations of Insurance
III-1-1

Procedures of Inspection/Supervising Operations

III-1-2

Specific Methods of Inspection/Supervising Operations

III-1-3

Quality control

III-1-4

Cooperation with Local Finance Bureaus, etc.

III-1-5

Delegation, etc.
Internal Delegation of Part of Authorities of the Directors-General of local Finance
Bureaus of Competent Jurisdiction to the Directors-General of Local Finance Offices ofIII-1-5-1
Competent Jurisdiction
III-1-5-2

III-1-6
III-1-7

Administrative Reports on Individual Insurance Companies
Measures Regarding Financial Services Support in the Event of Disasters
III-1-7-1
Financial Services Support Measures for Disaster-Stricken Areas
III-1-7-2

III-1-8

III-1-9

Reports on the Amount of Payment of Registration and License Tax Pertaining toBusiness License of Banks, etc.

Various Financial Services Support Measures in Areas Designated for Enhanced
Earthquake Disaster Prevention/Mitigation Measures Related to Tokai Earthquake

III-1-7-3
Administrative ReportComplaints/Information Provision Regarding Insurance Companies
III-1-8-1
Response to Complaints, etc.
III-1-8-2
ReportingIII-1-8-3
Cooperation with the Counseling Office for Financial Services Users
Response to Inquiries about Interpretations of Laws and Regulations, etc.
III-1-9-1
III-1-9-2

Scope of Laws and Regulations Regarding Which Inquiries May be Processed
Method of Response to Inquiries

III-1-9-3

Prior Confirmation Procedures on the Application of Laws and Regulations by
Administrative Agencies (No-Action Letter System)

III-1-9-4

System to Eliminate Regulatory Gray Zones

III-1-10

Points of Attention in Preparing Written Applications, etc. to Be Submitted by Insurance Companies, etc.

III-1-11

Points of Attention Upon the Submission of Electronic Application Forms, etc.

III-2 Administrative Processes Regarding the Insurance Business Act
III-2-1

Registration, etc. Administration of Specified Insurance Agents

Item
III-2-2

Subsidiary Companies, etc.
III-2-2-1
III-2-2-2
III-2-2-3
III-2-2-4

III-2-3

Scope of Businesses of Subsidiary Companies, etc.
Treatment of Agency/Mediation Companies Selling/Purchasing Collateral Properties(Excluding Real Properties) for Loans, etc. of Other Business Operators
Treatment of Holding/Managing Companies of Collateral Properties Related to Loans,
Scope of Businesses of Overseas Subsidiary Companies, etc. of Insurance Companies

Points of Attention on Crypto Assets
III-2-3-1
III-2-3-2

SignificanceMain Points of View

III-2-4

Arm's Length RuleIII-2-5

Change of Contract Conditions
III-2-5-1
III-2-5-2
III-2-5-3
III-2-5-4

Request for Change of Contract Conditions
Appointment of the Insurance Investigators
Measures to be Taken by the Insurance Company
Approval of the Change of the Contract Conditions

III-2-6

Asset Management Limit

III-2-7

Dealing with the Standard Policy Reserves When They Are Not Accumulated

III-2-8

Restrictions on the Acquisition of Voting Rights

III-2-9

Exemption from the Application of Regulations on the Dividends to Members in the Mutual Insurance
Company

III-2-10

Liability Reserve Bonds

III-2-11

Major Insurance Shareholders
III-2-11-1
III-2-11-2

Items to Be Confirmed in the Approval Examination for Major Insurance Shareholders
Matters to Be Considered in Post-approval Supervision

III-2-12

Points to Be Paid Attention to by Financial Institutions in Relation to the Enhancement Law
Matters Related to the Setting of the Targets for Improving Productivity and Financial
III-2-12-1
Soundness Through Business Restructuring in the Guideline for the Implementation of
The Matter Concerning the Definition of the Corporate Reorganization of the
III-2-12-2
The Business Type in the Structural Excess of Supply of the Implementation Guideline
III-2-12-3
The Matters Related to the Setting of the Targets for Improving Productivity andIII-2-12-4
Financial Soundness of the Implementation Guideline 3 by the Business Restructuring.
the Matter Concerning the Definition of the Specific Corporate Reorganization of the
III-2-12-5

III-2-13

Management of the Secondary activities
III-2-13-1
III-2-13-2

Management of "Other Secondary Activities"
The Agency of Business, such as the Insurance Business, or Business Agent

III-2-14

Re-recruitment of Funds

III-2-15

Creation of Explanation Documents, Public Viewing, etc.
III-2-15-1
III-2-15-2
III-2-15-3
III-2-15-4
III-2-15-5

Application of the Principles of Importance
Notes on the Items Described
Disclosure of the Amount of Risk-managed Claims and the Amount of Receivables
Classified Based on the Debtor Category
Places Where Explanatory Documents Available for Public Inspection
Points to Be Paid Attention to When Preparing Simple Supplementary Materials for
Explanatory Documents

III-2-16

Supervisory Response to Misconduct Cases, etc.

III-2-17

Calculation of solvency Margin Ratio
III-2-17-1
III-2-17-2
III-2-17-3
III-2-17-4
III-2-17-5
III-2-17-6

III-2-18

Checking the Contents of the Notification Form
Checking the Stability and Eligibility of the Capital, etc.
Check for Deduction of "Intentional Retention
Checks When Calculating the Solvency Margin Ratio
Checks When Accepting Notification of Early Redemption, etc.
Minimum Guarantee Risk for Variable Annuities, etc.Risk of Minimum Guarantee for
Variable Pension Insurance, etc.

Transfer of Insurance Contracts

III-3 Points to be Paid Attention to When Providing Administrative Guidance, etc.
III-3-1

Points to be Paid Attention to When Providing Administrative Guidance, etc.

III-3-2

Points to be Paid attention to When Conducting Interviews, etc.

Item
III-3-3

Contact and Consultation ProceduresIII-4 Points to be Paid Attention to When Carrying Out Administrative Disposals
III-4-1

The Flow of Basic Administrative Affairs Regarding Administrative Disposal (Disadvantage Disposal)
III-4-1-1
III-4-1-2

III-4-2

Administrative Disposal
The termination of the Obligation to Report the Status of Performance of the Business
Improvement Orders pursuant to Article 132 of the Act

Relationship with Administrative Procedures Law

III-5 Opinion Exchange System
III-5-1

SignificanceIII-5-2

Supervision Method and Response

IV. Points of Attention regarding Examination of Insurance Products
IV-1 General Matters
IV-1-1

Descriptions of General Policy Conditions and Special Provisions

IV-1-2

Scope of Coverage and Compensation

IV-1-3

Product Names (Names of general policy conditions and Special Provisions)IV-1-4

Risk Selection

IV-1-5

Notification Items

IV-1-6

Cause for Exemption

IV-1-7

Period during Which Contract May be Cancelled due to Violation of Notification Obligation

IV-1-8Insured Amount, Insurance Period and Scope of Eligible Age

IV-1-9Items to Be Explained to Policyholders, etc. (including customers)

IV-1-10

Method of Disclosing Cancellation Refunds

IV-1-11

Points of Attention regarding designing insurance products for corporations, etc.

IV-1-12

Matters related to Loans Based on Terms of Insurance Contracts

IV-1-13Treatment of Product Sales via Internet

IV-1-14

Products with Special Account or Accumulation AccountIV-1-15

Treatment of Group Insurance and Group Contracts

IV-1-16

Treatment of Group and Collective Insurance

IV-1-17

Confirmation of Consent of Insured Person Related to Insurance Contract on the Life of AnotherIV-1-18

Compliance with Insurance Law

IV-1-19

Treatment of cases where joint insurance contracts are underwritten

IV-2 First-sector
IV-2-1

Fixed-Term Insurance with Gradually Increasing Insurance Claims

IV-2-2

Voluntary Enrollment Group Fixed-Term Insurance

IV-3 Second-sector
IV-3-1

Automobile Insurance Contract Covering 10 or More Vehicles

IV-3-2

Insurance Contracts for Vehicles for Sale, etc.

IV-3-3Treatment of Flexible Provision System, etc.

IV-3-4Treatment of Business Activity Loss Compensation Insurance, etc.

IV-3-5Treatment of Insurance that Covers Expenses Due to Implementation of Agreement

IV-4 Third Sector
IV-4-1

Establishment of Right to Alter Actuarial Assumption Rates

IV-4-2Treatment of Application for Authorization of Exercise of Right to Alter ActuarialAssumption Rates

IV-4-3

Measures to Protect Policyholders, etc. at Time of Insurance Claims, etc. Payment

IV-5 Actuarial Standards

Item
IV-5-1

Insurance premiums

IV-5-2

Policy reserveIV-5-3

Policyholder value

IV-5-4

Application of Premium Increase or Discount Based on Past Loss Ratio, etc

IV-5-5Premium Increase and Discount Systems, etc.

IV-5-6

Adaptation to Revision of Advisory Pure Risk Premium Rate

IV-6 Examination proceduresIV-6-1Treatment of Examination Period related to Authorization and Notification of InsuranceProducts

IV-6-2

Procedures for Examination of Insurance Products

IV-6-3

Implementation of Efficient Examination of Insurance Products in View of Product SellingPlans

IV-6-4

Implementation of insurance product screening based on product and customer characteristics, etc.

V. Insurance Brokerage
V-1 Registration
V-1-1

Application form for registration

V-1-2

Guidelines for filling out the application form for registration, etc.

V-1-3

Documents to be attached to the application for registration

V-1-4

Description of attached documents

V-1-5

Handling after registration

V-1-6

Refusal of registration

V-1-7

Establishment of an appropriate insurance solicitation system

V-1-8

Notification of changes

V-1-9

Guidelines for submitting a notification of change, etc.

V-1-10

Notification of discontinuation of business, etc.

V-1-11

Handling of notification of officers or employees engaged in insurance solicitation

V-1-12

Instructions for Notification of Officers and Employees

V-1-13

Attachment to the Notification of Officers or Employees

V-2 Security Deposit
V-2-1

Notification of deposit of security deposit, etc.

V-2-2

Withdrawal of Security Deposit

V-2-3

Cancellation or change of contract in lieu of all or part of the security deposit

V-2-4

Change of custody of guarantee money, etc.

V-2-5

Types of securities that can be used as security deposit, etc.

V-2-6

Notice of Order for Additional Deposit of Security Deposit

V-3 Insurance Broker's Liability Insurance Contract
V-3-1

Insurance Broker Liability Insurance Contract in Lieu of a Portion of the Guarantee Deposit

V-3-2
V-4 Relationship with other solicitors, etc.
V-4-1

Relationship with other insurance brokers

V-4-2

Relationships with related solicitors

V-4-3

Relationship with insurance companies, etc.

V-4-4

Relationship with customers

V-5 Business relationship
V-5-1

Disclosure of commission and other fees of insurance brokers

V-5-2

Conclusion statement

V-5-3

Duty of Good Faith

Item
V-5-4

Proprietary Contracts

V-5-5

Specified contracts

V-5-6

Points to keep in mind when soliciting insurance contracts

V-5-7

Obligation of insurance brokers to maintain a system

V-5-8

Response to complaints, etc. (including response to the financial ADR system)

V-5-9

Books and documents

V-6 Business Report
V-7 Response to notifications regarding insurance brokers

VI. Relationship with the Institute of Actuaries of Japan
VI-1 Basic Approach to Supervision
VI-2 Appropriate Operation of the InstituteVI-3 Commissioned Work
VI-4 Surveys and research, preparation of statistics, collection of materials, and provision of information
VI-5 Improvement of Qualification Examination and Improvement of Qualifications of Actuaries

VII.Group-wide Supervision, etc.
VII-1 Basic Concept for Supervision
VII-2 Group-wide GovernanceVII-2-1 SignificanceVII-2-2 Major Supervisory Viewpoints
VII-3 Group-wide Enterprise Risk Management
VII-3-1 SignificanceVII-3-2 Major Supervisory Viewpoints
VII-3-3 Group-wide Control Environment for ReportingVII-3-3-1 SignificanceVII-3-3-2 Scope of the Group Subject to the Reporting Requirement
VII-3-3-3 Reporting System and Roles
VII-3-4 Comprehensive Management of Group-wide Assets and Liabilities
VII-3-5 Group-wide Control Environment for Managing Underwriting Risk
VII-3-5-1 SignificanceVII-3-5-2 Major Supervisory Viewpoints
VII-3-6 Group-wide Reinsurance Risk Management
VII-3-6-1 SignificanceVII-3-6-2 Major Supervisory Viewpoints
VII-3-7 Group-wide Control Environment for Managing Asset Investment Risk
VII-3-7-1 SignificanceVII-3-7-2 Major Supervisory Viewpoints
VII-3-8 Group-wide Control Environment for Managing Liquidity Risk
VII-3-8-1 SignificanceVII-3-8-2 Major Supervisory Viewpoints
VII-3-9 Group-wide Control Environment for Managing Operational Risk
VII-4 Appropriateness of Group-wide Business Operations
VII-4-1 Group-wide Control Environment for Compliance
VII-4-2 Group-wide Control Environment for Outsourcing of Business Operations
VII-5 Others
VII-5-1 Development of Recovery and Resolution Plans
VII-5-1-1 SignificanceVII-5-1-2 Supervisory Viewpoints, Methods and Actions
VII-5-2 Conducting Group-wide Supervision in Cooperation with Foreign Authorities

Comprehensive Guidelines for Supervision of Insurance Companies
I. Basic Ideas
I-1 Basic Concept for Inspection and Supervision of Insurance(1)

The purpose of inspection and supervision of insurance is, in view of the

public nature of the insurance business, to protect policyholders, etc. by ensuringsound and appropriate business operation of those conducting insurance
business and fairness in insurance solicitation, and thereby to contribute to thestability of the lives of the citizens and to the sound development of the national
economy (see Article 1 of the Insurance Business Act (hereinafter referred to as
the “Act”)).
(2)

The Financial Services Agency (hereinafter referred to as the “FSA”) has,since its establishment, basically been working to establish transparent and fairadministration based on clear rules.
For this reason, the FSA aims to improve the efficiency and effectiveness ofadministration in the respective areas, including supervision as well as
inspection and monitoring, and work on further clarification of rules anddevelopment of administrative procedures, etc.
In addition, in order to improve the transparency of business operations of
insurance companies (meaning “insurance companies” prescribed in Article 2(2)of the Act, “foreign insurance companies, etc.” prescribed in (7) of the said
Article, “underwriting members” prescribed in Article 219(1) of the Act, and“licensed specified corporations” prescribed in Article 223(1); the same applies
hereinafter), promote self-regulation of business operations by imposing market
discipline, and establish the principle of self-responsibility among policyholders,etc., it is also important to continually promote the enhancement of disclosuresby insurance companies.
(3)

The transparency and impartiality of administration will continue to be thebasis of administrative operations. However, formulating excessively detailed
check lists, etc. in aiming to clarify the rules and only automaticallyrepeating/continuing uniform examinations afterward based on exhaustive
examination points without conducting practical examination of the root cause of
the problem and the possibility of causing other problems due to its expansion
may cause harmful effects in insurance companies such as hindering progressin identifying really important issues taking into account the overall business
operations and the root causes of problems, resolving the root causes to prevent

1

recurrence, responding at an early stage for the future, and exhibiting originality
and ingenuity for better practical operations, etc.
The FSA will understand the actual situations and carry out unified on-site/offsite monitoring through dialogue, etc. on a continuous basis according to theprobability

of

the

occurrenceofseriousproblems

relatedtothescale/characteristics and financial soundness/compliance, etc. of each company,
prevent serious problems from occurring by taking supervisory actions, etc. as
required, and promote various efforts for better practical operations throughdialogue, etc.
(Reference) “Concepts and Approaches to Financial Inspection/Supervision (Basic
Policy on Inspection/Supervision)” (June 29, 2018)(4) Employees engaging in inspection/supervision of an insurance company shall,when performing operations, strive to ensure confidence in administration using
the following matters as code of conduct, taking into account basic concepts
described in (1) through (3).
(i) Mandate from the public and maintenance of ethics pertaining to the duties
Their operations are based on professional responsibilities entrusted by the
public, and when performing the operations, they shall be aware of the
purpose of inspection and supervision of insurance described in I-1 (1) as the
top priority issue and strive to maintain ethics pertaining to the duties, aiming
at ensuring the public trust in financial administration.
(ii) Maintenance of discipline, dignity, and confidentiality
In performing financial administration, they shall ensure the maintenance ofdiscipline, dignity, and confidentiality as well as a calm and composed
attitude.
(iii) Broad and medium- to long-term perspective
From the standpoint of the public and companies using financial services,
they shall not only settle for addressing/resolving local and short-term issues,
but also identify the root causes and work on to resolve issues at an earlystage from the broad and medium- to long-term perspective.
(iv) Impartiality and fairness
By observing appropriate procedures under laws and regulations, etc. andtaking into account the situation of each company, they shall perform
operations in a fair and impartial manner, and different treatment shall not begiven between insurance companies without reasonable grounds under laws2and regulations, etc.
(v) Respecting voluntary efforts of insurance companies
They shall be aware that in order to achieve the purpose of inspection andsupervision of insurance, voluntary efforts and originality/ingenuity of
insurance companies are essential, and give consideration in respecting
voluntary efforts regarding business operations of private insurancecompanies.
(vi) Self-improvement
In addition to various regulations on insurance and trends in insurancecompanies, including those in other countries, they shall acquire basic
knowledge

of

broad

social/economic

eventssurrounding

economic

infrastructure known as finance. In addition, when performing their operations
involving dialogue, etc., not only profound knowledge of the actual situation
specific to each company, but only analysis based on a high degree ofexpertise according to the issues concerning business analysis, governance,risk management, and asset management, etc. is necessary, and therefore
they shall make daily efforts in self-improvement to acquire these abilities.
(vii) Appropriate and close cooperation with internal/external relevant parties
In order to achieve highly effective inspection and supervision, having
broad perspective not limited to their own jurisdiction is important, andtherefore they shall cooperate with various entities both within and outside
the Agency in an appropriate and close manner.

I-2 Background Surrounding the Guidelines for Supervision(1) Review of Notifications and Establishment of the Guidelines for Administrative
Processes
Before the establishment of the Financial Supervisory Agency in June 1998,
after conducting a full review of notifications, etc. of insurance companies and as
part of transformation into transparent and fair financial administration based on
the rules, the former Ministry of Finance compiled and published the viewpoints,
etc. for the interpretation of laws and regulations, internal procedures, andsoundness of operations for promoting unified administrative operations as the“Guidelines for Administrative Processes”, which is a manual for employees
within the executive branch.

3(2) Formulation of the Comprehensive Guidelines for Supervision for Insurance
Companies
The purpose of the Act is, in view of the public nature of the insurance
business, to protect policyholders, etc. by ensuring sound and appropriate
business operation of those conducting insurance business and fair insurance
solicitation, and thereby to contribute to the stability of the lives of the citizens
and to the sound development of the national economy. Furthermore, as weenter the era of the aging of society and declining birthrate, insurance now has
the role of supplementing the public sector in social security, and with anincrease in new risks such as e-risk and soil contamination risk, etc., its
function as a mechanism to respond to various risks in corporate activities, etc.
is expanding.
Under such circumstances, it is necessary to develop an environment toenable product development and price setting to flexibly meet diversified andadvanced customer needs. In addition, developing an environment in which
policyholders, etc. can purchase insurance products through various channels
based on appropriate and sufficient information is also necessary. For thisreason, constantly reviewing operational regulations and practices in light ofthe purpose of the Act is required. In addition, further ensuring the complianceof insurance companies is also needed.
Based on these points, the basic concept, supervisory evaluation points, andthe points of attention in administrative treatment for supervisory administrationof insurance companies and insurance groups(Note) (hereinafter referred to as“insurance companies, etc.” in I) were summarized in the Guidelines in a
structured manner, taking into account the content of the conventionalguidelines for administrative processes.
The Guidelines was created to enable response to various cases with due
consideration to the actual situation of insurance companies, etc., and all thesupervisory evaluation points described in the Guidelines are not uniformly
required for each insurance company, etc.
Therefore, in applying the Guidelines, even if responses are not made byfollowing each evaluation point, consideration needs to be given not to fall into
automatic/uniform operations by noting that it will not be inadequate unlessthere is a problem from the point of view of ensuring the financial soundlessand operational appropriateness, etc. of insurance companies, etc. On theother hand, it must be noted that even if the functions related to evaluation
points are formally implemented, it may not necessarily be sufficient from the4point of view of ensuring the financial soundless or operational appropriateness,
etc. of insurance companies, etc.
(Note) An “insurance group” refers to a group of insurance companies thatmanage business operations of their subsidiary companies conducting
insurance business or insurance holding companies and their subsidiarycompanies, etc. In addition, each company comprising an insurance groupis referred to as a “group company”, and a group company that conducts
governance of the insurance group concerned is referred to as a“management company”.
(3)

RevisionoftheGuidelines

that

takes

into

account

reviewsofinspection/supervision
In 2008, although there have been disruptions such as the bankruptcy of major
investment banks in the US started from the subprime mortgage problem and theoccurrence of global financial crisis originated from this, etc., the financial markets
in Japan remained mostly stable. Subsequently, however, with a shrinkage ofdomestic markets due to the declining birthrate and aging population, globally
continued low interest rate environment, and new competitions throughtechnological innovations, etc., the business environment of insurance companies,
etc. is increasingly becoming severer, and changes in nature and location of risks
surrounding insurance companies are accelerating. Under such circumstances,
the need for insurance companies, etc. to build a sustainable business model toensure the soundness into the future through their own originality and ingenuity
and establish appropriate far-sighted control environments for compliance/riskmanagement, etc. is increasing more than ever.
In order to implement early response based on far-sighted analysis of theprobability of the occurrence of serious problems related to the financial
soundness and compliance, etc., the FSA is also conducting various reviews of
how the inspection and supervision should be from the point of view of
responding to environmental changes and the occurrence of new issues in a
flexible and preventive manner.
In June 2018, the basic concept for financial administration, how to proceed withinspection and supervision, and development of the control environment of the
Bureau were summarized to formulate the “JFSA’s supervisory approachesReplacing checklists with engagement”, providing that formal verification using
the checklists of insurance companies, etc. shall be corrected and that inspection
manuals shall be abolished from the point of view of making the use of originality

5and ingenuity easier.
In addition, in July of the same year, organizational restructuring was done toperform continuous monitoring of insurance companies effectively and efficiently,
etc., and organizational structure in which on-site inspections were previously
performed by the Inspection Bureau and a variety of hearings, etc. by theSupervisory Bureau was changed to promote the unification of on-site/off-sitemonitoring.
As part of these reviews, in December 2019, along with the abolishment of theinsurance inspection manuals, necessary revisions, etc. were also made to the
Guidelines based on the above reviews. More concretely, how the unified onsite/off-site monitoring to be conducted through the identification of actual
situations and dialogue, etc. should be and positioning of the Guidelines, etc.
have been once again made clear, and the provisions that may interfere withoriginality and ingenuity of insurance companies, etc. such as excessively
detailed particular methods were modified. These points will continue to be
discussed in the future.

I-3 Positioning of the Guidelines for Supervision for Insurance Companies(1) As a manual for employees who will take the role of inspection and supervisionof insurance companies, etc., the basic concept for inspection and supervision,and points of attention in administrative treatment, and supervisory evaluation
points, etc. were summarized in the Guidelines.
(2) Apart from the Guidelines, the FSA has presented various documents such as
the “Concept and Procedure” and a variety of principles for each area, policy foreach year, and requests to industry organizations, etc. as policies for inspection
and supervision. In performing inspection and supervision, each document shallbe used by taking into account its aim and purpose and those aims shall becarefully explained to insurance companies, etc.
(3) The sections and offices of the FSA in charge shall perform operations ofinspection and supervisory of insurance companies, etc. based on the Guidelines.
In doing so, considering that the Guidelines aims to ensure sound andappropriate operation of those operations while respecting voluntary efforts of
insurance companies, etc., the Guidelines shall be implemented with due

6consideration to individual situations of each company not to fall into
automatic/uniform treatment.
(4) In Japan, financial groups that include multiple business types have been
formed through lifting of a ban on the mutual entry of subsidiary companies indifferent types of business by the financial system reform of 1993, lifting of a ban
on financial holding companies in 1998, and establishment of provisions
concerning subsidiary companies by the Financial System Reform Act, etc.
While the formation of financial groups that include multiple business types(Note)by insurance companies, etc. can contribute to the strengthening of businessstructure and improvement of services of insurance companies, etc., complicatedorganization may cause inefficient business operations, occurrence of conflict ofinterest, increased motive for tie-in sales, spread of risks within the group, andconcentration of risks in the group, etc.
In light of such special characteristics, it is important to understand the actual
conditions of such financial groups, not only the soundness, etc. of individual
insurance companies, etc., but also the control environment for governance ofthe entire group and the financial soundness and operational appropriateness ofthe group.
In addition, even if insurance companies, etc. are financial institutions of othertypes of business, foreign financial groups, or subsidiary companies of theoperating company, etc., it is important to examine whether there is a risk ofoccurrence of above-mentioned spread of risks or concentration of risks ininsurance companies, etc. through regulatory authority to major shareholders of
insurance companies and in-depth hearings, etc.
The forms of financial groups vary, and the characteristics of risks that thegroups face and process of spreading of risks are different. As a result, theircontrol environments for governance are also naturally different, and therefore it
must be noted that, based on the actual conditions of each financial group, it isnecessary to examine those control environments.
(Note) Small amount and short term insurerance companies are treated as thesame business type as insurance companies.
II. Supervisory Evaluation Points for Insurance

7II. Supervisory Evaluation Points for Insurance
II-1 GovernanceII-1-1 Significance
While significant changes are seen in business environment surrounding
insurance business, in order for insurance companies to appropriately
understand and manage various risks themselves and ensure sound andappropriate business operation based on the principle of self-responsibility, it isimportant that the imposition of discipline on business effectively functions andgovernance is conducted appropriately.

II-1-2 Main Supervisory Viewpoints
In order to ensure the effective functioning of the governance, it is importantthat the representative director, individual directors and the board of directors,
representative executive officers, executive officers, individual auditors (in thecase of a company with a nominating committee, etc., audit committee members;
and in the case of a company with an audit and supervisory committee, membersof the audit and supervisory committee) and the board of auditors (in the case of
a company with a nominating committee, etc., the audit committee; and in thecase of a company with an audit and supervisory committee, the audit andsupervisory committee), Responsible Actuaries, and employees of all ranks
understand their roles and are sufficiently involved in the process. Of which, theresponsibilities of the representative director, individual directors and the board of
directors, individual auditors (in the case of a company with a nominating
committee, etc., audit committee members; and in the case of a company with anaudit and supervisory committee, members of the audit and supervisorycommittee) and the board of auditors (in the case of a company with anominating committee, etc., the audit committee; and in the case of a company
with an audit and supervisory committee, the audit and supervisory committee),managers, the internal audit section, external audit functions, Responsible
Actuaries, and Member Representatives Meeting are important.
In addition, considering that the Insurance Business Act requires, in view of thehighly public nature of the insurance business, insurance companies to protect
policyholders, etc. by ensuring the sound and appropriate business operation of8those conducting insurance business and fairness in insurance solicitation, thequalifications required for directors engaging in the ordinary business of an
insurance company (in the case of a company with a nominating committee, etc.,
directors and executive officers engaging in the ordinary business of an
insurance company) and auditors (in the case of a company with a nominating
committee, etc., audit committee members; and in the case of a company with anaudit and supervisory committee, members of the audit and supervisorycommittee) are extremely high.
In addition, the amendment of the Companies Act in 2014 and the regulationsof financial instruments exchanges stipulate that listed companies secure outside
directors, while the regulations also prescribe that listed companies respect the
Corporate Governance Code and make efforts to strengthen corporate
governance. As such, listed companies are required to meet a higher level ofgovernance than unlisted companies. In consideration of the above, in monitoring
the control environment for governance of insurance companies and insurance
holding companies, whether their functions are appropriately performed shall be
examined based on the following viewpoints, for example.
Whether the listed insurance company and the listed insurance holding
company (hereinafter referred to as the “listed insurance company, etc.”) aremaking efforts appropriately in accordance with the Corporate Governance Code,including the following points, in establishing a control environment forgovernance of a level required by each principle of the Corporate Governance
Code.
(Note) It shall be noted that the Corporate Governance Code adopts the socalled “principles-based approach” and the “comply or explain” (either
comply with a principle or, if not, explain the reasons why not) approach.
(1) Since independent outside directors should carry out their roles andresponsibilities to contribute to the sustained growth and improvement of
medium- to long-term corporate value of listed insurance companies, etc.,
whether the listed insurance company, etc. selects at least two independent
outside directors well-equipped with such qualifications.
In addition, whether the listed insurance company, etc. that deems it
necessary to select at least one-third of the directors to be independent outside
directors based on their independent judgment in total consideration ofbusiness type, scale, characteristics of business, institutional design, and9environment surrounding the listed insurance company, etc. discloses thepolicy for addressing it.
(2) In the case where the listed insurance company, etc. holds listed shares as
so-called cross-holding shares, whether it discloses the policy for crossholdings. In addition, whether the listed insurance company, etc. examines
returns and risks of major cross-holdings by taking into account long-term
economic rationality and future prospects and specifically explains the aims
and rationalities of cross-holdings reflecting them at the board of directors
meeting every year. Whether the listed insurance company, etc. hasformulated/disclosed the criteria for ensuring appropriate response forexercising voting rights pertaining to cross-holding shares.

II-1-2-1 In the Case of an Insurance Company That Is a Company With a Boardof Company Auditors(1) Representative Director(i) Whether the representative director counts compliance with laws andregulations, etc. among the most important management issues and isleading efforts to establish a control environment for legal compliance.
(ii) Whether the representative director fully recognizes that disregarding therisk management section may have a serious impact on corporate earnings,
and attaches importance to said section.
(iii) Whether the representative has established an internal control
environment to disclose financial information and other corporate
information in an appropriate and timely manner.
(iv) Whether the representative director, based on the recognition of theimportance of internal audits, has set appropriate objectives of internal
audits and established arrangements for enabling the internal audit section
to fully perform its functions (including securing the independence of theinternal audit section), and periodically checks the performance of thefunctions. With regard to the control environment for internal audit, whether
the representative director actively makes efforts to establish an effective
control environment in view of issues pointed out in auditor’s audits andinspections by the Bureau, etc.
In addition, whether the representative director implements appropriate

10measures based on the results of internal audits.
(v) Whether the representative director, based on an adequate recognition of
the importance and usefulness of auditor’s audits, recognizes that it isimportant to establish an environment that ensures the effectivenessthereof.
In particular, whether the representative director understands thedevelopments that address changes in the environment surrounding
auditor’s audits, for example the Auditing Standards for Auditors (Japan
Audit & Supervisory Board Members Association), and guarantees smooth
auditing activities of auditors.
(vi) Whether the representative director fully understands that banning any
relationship with anti-social forces and firmly excluding such forces arevital for maintaining public confidence in the insurance company andsecuring the appropriateness and soundness of its business. In addition,
based on this understanding, whether the representative director has
made clear, both throughout the company and to the outside, a basic
policy decided by the board of directors with due consideration of the“Guideline for How Companies Prevent Damage from Anti-Social Forces”(agreed upon at a meeting on June 19, 2007 of cabinet ministers
responsible for anti-crime measures; hereinafter referred to as the“Government Guideline” in II-1-2).
(2) Directors and Board of Directors(i) Whether directors check and prevent autocratic management by the
representative director and other officers who are responsible for businessexecution, and are actively involved in the board of directors’ decisionmaking and checking process concerning business execution.
(ii) In the case where outside directors are elected, whether the outside
directors recognize their significance from the perspective of ensuring
objectivity of decision-making concerning management, and are actively
involved in the board of directors. In addition, when deciding proposals
regarding the appointment of outside directors, whether the insurancecompany examines the personal, capital, business and other relationships
with the insurance company, in view of the roles expected of outside
directors, and carefully examines their independence and eligibility.
Furthermore, whether the insurance company has established some kindof framework so as to enable the outside directors to make appropriate

11judgments at the board of directors’ meetings, such as continuous provisionof information.
(iii) Whether the board of directors has specified a management policy basedon the overall vision of the desirable status of each insurance company.
Whether it has established management plans in line with the management
policy and communicated the plans throughout the company. Whether it
regularly reviews and revises the progress status thereof.
(iv) Whether the directors and board of directors are sincerely leading efforts
in legal compliance, and appropriately perform their functions so as toestablish a company-wide internal control environment. In addition,
whether the board of directors has decided a basic policy based on the
Government Guideline, established a framework for implementing it andclearly positioned the prevention of damage that could be inflicted by antisocial forces in the internal control system as a matter of legal complianceand risk management by, for example, periodically examining theeffectiveness thereof.
(v) Whether the directors fully recognize that timely and appropriate payment
of insurance proceeds, etc. (including all relating to the payment of
insurance proceeds, pension, benefits, maturity refund, expiration return,and cancellation return, etc.; the same applies hereinafter) may have aserious impact on ensuring sound and appropriate business operations.
(vi) Whether the board of directors fully recognizes that disregarding the risk
management section may have a serious impact on corporate earnings,
and attaches importance to said section. In particular, whether the director
in charge has in-depth knowledge and understanding of the methods ofmeasuring, monitoring and managing risks, in addition to an understandingof where risks reside and what kind of risks they are.
(vii) Whether the board of directors has established a policy for managing
risks based on strategic objectives and communicated the policy
throughout the company. Whether the risk management policy is reviewed
and revised on a periodic or as-needed basis. In addition, whether theboard of directors makes use of risk-related information in the execution ofbusiness and the development of risk management systems by making
necessary decisions based on risk-related information reported periodically,
etc.
(viii) Whether the board of directors, etc. (including the board of managing
directors and the executive management committee, etc.; the same applies

12hereinafter) appropriately allocates management resources to enableappropriate business operations for the payment of insurance proceeds,
etc. In addition, whether the board of directors, etc. checks whether thepayment of insurance proceeds, etc. is appropriately managed.
(ix) Whether the board of directors has been fostering a culture within thecompany that emphasizes and clearly indicates to employees of all ranks
the importance of governance, as well as reviewing and establishingappropriate and effective governance.
(x) Whether the board of directors, based on the recognition of theimportance of internal audits, has set appropriate objectives of internal
audits and established arrangements for enabling the internal audit section
to fully perform its functions (including securing the independence of theinternal audit section), and periodically checks the performance of thefunctions. With regard to the control environment for internal audit, whether
the board of directors actively makes efforts to establish an effective control
environment in view of issues pointed out in auditor’s audits andinspections by the Bureau, etc.
In addition, whether the board of directors approves basic mattersconcerning internal audit plans, including audit policy and priority items, inlight of the risk management status, etc., of sections subject to audits.
Furthermore, whether the board of directors implements appropriate
measures based on the results of internal audits.
(xi) In the decision process, etc. of proposals regarding the appointment of
directors engaging in the ordinary business of an insurance company,
whether elements such as the following are appropriately taken into
consideration concerning their eligibility as “knowledge and experience tocarry out business management of an insurance company in an
appropriate, fair and efficient manner” and “sufficient social credibility”
listed in Article 8-2 of the Act:
A. Knowledge and Experience to Conduct Governance in an Appropriate,
Fair and Efficient Manner
Whether the directors understand the particulars of the viewpoints
regarding governance indicated in the Insurance Business Act and otherrelevant regulations, as well as the Guidelines, and have the knowledge
and experience necessary for exercising such viewpoints, sufficientknowledge and experience regarding compliance and risk management
to conduct the operations of the insurance company, etc. in a sound and13

appropriate manner, and knowledge and experience to conduct otherbusinesses that the insurance company is authorized to perform.
B. Sufficient Social Credibility(A) Whether the directors have been involved with anti-social forces.
(B) Whether the directors are members of organized crime groupsprescribed in Article 2(vi) the Act on Prevention of Unjust Acts by
Organized Crime Group Members (including those who were formerly
members; hereinafter referred to as “members of organized crimegroups”), or have close relationships therewith.
(C) Whether the directors have been imposed a fine (including similar
punishments imposed under foreign laws and regulations thereto) for
violation of the Financial Instruments and Exchange Act and otherfinance-related laws and regulations of Japan or other foreign laws andregulations equivalent thereto, or for committing a crime under the
Penal Code or under the Act on Punishment of Physical Violence andOthers.
(D) Whether the directors have been sentenced to imprisonment withoutwork or more severe punishment (including similar punishments
imposed under foreign laws or regulations equivalent thereto).
(E) Whether the corporation to which the directors belonged or currently
belong has received administrative disposition concerning legal
compliance in the past such as a business improvement order,
business suspension order, or rescission of license, registration or
permit from the financial supervisory authorities, and whether the
directors were responsible for the cause of said disposition as the party
to the act or from a position of giving directions and orders to the party
concerned by intention or gross negligence (especially considerable
inattention despite being in a situation where it was possible to beaware of and avoid certain consequences).
(F) Whether the directors have received an order of dismissal from theposition of officer, etc. from the financial supervisory authorities.
(G) Whether the directors have been the cause of the bankruptcy, etc., ofa financial institution as an officer.
(xii) In appointing Responsible Actuaries, whether the board of directors
ensures their independence from financialfinancial auditors.
(xiii) With regard to Responsible Actuaries to be appointed by the board of
directors, whether the board of directors periodically checks whether the14

Responsible Actuaries (including the candidates) are appropriate as
Responsible Actuaries such as those striving to maintain and improve thequalifications to be regular members of The Institute of Responsible
Actuaries of Japan by taking a certain training courses, etc. in continuing
education it provides, in addition to meeting the requirements prescribed in
Article 78 of the Regulation for Enforcement of the Insurance Business Act(hereinafter referred to as the “Regulation”).
(xiv) Whether the board of directors has established a control environment toenable Responsible Actuaries to fully perform their duties by providing
Responsible

Actuaries

withnecessary

information,etc.

throughcooperation with each relevant section, etc. and periodically checks theperformance of its functions.
(3) Auditors and Board of Auditors(i) Whether the independence of the board of auditors is ensured inaccordance with the purpose of the board of auditors system.
(ii) Whether the board of auditors properly exercises the broad authority
granted thereto and conducts audits of business operations in addition toaudits of accounting affairs.
(iii) Whether the board of auditors has established a systematic audit method
for the practical operations of payment of insurance proceeds, etc.
(iv) Whether individual auditors recognize the importance of their own
independence within the board of auditors and actively take the initiative to
conduct audits.
(v) In the decision process, etc. of proposals regarding the appointment ofauditors of an insurance company, whether elements such as the following
are appropriately taken into consideration concerning their eligibility as“knowledge and experience to supervise the execution of duties of
directors of an insurance company in an appropriate, fair and efficientmanner” and “sufficient social credibility” listed in Article 8-2 of the Act:
A. Knowledge and Experience to Audit the Execution of Duties of Directorsof an Insurance Company in an Appropriate, Fair and Efficient Manner
Whether the auditors of the insurance company have sufficientknowledge and experience to actively conduct audits based on their own
independence and responsibility, as well as knowledge and experience toensure sound and proper operation of business of the insurancecompany by auditing the execution of duties of directors from an15

independent position.
B. Sufficient Social Credibility(A) Whether the auditors have been involved with anti-social forces.
(B) Whether the auditors are members of organized crime groups, or
have close relationships therewith.
(C) Whether the auditors have been imposed a fine (including similar
punishments imposed under foreign laws and regulations thereto) for
violation of the Financial Instruments and Exchange Act and otherfinance-related laws and regulations of Japan or other foreign laws andregulations equivalent thereto, or for committing a crime under the
Penal Code or under the Act on Punishment of Physical Violence andOthers.
(D) Whether the auditors have been sentenced to imprisonment withoutwork or more severe punishment (including similar punishments
imposed under foreign laws or regulations equivalent thereto).
(E) Whether the corporation to which the auditors belonged or currently
belong has received administrative disposition concerning legal
compliance in the past such as a business improvement order,
business suspension order, or rescission of license, registration or
permit from financial supervisory authorities, and whether the auditors
were responsible for the cause of said disposition as the party to theact or from a position of giving directions and orders to the party
concerned by intention or gross negligence (especially considerable
inattention despite being in a situation where it was possible to beaware of and avoid certain consequences).
(F) Whether the auditors have received an order of dismissal from theposition of officer, etc. from the financial supervisory authorities.
(G) Whether the auditors have been the cause of the bankruptcy, etc., ofa financial institution as an officer.
(Reference) Auditing Standards for Auditors (Japan Audit & Supervisory
Board Members Association)(4) Managers (Senior Managers Who Assumes the Same or Higher Level of
Responsibilities as Those of Sales Managers)(i) Whether the managers, having fully understood the location and types ofrisks and risk management method, conduct appropriate risk management,such as measuring, monitoring, and managing risks according to their

16

types, in accordance with the risk management policy.
(ii) Whether the managers, based on the policy established at the board of
directors, etc., implement measures to perform the mutual checking
function.
(5) Internal Audit Section(i) Whether the internal audit section has been established as an independent
organization so as to fully check the actions of sections subject to audit,
and is sufficiently staffed and equipped to conduct effective internal audits.
(ii) Whether the internal audit section has formulated efficient and effective
internal audit plans in consideration of frequency and depth in accordancewith the type and degree of risks and based on its understanding of thestatus of risk management, etc. by sections subject to audit andimplements efficient and effective internal audits based on the internal audit
plan.
(iii) Whether the internal audit section implements audits of all operations of
all sections, including the payment management section, based on theinternal audit implementation guidelines, etc.
(iv) Whether the internal audit section reports important issues pointed out ininternal audits without any delay to the representative director and board of
directors.
(v) Whether the internal audit section appropriately manages the status ofefforts of sections subject to audit to make improvements with regard to
problems pointed out in the internal audit reports.
(6) External Audit Functions(i) Whether the representative director and the board of directors fullyrecognize that effective external audits by financial auditors, etc. areessential to ensure sound and appropriate business operation of theinsurance company.
(ii) Whether the insurance company receives external audits regarding theeffectiveness, etc. of the internal control environment (including a control
environment for risk management) by financial auditors at least once a
year.
Whether the results of external audits are reported directly and precisely
to the board of directors or the board of directors, and contribute toensuring the effectiveness of auditor’s audits, etc.

17(Note) It must be noted that external audits here are not limited to audits offinancial statements by financial auditors, but at present external audits
other than audits of financial statements required by the system andexaminations of the effectiveness of the internal control environment tobe conducted as part of the procedure of the said audits are not required.
(iii) Whether the board of directors periodically checks whether external
audits are effectively functioning.
(iv) Whether the representative director and the board of directors also
receive reports of the results of external audits conducted at subsidiarycompanies (meaning subsidiary companies (including companies that are
deemed to be the subsidiary companies) prescribed in Article 2(12) of theAct; the same applies hereinafter) of the insurance company, subsidiarycorporations, etc. (meaning subsidiary corporations, etc. (excluding
subsidiary companies) prescribed in Article 13-5-2(3) of the Order for
Enforcement of the Insurance Business Act (hereinafter referred to as the“Order”); the same applies hereinafter), and affiliated corporations, etc.
(meaning affiliated corporations, etc. prescribed in (4) of the said Article)
appropriately as required and understand the effective functioning of
external audits at subsidiary companies, etc. by understanding the
problems, etc.
(v) Whether the board of directors give consideration to the cooperative
relationship between the internal audit section and external auditors suchas financial auditors as required.
(vi) Whether sections subject to audits make improvements with regard to
problems pointed out by external auditors such as financial auditors withina certain time period. In addition, whether the internal audit section
appropriately understands the improvement status.
(7) Coordination of Audit Functions
Whether the coordination between external audit functions and the internal
audit section or auditors and board of auditors is functioning effectively.
(8) Responsible Actuaries
In order to ensure and maintain the financial soundness of insurancecompanies, it is necessary that Responsible Actuaries appointed by theboard of directors understand their roles and are sufficiently involved inmatters concerning actuarial science of the insurance companies concerned.

18

The points of attention in doing so shall be as follows.
(i) Whether the Responsible Actuaries are granted with authorities necessaryfor executing their duties by the board of directors. In addition, in view ofthe purpose of the system, whether the mutual checking function issecured by ensuring the independence of Responsible Actuaries fromprofitable sections, profit management sections, and product development
sections, etc.
(ii) Whether the Responsible Actuaries are appropriately involved in mattersconcerning actuarial science such as insurance premium calculation
method in accordance with laws and regulations, etc. In addition, whether
they receive reports on information required for this from each relevant
section in a timely and appropriate through attending to relevant internal
meetings and fully perform their duties as Responsible Actuaries by stating
opinions as required, etc.
(iii) Whether the Responsible Actuaries appropriately check, in accordancewith laws and regulations, etc., whether policy reserves are accumulated
based on sound actuarial science.
(iv) Whether the Responsible Actuaries appropriately check, in accordancewith laws and regulations, etc., whether policyholder dividends or
distribution of surplus to employees are made in a fair and equitablemanner.
(v) Whether the Responsible Actuaries are involved in matters concerning
actuarial science set forth in laws and regulations from the point of view of
equitable treatment of policyholders and financial soundness, etc.
(vi) Whether the Responsible Actuaries conduct future cashflow analysis inaccordance with laws and regulations, etc. In particular, whether thepreconditions necessary for future projections such as the new policy
growth rate, operating cost, and asset management status, etc. are basedon the past performance and appropriate future projections.
(vii) Whether the Responsible Actuaries of a non-life insurance company(meaning a “non-life insurance company” prescribed in Article 2(4) of theAct, a “foreign non-life insurance company, etc.” prescribed in (9) of thesame Article, a specified corporation which has obtained a specified nonlife insurance business license prescribed in Article 219(2) of the Act, andits underwriting member; the same applies hereinafter) appropriately
checks, in accordance with laws and regulations, etc., whether theamounts listed in Article 73(1)(ii) of the Regulation are accumulated based19

on sound actuarial science as specified by the Commissioner of the FSA.
(viii) Whether the Responsible Actuaries submits written opinions to the boardof directors. In addition, whether the matters specified by the laws andregulations, etc. are described in the written opinions.
(ix) When the matters listed in Article 121(1)(i) of the Act (including the cases
where it is applied mutatis mutandis pursuant to Article 199 of the Act) aretobechecked,whether

contingency

reservesareappropriately

accumulated as prescribed in Articles 69 and 70 of the Regulation shallalso be checked. In particular, care shall be taken in checking therationality and appropriateness of calculating the reserve amount using
stress tests prescribed in the Public Notice of the Ministry of Finance No.
231 of June 8, 1998 in the third-sector primary insurance (meaning thethird-sector primary insurance prescribed in Article 6(1)(xii) of theRegulation; the same applies hereinafter).

(9) Member Representatives Meeting
For mutual companies, improvement of business transparency as well as
enhancement of management checking functions are required from the pointof view of public nature of insurance companies and protection ofpolicyholder, etc.
The Member Representatives Meeting is positioned as the highest
decision-making body, in place of general meeting of members, of mutualcompanies, and it is important to gain confidence of members that theintentions of members are reflected in the appoint of representative
members).
In electing the representative members, the attendance rate andknowledge of the representative members themselves, etc. which had
previously been emphasized are still important elements, but it must be notedthat the purpose of electing the representatives of the members must not behindered.

In

addition,theelecting process is requiredtoensureindependence from companies.
At the same time, it is considered appropriate to enhance provision of
information on governance by enhancing the disclosure of the agenda, etc. of
the Member Representatives Meeting by using the Internet, etc.
Furthermore, in order to reflect the intentions of the members to theMember Representatives Meeting, promoting the activation of policyholder

20

gatherings established by each company on its own initiative and cooperation
with the Member Representatives Meeting is appropriate.
Based on these, the points of attention for the Member Representatives
Meeting shall be as follows.
(i) Election of Representative members
A. Whether the number of representative members and the adequacy ofthe number are clearly and simply presented in explanatory documents.
(Note) Attention shall be paid to whether the portions describing theMember Representatives Meeting in the explanatory documents clearlystate where to submit the opinions concerning the description.
B. Whether the selection method of representative members (including theselection procedure and selection criteria) is clearly and simply
presented in explanatory documents.
(Note 1) Attention shall be paid to whether the outline of the selection
method, including the existence of any measures to allow members
who wish to become representative members to be elected as
candidate representative members, and the concept/reason for
adopting the election method concerned are described side by side.
(Note 2) Attention shall be paid to whether the portions describing theMember Representatives Meeting in the explanatory documents clearlystate where to submit the opinions concerning the description.
C. Whether the matters described in A. and B. above are explained eachtime at the regular Member Representatives Meeting.
D. Whether the structure of representative members by major insurance
type, occupation, age, period of obtaining member qualification, andregion and the entire member structure are clearly and simply describedin explanatory documents.
(Note 1) Attention shall be paid to whether there is any bias with respect
to specific industries in the structure of representative members.
(Note 2) In the case of a life insurance company (meaning a “lifeinsurance company” prescribed in Article 2(3) of the Act, a “foreign life
insurance company, etc.” prescribed in (8) of the same Article, a
specified corporation which has obtained a specified life insurance
business license prescribed in Article 219(2) of the Act, and its
underwriting member; the same applies hereinafter), the structure by
insurance type may be described based on the number of contracts bytype of insurance belonging to personal insurance/personal pension

21

insurance. In addition, for the number of contracts by insurance type
for the entire members, it shall suffice to describe it separately in
explanatory documents.
(Note 3) For the structure by occupation and the period of obtaining
member qualification, it shall be sufficient to describe the structure of
representative members by occupation and the period of obtaining
member qualification only if the data on members by occupation andthe period of obtaining member qualification are not updated/stored.
E. What measures are taken to enhance the functions of the representative
membercandidate selection committee?

(Note 1) Attention shall be paid to whether sufficient deliberations on theselection of members of the selection committee are made, from thepoint of view of contributing to fair selection of representative member
candidates, at the Member Representatives Meeting.
(Note 2) Attention shall be paid to whether the selection committee
clearly and simply explains specific representative member candidate
selection policy to the members.
(Note 3) Attention shall be paid to whether the independence of thesecretariat from the company is ensured and the secretariat is
executing its duties under the direction/judgment of the selection
committee such that, for example, the secretariat does not perform
selection operations without the direction of the selection committee.
F. What measures are taken to ensure fairness and improve transparencyof the representative member candidate selection process? In addition,
what measures are taken from the viewpoint of making the process open
to the members with willingness of participation in business operations?
(Note 1) Attention shall be paid to whether, in view of the purpose ofelecting the representative members to represent the members, therepresentative member candidates are elected from those who are
already members in the selection stage.
(Note 2) Attention shall be paid to whether the diversification of theselection method is promoted by electing a certain percentage
representative member candidates from the attendants of thepolicyholder gatherings, etc. In addition, attention shall also be paid towhether an appropriate level of the number of representative members
is selected in promoting the diversification.
G. Whether, in conducting a confidence vote, information for making a22

decision on each representative member candidate is sufficiently
provided such as representative member candidates expressing theiropinions or the selection committee explaining the purpose for selecting
each candidate, etc.
H. Whether the term of office of representative members is set to eight
years as a standard.
(ii) Member Representatives Meeting
Whether the following measures are taken at the insurance company toimprovethemanagement

checking

functionsoftheMemberRepresentatives Meeting.
A. TheMember Representatives Meeting shall report on the solvency

margin ratio along with the matters described in business reports. In thecase of a life insurance company, the status of core profits and negative
spread shall be reported.
(Note) In the case of an insurance company in the form of a stockcompany, attention shall be paid to whether similar reports are made at
the general meeting of shareholders.
B. When making a resolution of appropriation of surplus at the Member
Representatives Meeting, the lower limit of the member dividend ratioprescribed in the articles of incorporation under Article 55-2(2) of the Act
and the actual member dividend ratio, and the relationship with themeasures to enhance the capital base of each company shall be
explained.
C. Even at times when the Member Representatives Meeting is not held,
sufficient information to understand the business status shall beappropriately provided to the representative members. In addition,measures to collect opinions, etc. from the representative members shallbe formulated and measures to make the said collection measures
known to the representative members shall be taken.
D. The members who wish to observe the Member Representatives
Meeting shall be provided with opportunities to do so, and opportunities
to make comments and ask questions, etc. to the company shall be
provided immediately before and after the Member Representatives
Meeting. In addition, in order to make the said observation system known
to the members, appropriate measures shall be taken, such as postingover the counter, using notifications to policyholders, and utilizing
websites on the Internet, etc.

23

E. In the minutes of the Member Representatives Meeting, the number ofaffirmative votes and dissenting votes, etc. for each matter decided aswell as the content of explanations given by the insurance company forthe proposals, etc. submitted to the Member Representatives Meetingand the content of statements made by each representative member, etc.
shall be described in detail.
F. In the minutes of the Member Representatives Meeting shall be
disclosed to the members by utilizing websites on the Internet, etc.
(iii) Policyholder Gatherings, etc.
A. Whether policyholder gatherings are held before the Member
Representatives Meeting. In addition, whether the materials describing
major opinions/questions, etc. expressed by policyholders at thepolicyholder gatherings are attached to the notice of convocation of theMember Representatives Meeting and reported at the Member
Representatives Meeting.
B. In order to make the holding of the policyholder gatherings known to thepolicyholders, whether appropriate measures such as posting over thecounter, using notifications to policyholders, and utilizing websites on theInternet have been taken. In addition, whether the policyholders wishing
to attend the gatherings are provided with the opportunities to do so, andefforts are made to expand the opportunities for attendance, including
diversification of the date and time of holding them.
C. Whether the business status is appropriately explained to thepolicyholders at the policyholder gatherings. Whether balance sheets,summaries of profit and loss statements, and other reference materials,
etc. are sufficiently disclosed.
D. Whether diversification in the personnel selection is promoted at theboard of councilors, etc. In addition, whether specific measures havebeen taken to enhance the functions of the board of councilors, etc.
Whether balance sheets, summaries of profit and loss statements, andother reference materials, etc. are sufficiently disclosed.
E. Whether measures to make the method and procedure of offering
opinions on company management, etc. known to the members havebeen taken.

II-1-2-2 In the Case of a Company With a Nominating Committee, Etc.

24

(Note) In the case of an insurance company with a nominating committee,etc., it is necessary to examine whether the board of directors, eachcommittee, executive officers, etc., exercise their functions appropriately,
taking into account the responsibilities and authorities granted to them.
More concretely, examination should be conducted with due considerationof the actual status of each organization and delegation of authority basedon the purpose of the Guidelines.
(1) Directors and Board of Directors(i) Whether the board of directors clarifies the authority to decide theexecution of duties, such as the basic management policy, duties ofexecutive

officers,

andmatters

concerning

command

and

order

relationships and other relationships between executive officers.
Whether the board of directors has established a system to ensure thatthe execution of duties by executive officers complies with laws andregulations, as well as a system necessary to ensure the appropriatenessof operations, and periodically examines the effectiveness thereof. In
addition, with regard to the control environment for internal audit, whether
the board of directors actively makes efforts to establish an effective control
environment in view of issues pointed out in inspections by the audit
committee or the supervisor, etc.
(ii) Whether the board of directors actively makes efforts to develop a system
necessary to execute the duties of the audit committee, such as an audit
assistant system, information reporting & control system, and internal
control system.
(iii) Whether the board of directors has been fostering a culture within thecompany that emphasizes and clearly indicates to employees of all ranks
the importance of governance, as well as reviewing and establishingappropriate and effective governance.
(iv) Whether the board of directors makes use of committees andappropriately exercises its supervisory authority over business execution incoordination with the committees.
(v) Whether the board of directors has established an internal control
environment to appropriately disclose financial information and othercorporate information in a timely manner.
(vi) Whether the directors are actively involved in the board of directors'

25

decisions on business execution and the checking process concerningbusiness execution by directors and executive officers. Whether the
directors understand that establishing internal control environments suchas for legal compliance, risk management, and financial reporting (the socalled internal control system) constitutes the duty of due care and duty ofloyalty of directors, and endeavor to appropriately fulfill their obligations.
(vii) Whether the board of directors has decided a basic policy based on the
Government Guideline, established a framework for implementing it andclearly positioned the prevention of damage that could be inflicted by antisocial forces in the internal control system as a matter of legal complianceand risk management by, for example, periodically examining theeffectiveness thereof.
(viii) In the decision process, etc. of proposals regarding the appointment of
directors engaging in the ordinary business of an insurance company,
whether elements such as the following are appropriately taken into
consideration concerning their eligibility as “knowledge and experience tocarry out business management of an insurance company in an
appropriate, fair and efficient manner” and “sufficient social credibility”
listed in Article 8-2 of the Act:
A. Knowledge and Experience to Conduct Governance in an Appropriate,
Fair and Efficient Manner
Whether the directors have sufficient knowledge and experience toactively decide, at the board of directors’ meetings, matters concerning
basic management policies and internal control systems as well as
business execution, and to check the execution of duties of directors andexecutive officers, as well as the knowledge and experience to ensure
sound and proper business operation of the insurance company byconducting the governance indicated in the Insurance Business Act andother relevant regulations as well as supervisory guidelines.
B. Sufficient Social Credibility(A) Whether the directors have been involved with anti-social behaviors.
(B) Whether the directors are members of organized crime groups, or
have close relationships therewith.
(C) Whether the directors have been imposed a fine (including similar
punishments imposed under foreign laws and regulations thereto) for
violation of the Financial Instruments and Exchange Act and otherfinance-related laws and regulations of Japan or other foreign laws and26

regulations equivalent thereto, or for committing a crime under the
Penal Code or under the Act on Punishment of Physical Violence andOthers.
(D) Whether the directors have been sentenced to imprisonment withwork or more severe punishment (including similar punishments
imposed under foreign laws or regulations equivalent thereto).
(E) Whether the corporation to which the directors belonged or currently
belong has received administrative disposition concerning legal
compliance in the past such as a business improvement order,
business suspension order, or rescission of license, registration or
permit from the financial supervisory authorities, and whether the
directors were responsible for the cause of said disposition as the party
to the act or from a position of giving directions and orders to the party
concerned by intention or gross negligence (especially considerable
inattention despite being in a situation where it was possible to beaware of and avoid certain consequences).
(F) Whether the directors have received an order of dismissal from theposition of officer, etc. from the financial supervisory authorities.
(G) Whether the directors have been the cause of the bankruptcy, etc., ofa financial institution as an officer.
(ix) Whether the directors fully recognize that timely and appropriate payment
of insurance proceeds, etc. may have a serious impact on ensuring soundand appropriate business operations.
(x) Whether the board of directors, etc. appropriately allocates management
resources to enable appropriate business operations for the payment of
insurance proceeds, etc. In addition, whether the board of directors, etc.
checks whether the payment of insurance proceeds, etc. is appropriately
managed.
(xi) In appointing Responsible Actuaries, whether the board of directors
ensures their independence from financial auditors.
(xii) With regard to Responsible Actuaries to be appointed by the board of
directors, whether the board of directors periodically checks whether the
Responsible Actuaries (including the candidates) are appropriate as
Responsible Actuaries such as those striving to maintain and improve thequalifications to be regular members of the Institute of Actuaries of Japanby taking a certain training courses, etc. in continuing education it provides,
in addition to meeting the requirements prescribed in Article 78 of the27

Regulation.
(xiii) Whether the board of directors has established a control environment toenable Responsible Actuaries to fully perform their duties by providing
Responsible

Actuaries

withnecessary

information,etc.

throughcooperation with each relevant section, etc. and periodically checks theperformance of its functions.
(2) The Audit Committees, etc.
(i) Whether the independence of each committee is ensured in accordancewith the purpose of its system.
(ii) Whether the audit committee properly exercises the broad authority
granted thereto, as well as appropriately conducting audits of business
operations in addition to audits of accounting affairs and taking necessary
measures in a timely manner.
(iii) Whether the audit committee has established a systematic audit method
for the practical operations of payment of insurance proceeds, etc.
(iv) Whether the audit committee makes effective use of employees whoshould assist the duties of the audit committee, the internal audit section,
financial auditor, etc. in order to conduct audits of the compliance andadequacy of the execution of duties by the directors and executive officers.
In view of the institutional basis of the audit committee that consists
mainly of outside directors, which is to conduct so-called organizational
audits through the internal control system, whether a system is in place forthe internal audit section, in particular, to support the audit committee, incomparison to auditors of a company with auditors who are able to conduct
so-called physical audits.
(v) In the decision process, etc. of proposals regarding the appointment ofaudit committee members, whether elements such as the following areappropriately taken into consideration concerning their eligibility as“knowledge and experience to supervise the execution of duties ofexecutive officers and directors of an insurance company in an appropriate,
fair and efficient manner” and “sufficient social credibility” and “sufficientsocial credibility” listed in Article 8-2 of the Act:
A. Knowledge and Experience to Audit the Execution of Duties of Executive
Officers and Directors of an Insurance Company in an Appropriate, Fair
and Efficient Manner
Whether the audit committee members of the insurance company have28

sufficient knowledge and experience to actively fulfilling their role in the
deliberations of the board of directors concerning the establishment andadministration of the internal control system, and the knowledge andexperience to ensure sound and proper operation of business of theinsurance company by auditing the duties of executive officers anddirectors from an independent position.
B. Sufficient Social Credibility(A) Whether the audit committee members have been involved with antisocial behaviors.
(B) Whether the audit committee members are members of organizedcrime groups, or have close relationships therewith.
(C) Whether the audit committee members have been imposed a fine(including similar punishments imposed under foreign laws andregulations thereto) for violation of the Financial Instruments andExchange Act and other finance-related laws and regulations of Japanor other foreign laws and regulations equivalent thereto, or forcommitting a crime under the Penal Code or under the Act on
Punishment of Physical Violence and Others.
(D) Whether the audit committee members have been sentenced to
imprisonment with work or more severe punishment (including similar
punishments imposed under foreign laws or regulations equivalent
thereto).
(E) Whether the corporation to which the audit committee members
belonged or currently belong has received administrative disposition
concerning legal compliance in the past such as a business
improvement order, business suspension order, or rescission of license,
registration or permit from the financial supervisory authorities, andwhether the audit committee members were responsible for the causeof said disposition as the party to the act or from a position of giving
directions and orders to the company by intention or gross negligence(especially considerable inattention despite being in a situation where it
was possible to be aware of and avoid certain consequences).
(F) Whether the audit committee members have received an order of
dismissal from the position of officer, etc. from the financial supervisory
authorities.
(G) Whether the audit committee members have been the cause of thebankruptcy, etc., of a financial institution as an officer.

29

(Reference) Auditing Standards for Audit Committee (Japan Audit &Supervisory Board Members Association)(3) Executive Officers (Including Representative Executive Officers)(i) Whether the executive officers make decisions on business execution inaccordance with the basic management policy decided by the board of
directors, based on sufficient acknowledgement of authorities andresponsibilities delegated by resolution of the board of directors.
(ii) Whether the executive officers have established management plans in linewith the basic management policy and communicated the plans throughout
the company. Whether they regularly review and revise the progress status
thereof.
(iii) Whether the executive officers are sincerely leading efforts in legal
compliance, and appropriately perform their function to establish andexecute a company-wide internal control environment.
(iv) Whether the executive officers fully recognize that disregarding the risk
management section may have a serious impact on corporate earnings,
and attach importance to said section. In particular, whether the executive
officer in charge has in-depth knowledge and understanding concerning
the methods of measuring, monitoring and managing risks, in addition toan understanding of where risks reside and what kind of risks they are.
(v) Whether the executive officers have set up a policy for managing risks
based on the basic management policy and communicated the policy
throughout the company. Whether the risk management policy is reviewed
and revised on a periodic or as-needed basis. In addition, whether theboard of directors makes use of risk-related information in the execution ofbusiness and the development of risk management systems by, forexample, making necessary decisions based on risk-related information
reported periodically.
(vi) Whether the executive officers have taken measures to enable internal
audit functions to fully perform based on the recognition of the importanceof internal audits, and implements appropriate measures based on the
results of internal audits.
(vii) Whether the executive officers fully understand that banning any
relationship with anti-social forces and firmly excluding such forces are vitalfor maintaining public confidence in the insurance company and securing
the appropriateness and soundness of its business. In addition, based on

30this understanding, whether the executive officers have made clear, boththroughout the company and to the outside, a basic policy decided by theboard of directors with due consideration of the Government Guideline.
(xiii) In the appointment process of executive officers, etc., whether elements
such as the following are appropriately taken into consideration concerning
their eligibility as “knowledge and experience to carry out business
management of an insurance company in an appropriate, fair and efficientmanner” and “sufficient social credibility” listed in Article 8-2 of the Act:
A. Knowledge and Experience to Conduct Governance in an Appropriate,
Fair and Efficient Manner
Whether the executive officers understand the particulars of the
viewpoints regarding governance indicated in the Insurance Business Act
and other relevant regulations, as well as the Guidelines, and have theknowledge and experience necessary for exercising such viewpoints,
sufficient knowledge and experience regarding compliance and risk
management to conduct the operations of the insurance company, etc. ina sound and appropriate manner, and knowledge and experience toconduct other insurance businesses.
B. Sufficient Social Credibility(A) Whether the executive officers have been involved with anti-social
behaviors.
(B) Whether the executive officers are members of organized crimegroups, or have close relationships therewith.
(C) Whether the executive officers have been imposed a fine (including
similar punishments imposed under foreign laws and regulations
thereto) for violation of the Financial Instruments and Exchange Act
and other finance-related laws and regulations of Japan or otherforeign laws and regulations equivalent thereto, or for committing acrime under the Penal Code or under the Act on Punishment of
Physical Violence and Others.
(D) Whether the executive officers have been sentenced to imprisonment
with work or more severe punishment (including similar punishments
imposed under foreign laws or regulations equivalent thereto).
(E) Whether the corporation to which the executive officers belonged or
currently belong has received administrative disposition concerning
legal compliance in the past such as a business improvement order,
business suspension order, or rescission of license, registration or31permit from the financial supervisory authorities, and whether the
executive officers were responsible for the cause of said disposition as
the party to the act or from a position of giving directions and orders to
the party concerned by intention or gross negligence (especiallyconsiderable inattention despite being in a situation where it waspossible to be aware of and avoid certain consequences).
(F) Whether the executive officers have received an order of dismissalfrom the position of officer, etc. from the financial supervisory
authorities.
(G) Whether the executive officers have been the cause of thebankruptcy, etc., of a financial institution as an officer.
(4) Managers (Senior Managers Who Assumes the Same or Higher Level of
Responsibilities as Those of Managers of Sales Office)The managers of a company with a nominating committee, etc. shall be
examined in an equivalent manner as described in II-1-2-1(4).
(5) Internal Audit Section(i) Whether the internal audit section has been established as an independent
organization so as to fully check the actions of sections subject to audit,
and is sufficiently staffed and equipped to conduct effective internal audits.
(ii) Whether the internal audit section has formulated efficient and effective
internal audit plans in consideration of frequency and depth in accordancewith the type and degree of risks and based on its understanding of thestatus of risk management, etc. by sections subject to audit andimplements efficient and effective internal audits based on the internal audit
plan.
(iii) Whether the internal audit section implements audits of all operations of
all sections, including the payment management section, based on theinternal audit implementation guidelines, etc.
(iv) Whether the internal audit section reports important issues pointed out ininternal audits without any delay to the representative executive officers
and the audit committees, etc.
(v) Whether the internal audit section appropriately manages the status ofefforts of sections subject to audit to make improvements with regard to
problems pointed out in the internal audit reports.

32

(6) External Audit Functions
The external audit functions of a company with a nominating committee,
etc. shall be examined in an equivalent manner as described in II-1-2-1(6).
(7) Coordination of Audit Functions
The coordination of audit functions of a company with a nominating
committee, etc. shall be examined in an equivalent manner as described in II1-2-1(7).
(8) Responsible Actuaries
The Responsible Actuaries of a company with a nominating committee, etc.
shall be examined in an equivalent manner as described in II-1-2-1(8).
(9) Member Representatives Meeting
The Member Representatives Meeting of a company with a nominating
committee, etc. shall be examined in an equivalent manner as described in II1-2-1(9).

II-1-2-3 In the Case of an Insurance Company That Is a Company With an
Audit and Supervisory Committee(1) Representative Director(i) Whether the representative director counts compliance with laws andregulations, etc. among the most important management issues and isleading efforts to establish a control environment for legal compliance.
(ii) Whether the representative director fully recognizes that disregarding therisk management section may have a serious impact on corporate earnings,
and attaches importance to said section.
(iii) Whether the representative has established an internal control
environment to disclose financial information and other corporate
information timely in an appropriate manner.
(iv) Whether the representative director, based on the recognition of theimportance of internal audits, has set appropriate objectives of internal
audits and established arrangements for enabling the internal audit section
to fully perform its functions (including securing the independence of theinternal audit section), and periodically checks the performance of the33

functions. With regard to the control environment for internal audit, whether
the representative director actively makes efforts to establish an effective
environment in view of issues pointed out in audits by the audit andsupervisory committee and inspections by the Bureau, etc.
In addition, whether the representative director implements appropriate
measures based on the results of internal audits.
(v) Whether the representative director, based on an adequate recognition of
the importance and usefulness of audits by the audit and supervisorycommittee, recognizes that it is important to establish an environment that
ensures the effectiveness thereof.
(vi) Whether the representative director fully understands that banning any
relationship with anti-social forces and firmly excluding such forces are vitalfor maintaining public confidence in the insurance company and securing
the appropriateness and soundness of its business. In addition, based on
this understanding, whether the representative director has made clear,both throughout the company and to the outside, a basic policy decided by
the board of directors with due consideration of the Government Guideline.
(2) Directors and Board of Directors(i) Whether directors check and prevent autocratic management by the
representative director etc. who are responsible for business execution,
and are actively involved in the board of directors’ decision-making andchecking process concerning business execution.
(ii) Whether outside directors recognize their significance from theperspectiveofensuring

objectivityofdecision-making

concerning

management, and are actively involved in the board of directors. In
addition, when deciding proposals regarding the appointment of outside
directors, whether the insurance company examines the personal, capital,business and other relationships with the insurance company, in view of
the roles expected of outside directors, and carefully examines their
independence and eligibility.
Furthermore, whether the insurance company has established some kindof framework so as to enable the outside directors to make appropriate
judgments at the board of directors’ meetings, such as continuous provisionof information.
(iii) Whether the board of directors has specified a management policy basedon the overall vision of the desirable status of each insurance company.

34

Whether it has established management plans in line with the management
policy and communicated the plans throughout the company. Whether it
regularly reviews and revises the progress status thereof.
(iv) Whether the directors and board of directors are sincerely leading efforts
in legal compliance, and appropriately perform their functions so as toestablish a company-wide internal control environment. In addition,
whether the board of directors has decided a basic policy based on the
Government Guideline, established a framework for implementing it andclearly positioned the prevention of damage that could be inflicted by antisocial forces in the internal control system as a matter of legal complianceand risk management by, for example, periodically examining theeffectiveness thereof.
(v) Whether the directors fully recognize that timely and appropriate payment
of insurance proceeds, etc. may have a serious impact on ensuring soundand appropriate business operations.
(vi) Whether the board of directors fully recognizes that disregarding the risk
management section may have a serious impact on corporate earnings,
and attaches importance to said section. In particular, whether the director
in charge has in-depth knowledge and understanding of the methods ofmeasuring, monitoring and managing risks, in addition to an understandingof where risks reside and what kind of risks they are.
(vii) Whether the board of directors has established a policy for managing
risks based on strategic objectives and communicated the policy
throughout the company. Whether the risk management policy is reviewed
and revised on a periodic or as-needed basis. In addition, whether theboard of directors makes use of risk-related information in the execution ofbusiness and the development of risk management systems by, forexample, making necessary decisions based on risk-related information
reported periodically.
(viii) Whether the board of directors, etc. appropriately allocates management
resources to enable appropriate business operations for the payment of
insurance proceeds, etc. In addition, whether the board of directors, etc.
checks whether the payment of insurance proceeds, etc. is appropriately
managed.
(ix) Whether the board of directors has been fostering a culture within thecompany that emphasizes and clearly indicates to employees of all ranks
the importance of governance, as well as reviewing and establishing35

appropriate and effective governance.
(x) Whether the board of directors, based on the recognition of theimportance of internal audits, has set appropriate objectives of internal
audits and established arrangements for enabling the internal audit section
to fully perform its functions (including securing the independence of theinternal audit section), and periodically checks the performance of thefunctions. With regard to the control environment for internal audit, whether
the board of directors actively makes efforts to establish an effective
environment in view of issues pointed out in audits by the audit andsupervisory committee and inspections by the supervisor, etc.
In addition, whether the board of directors approves basic mattersconcerning internal audit plans, including audit policy and priority items, inlight of the risk management status, etc., of sections subject to audits.
Furthermore, whether the board of directors implements appropriate
measures based on the results of internal audits.
(xi) Whether the directors, based on an adequate recognition of theimportance and usefulness of audits by the audit and supervisorycommittee, recognize that it is important to establish an environment that
ensures the effectiveness thereof. When deciding proposals regarding theappointment of directors who are members of the audit and supervisorycommittee, whether the directors carefully examine their independence
and eligibility. In particular, whether the directors recognize that theappointment of outside directors who are members of the audit andsupervisory committee is compulsory from the perspective of further
improving the neutrality and independence of the audit system.
Furthermore, whether the directors have established some kind offramework so as to enable the outside directors who are members of theaudit and supervisory committee to make appropriate judgments, such ascontinuous provision of information.
(xii) In the decision process, etc. of proposals regarding the appointment of
directors engaging in the ordinary business of an insurance company,
whether elements such as the following are appropriately taken into
consideration concerning their eligibility as “knowledge and experience tocarry out business management of an insurance company in an
appropriate, fair and efficient manner” and “sufficient social credibility”
listed in Article 8-2 of the Act:
A. Knowledge and Experience to Conduct Governance in an Appropriate,36

Fair and Efficient Manner
Whether the directors understand the particulars of the viewpoints
regarding governance indicated in the Insurance Business Act and otherrelevant regulations, as well as the Guidelines, and have the knowledge
and experience necessary for exercising such viewpoints, sufficientknowledge and experience regarding compliance and risk management
to conduct the operations of the insurance company, etc. in a sound andappropriate manner, and knowledge and experience to conduct otherinsurance businesses.
B. Sufficient Social Credibility(A) Whether the directors have been involved with anti-social behaviors.
(B) Whether the directors are members of organized crime groups, or
have close relationships therewith.
(C) Whether the directors have been imposed a fine (including similar
punishments imposed under foreign laws and regulations thereto) for
violation of the Financial Instruments and Exchange Act and otherfinance-related laws and regulations of Japan or other foreign laws andregulations equivalent thereto, or for committing a crime under the
Penal Code or under the Act on Punishment of Physical Violence andOthers.
(D) Whether the directors have been sentenced to imprisonment withwork or more severe punishment (including similar punishments
imposed under foreign laws or regulations equivalent thereto).
(E) Whether the corporation to which the directors belonged or currently
belong has received administrative disposition concerning legal
compliance in the past such as a business improvement order,
business suspension order, or rescission of license, registration or
permit from the financial supervisory authorities, and whether the
directors were responsible for the cause of said disposition as the party
to the act or from a position of giving directions and orders to the party
concerned by intention or gross negligence (especially considerable
inattention despite being in a situation where it was possible to beaware of and avoid certain consequences).
(F) Whether the directors have received an order of dismissal from theposition of officer, etc. from the financial supervisory authorities.
(G) Whether the directors have been the cause of the bankruptcy, etc., ofa financial institution as an officer.

37

(xiii) In appointing Responsible Actuaries, whether the board of directors
ensures their independence from financial auditors.
(xiv) With regard to Responsible Actuaries to be appointed by the board of
directors, whether the board of directors periodically checks whether the
Responsible Actuaries (including the candidates) are appropriate as
Responsible Actuaries such as those striving to maintain and improve thequalifications to be regular members of The Institute of Responsible
Actuaries of Japan by taking a certain training courses, etc. in continuing
education it provides, in addition to meeting the requirements prescribed in
Article 78 of the Regulation.
(xv) Whether the board of directors has established a control environment toenable Responsible Actuaries to fully perform their duties by providing
Responsible

Actuaries

withnecessary

information,etc.

throughcooperation with each relevant section, etc. and periodically checks theperformance of its functions.
(3) Audit and Supervisory Committee(i) Whether the independence of the audit and supervisory committee isensured in accordance with the purpose of its system.
(ii) Whether the audit and supervisory committee properly exercises thebroad authority granted thereto, as well as appropriately conducting auditsof business operations in addition to audits of accounting affairs and taking
necessary measures in a timely manner.
(iii) Whether the audit and supervisory committee has established asystematic audit method for the practical operations of payment of
insurance proceeds, etc.
(iv) Whether the audit and supervisory committee makes effective use of
employees who should assist the duties of the audit and supervisorycommittee, the internal audit section, financial auditor, etc. in order to
conduct audits of the compliance and adequacy of the execution of duties
by the directors.
In view of the institutional basis of the audit and supervisory committeethat consists mainly of outside directors, which is to conduct so-calledorganizational audits through the internal control system, whether a system
is in place for the internal audit section, in particular, to support the audit
and supervisory committee, in comparison to auditors of a company withauditors who are able to conduct so-called physical audits.

38

(v) With regard to proposals regarding the appointment of directors who aremembers of the audit and supervisory committee that the directors submit
to the general meeting of shareholders, whether the audit and supervisorycommittee carefully examines their independence and eligibility upondeliberation of consent.
In particular, whether the audit and supervisory committee examines the
personal, capital, business and other relationships with the insurancecompany, with regard to outside auditors who are members of the audit andsupervisory committee.
(vi) In the decision process, etc. of proposals regarding the appointment of
directors who are members of the audit and supervisory committee of an
insurance company, whether elements such as the following areappropriately taken into consideration concerning their eligibility as“knowledge and experience to supervise the execution of duties of
directors of an insurance company in an appropriate, fair and efficientmanner” and “sufficient social credibility” listed in Article 8-2 of the Act:
A. Knowledge and Experience to Audit the Execution of Duties of Directorsof an Insurance Company in an Appropriate, Fair and Efficient Manner
Whether the members of the audit and supervisory committee havesufficient knowledge and experience to monitor and examine the statusof the establishment and administration of the internal control system, as
well as actively fulfilling their role in the deliberations of the board of
directors concerning the establishment and administration of the internal
control system, and the knowledge and experience to ensure sound andproper operation of business of the insurance company by auditing theduties of directors from an independent position.
B. Sufficient Social Credibility(A) Whether the members of the audit and supervisory committee havebeen involved with anti-social behaviors.
(B) Whether the members of the audit and supervisory committee aremembers of organized crime groups, or have close relationships
therewith.
(C) Whether the members of the audit and supervisory committee havebeen imposed a fine (including similar punishments imposed under
foreign laws and regulations thereto) for violation of the Financial
Instruments and Exchange Act and other finance-related laws andregulations of Japan or other foreign laws and regulations equivalent

39

thereto, or for committing a crime under the Penal Code or under the
Act on Punishment of Physical Violence and Others.
(D) Whether the members of the audit and supervisory committee havebeen sentenced to imprisonment with work or more severe punishment(including similar punishments imposed under foreign laws or
regulations equivalent thereto).
(E) Whether the corporation to which the members of the audit andsupervisory belonged or currently belong has received administrative
disposition concerning legal compliance in the past such as a business
improvement order, business suspension order, or rescission of license,
registration or permit from the financial supervisory authorities, andwhether the members of the audit and supervisory were responsible forthe cause of said disposition as the party to the act or from a positionof giving directions and orders to the party concerned by intention or
gross negligence (especially considerable inattention despite being in asituation where it was possible to be aware of and avoid certain
consequences).
(F) Whether the members of the audit and supervisory committee havereceived an order of dismissal from the position of officer, etc. from thefinancial supervisory authorities.
(G) Whether the members of the audit and supervisory committee havebeen the cause of the bankruptcy, etc., of a financial institution as an
officer.
(Reference) Auditing and Supervising Standards for Audit and Supervisory
Committee (Japan Audit & Supervisory Board Members Association)(4) Managers (Senior Managers Who Assumes the Same or Higher Level of
Responsibilities as Those of Managers of Sales Offices)
The managers of a company with an audit and supervisory committee shallbe examined in an equivalent manner as described in II-1-2-1(4).
(5) Internal Audit Section(i) Whether the internal audit section has been established as an independent
organization so as to fully check the actions of sections subject to audit,
and is sufficiently staffed and equipped to conduct effective internal audits.
(ii) Whether the internal audit section has formulated efficient and effective
internal audit plans in consideration of frequency and depth in accordance40with the type and degree of risks and based on its understanding of thestatus of risk management, etc. by sections subject to audit andimplements efficient and effective internal audits based on the internal audit
plan.
(iii) Whether the internal audit section implements audits of all operations of
all sections, including the payment management section, based on theinternal audit implementation guidelines, etc.
(iv) Whether the internal audit section reports important issues pointed out ininternal audits without any delay to the representative director and audit
and supervisory committee.
(v) Whether the internal audit section appropriately manages the status ofefforts of sections subject to audit to make improvements with regard to
problems pointed out in the internal audit reports.
(6) External Audit Functions
The external audit functions of a company with an audit and supervisorycommittee shall be examined in an equivalent manner as described in II-1-21(6).
(7) Coordination of Audit Functions
The coordination of audit functions of a company with an audit andsupervisory committee shall be examined in an equivalent manner as
described in II-1-2-1(7).
(8) Responsible Actuaries
The Responsible Actuaries of a company with an audit and supervisorycommittee shall be examined in an equivalent manner as described in II-1-21(8).
(9) Member Representatives Meeting
The Member Representatives Meeting of a company with an audit andsupervisory committee shall be examined in an equivalent manner as
described in II-1-2-1(9).
(Reference) The “Guideline for How Companies Prevent Damage from Anti-Social
Forces” (agreed upon at a meeting on June 19, 2007 of cabinet ministers
responsible for anti-crime measures) may be used as reference regarding the41

viewpoints in supervising the control environment of governance.
(Note) Hereinafter in the Guidelines, descriptions presume cases of insurancecompanies that are companies with auditors, in principle; however, in the caseof insurance companies that are companies with a nominating committee, etc.,
or companies with an audit and supervisory committee, examinations shall bemade by replacing them in accordance with the actual situation as needed,based on the purpose of the Guidelines.

II-1-3 Supervisory Method and Actions
The control environment for governance shall be examined through thefollowing hearings and daily supervisory administrative processes.
(1) Off-site Monitoring
Supervisors shall require the insurance company to continuously report on
financial accounting information and risk information, etc. to understand thestatus of the soundness of management of the insurance company at all times.
In addition, various information submitted from insurance companies shall bepromptly and effectively accumulated and analyzed.
(2) Hearings Regarding Status of Governance, etc.
Hearings shall be held regarding management challenges, management
strategies and various risks thereof, and the status of exercise of functions of
the board of directors/auditors, etc.
(3) Hearings Regarding Internal Audits, etc.
Hearings with the internal audit section of the insurance company shall beheld as necessary, with regard to its internal audit system, the status of theimplementation of internal audits, and the correction of problems, from the pointof view of identifying the status of the exercise of internal audit functions.
In addition, hearings with insurance companies’ auditors, financial auditors,
and outside directors shall be held when a particular need to do so isrecognized.
(4) Examination of Control Environment for Governance through OrdinarySupervisory Administrative Processes

42For the control environment for governance, the effectiveness of governanceshall be examined not only through the hearings described in (1) through (3)above, but also through ordinary supervisory administrative processes such as,
for example, licensing examination, reception of the notification of theappointment/resignation of directors, executive officers, auditors, audit
committee members, members of the audit and supervisory committee, andfinancial auditors, follow-up of the notice of the inspection results, notification of
misconducts, early warning system, and prompt corrective action, etc.
(5) Recording of Monitoring Results
As a result of monitoring, if a matter of particular note has arisen during thebusiness year, the records shall be updated in each case.
(6) Supervisory Actions(i) In cases where doubt has arisen about the effectiveness of an insurancecompany’s governance, steady improvement shall be promoted by holding
an in-depth hearing regarding the cause of problems and improvement
measures and, when necessary, requiring the submission of a report under
Article 128 of the Act (in the case of a foreign insurance companies, etc.
(meaning a “foreign insurance companies, etc.” prescribed in Article 2(7) of
the Act; the same applies hereinafter), Article 200 of the Act; and in the caseof a licensed specified corporation or an underwriting member, Article 226 of
the Act; the same applies hereinafter). In addition, if a serious problem isdeemed to exist, an administrative disposition shall be taken under Article
132 of the Act (in the case of a foreign insurance companies, etc., Article 204of the Act; and in the case of a licensed specified corporation or anunderwriting member, Article 230 of the Act; the same applies hereinafter).
(ii) When a director, executive officer, auditor, audit committee member, or
member of the audit and supervisory committee engaging in the ordinary
business of the insurance company is deemed to be ineligible in light of thefactors to be considered listed in II-1-2-1(2)(xi), II-1-2-2(1)(viii), II-1-2-3(2)(xii),
II-1-2-2(3)(viii), II-1-2-1(3)(v), II-1-2-2(2)(v), or II-1-2-3(3)(vi) or when thefactors are deemed not sufficiently considered in the decision process ofproposal regarding its appointment or in the appointment process, if it isdeemed necessary to ensure sound and proper business operation of theinsurance company, an in-depth hearing shall be held regarding the eligibilityof the director, executive officer, auditor, audit committee member, or43

member of the audit and supervisory committee, status of execution of
governance, the insurance company’s recognition thereof, and the decision
process of proposal regarding the appointment of directors, auditors, ormembers of the audit and supervisory committee or the election process of
executive officers or audit committee members, etc. and, when necessary,supervisors shall require the submission of a report under Article 128 of theAct. In addition, when a serious problem is deemed to exist in in the control
environment for governance as a result of the report submitted, if it isdeemed that sound and proper business operation of the insurance company
may be obstructed if the problem is left to the voluntary improvement effortsof the insurance company, a business improvement order shall be issued
under Article 132 of the Act.
(iii) When the insurance company has violated any laws or regulations, thearticles of incorporation, or a disposition by the Prime Minister under laws
and regulations or committed any act that harms public interest, if the maincause is deemed to be attributable to the lack of eligibility of a director,
executive officer, auditor, audit committee member, or member of the audit
and supervisory committee engaging in the ordinary business of theinsurance company or its representative in Japan or a significant cause isattributable to the fact that an financial auditor has violated the obligations of
its duties or neglected its duties, etc., issuing an order to dismiss the director(including the case where it is the audit committee member or the member of
the

audit

and

supervisorycommittee),executive

officer,

auditor,representative in Japan, or financial auditor under Article 133 of the Act (inthe case of a foreign insurance companies, etc., Article 205 of the Act; and in
the case of a licensed specified corporation or an underwriting member,
Article 231 or 232 of the Act; the same applies hereinafter) shall beconsidered.
(Note) The viewpoints in knowledge and experience and social credibility of
directors, executive officers, auditors, audit committee members, andmembers of the audit and supervisory committee listed in II-1-2-1(2)(xi),II-1-2-2(1)(viii), II-1-2-3(2)(xii), II-1-2-2(3)(viii), II-1-2-1(3)(v), II-1-2-2(2)(v),
and II-1-2-3(3)(vi) are based on the voluntary efforts of each insurancecompany in the election process, etc. of directors, executive officers,
auditors, audit committee members, and members of the audit andsupervisory committee, and are presented as examples of matters to bechecked by the Bureau whether the eligibility prescribed in Article 8-2 of44

the Act is appropriately determined in that process and meeting certain
matters shall not be immediately determined to be eligible. It must be
noted that in the decision process of proposals regarding theappointment of directors, auditors, audit committee members, andmembers of the audit and supervisory committee or the election process
of executive officers and audit committee members, the insurancecompany itself should, at its own responsibility, determined appropriately
by considering the qualifications of individual directors, executive officers,
auditors, audit committee members, and members of the audit andsupervisory committee, taking into account the above-mentioned
viewpoints, and in the application for a license and notification of theresignation of directors, auditors, audit committee members, andmembers of the audit and supervisory committee or the election process
of executive officers and audit committee members, etc., the insurancecompany should be held accountable to the supervisory authorities (refer
to Forms 1, 31, and 31-2 in Forms and Reference Materials).

II-2 Soundness of Financial Condition
II-2-1 Appropriateness of Accumulation of Policy Reserves, etc.
II-2-1-1 SignificanceInsurance companies are required to strive to accumulate policy reserves,etc. under the Insurance Business Act for insurance proceeds, etc. to be paid
to the policyholders in the future. The supervisors need to encourage insurancecompanies to make voluntary efforts to maintain the soundness of theirfinancial conditions through off-site monitoring and guidance for appropriate
accounting, etc., which should complement the efforts they make on their own
responsibility to ensure the accumulation of policy reserves.

II-2-1-2 Accumulation Method(1) In the insurance prescribed in Article 3(4)(i) of the Act (hereinafter referred
to as the “first-sector”) and the insurance prescribed in (ii) of the same45

paragraph of the same Article or (5)(ii) of the same Article of the Act(hereinafter referred to as the “third-sector”), whether regular policy reserves
are accumulated for contracts covered by regular policy reserve and net level
premium policy reserves are accumulated for contracts exempt from regularpolicy reserve (excluding savings-type injury insurance with the insurance
period of 10 years or less, etc. prescribed in the Notice of the FSA No. 24-2
of March 30, 2001).
(2) In the first-sector and third-sector, if so-called Zillmerized reserves areaccumulated as a rational and adequate way based on actuarial science
when there are special circumstances in light of the businesses of insurancecompanies or the property conditions and characteristics of insurance
contracts, whether the Zillmer quota is appropriate in the context of the newcontract cost level.
(3) In the case of (2) above, whether increases are made in a planner manner
for the accumulation of regular policy reserves/net level premium policy
reserves.
(4) Of the insurance contracts that fall under predetermined conditions due tospecific

diseases,predetermined

physicaldisability

conditions,predetermined conditions requiring long-term care, or any other reasons forthe exemption of the payment insurance premiums and are exempted fromthe payment of subsequent insurance premiums, whether the amount ofpolicy reserves pertaining to those insurance contracts that are automaticallyrenewable to be accumulated is calculated based on the assumption that all
automatic renewals are to made until the final expiration date of theinsurance period.
(5) Whether the accumulation standards and the accumulation limit pertaining
to “other risks” in contingency reserves I and IV are set according to the risksof surgical benefits, long-term care benefits, and other insurance benefits.
(6) Contingency reserves shall be calculated using stress tests of the thirdsector insurance in accordance with the provisions of the Notice of the
Ministry of Finance No. 231 of June 8, 1998. Whether the control
environment to secure the mutual checking function with the internal audit

46

section other than the section calculating contingency reserves and otherappropriate sections has been clearly defined in the internal rules, etc.
(7) The following points shall be considered when conducting stress tests andliability adequacy tests:(i) Whether the uncertainty of worsening of the incidence rate of insured
events is appropriately considered.
(ii) The tests shall be conducted for each contract category with the samebase rate in principle, but when the following conditions A. and B. are met,
they may be conducted together.
A. In such insurance contracts, the contents of benefits prescribed as thegrounds for payment are considered equivalent from the point of view ofthe grounds for benefit claim and risk characteristics, and theequivalence is confirmed from the past data or statistical materials.
B. The statistical materials used for the calculation of the projected
incidence rate are the same.
In a single insurance contract (in the case in which there are both a basic
policy and special provision which can each be selected and contracted,
each of them is considered as a single contract), in cases where payments
are made based on combined multiple grounds for benefit claim, theconditions A. and B. must be met for each ground for benefit claim.
However, this does not apply for insurance benefits for which the incidence
rate is sufficiently small and the risk of obstructing the performance ofobligations is extremely low.
(iii) In cases where the number of insured persons is small and statisticaltreatment is difficult, the following treatment shall be allowed.
A. In cases where a sufficient period has not passed since the start of saleand statistical treatment is difficult in stress tests or liability adequacy
tests, an appropriate actuarial science method to compensate for thelack of data, etc. by utilizing the past results or statistical materials used
to calculate the projected incidence rate may be used. However, even inthese cases, it is necessary to check for the existence of a significant
difference between the actual data and the data used for the calculationof the projected incidence rate and take appropriate actions, taking into
account the actual data.
B. When the law of large numbers is not functioning because thesolicitation of new contracts is stopped and the number of the insured is47

reduced and, as a result, application of the principle of equivalence ofincome and expenditure becomes difficult, the benefit amount of theinsurance group concerned (the amount calculated by assuming that theapplicable insurance proceeds must be paid) may be used as theamount expended in liability adequacy tests. In this case, stress tests(calculation of contingency reserve IV) shall be not applied.
(iv) For the contract category with the same base rate for stress tests andliability adequacy tests, the same ones shall be used.

II-2-1-3 Risk of Minimum Guarantee for Variable Pension Insurance, etc.
For variable pension insurance, etc. that guarantees the minimum amount of
insurance proceeds, etc., it is necessary to conduct appropriate management
and evaluation of risk of the minimum guarantee to ensure not to obstruct theperformance of obligations into the future, and rationally and appropriately
accumulate insurance premium reserve and contingency reserve III and ensuresolvency based on actuarial science, etc. In doing so, the following points shallbe considered.

II-2-1-3-1 Accumulation of Insurance Premium Reserves(1) Standard Method
The points to be considered when the standard method is used as theaccumulation method of insurance premium reserves pertaining to theminimum guarantee (hereinafter referred to as “insurance premium
reserves” in II-2-1-3) under the provisions of (5)(i) of the Establishment of
Accumulation Method and Base Rate for Calculation of Regular Policy
Reserves (Notification of the Ministry of Finance No. 48 of February 29,
1996; hereinafter referred to as the “Policy Reserve Notification” in II-2-1-3)
shall be as follows.
(i) Whether the standard formula (formula that deducts the “present valueof income for net premiums pertaining to the minimum guarantee ingeneral account” from the “present value of expense for insurance
premiums, etc. pertaining to the minimum guarantee in general account”)
is used to calculate the amount corresponding to the level that can cover48

roughly 50% of the events as a measure to address normally expectedrisks.
(ii) Whether the standard death rate (meaning the standard death rate
prepared by a designated corporation prescribed in (1)(ii) of the Policy
Reserve Notice and examined by the Commissioner of theFSA; thesame applies in (2)(ii)) for death insurance is used for insurance
contracts with guaranteed minimum death benefit and the standard death
rate for after the start of pension payment is used for insurance contracts
with guaranteed minimum accumulation benefit. In addition, whether the
standard death rate for death insurance or the standard death rate forafter the start of pension payment, whichever is more conservative withrespect to the accumulation of insurance premium reserves, is used for
insurance contracts with both guaranteed minimum death benefit andguaranteed minimum accumulation benefit.
(iii) Whether the standard interest rate (meaning the rate prescribed in (4)of the Policy Reserve Notice; the same applies in (2)(iii)) is used as thediscount rate.
(iv) Whether the rate prescribed in (5)(i)(d) of the Policy Reserve Notice as
the expected rate of return and the volatility. In addition, in the case of anasset type other than those listed in the same (d), whether the volatility
concerned has been rationally defined from the past results, etc.
(v) In cases where the expected cancellation rate is used, whether the
expected cancellation rate concerned has been rationally defined fromthe past results and nature of the product, etc. For example, whether thefollowing cases, etc. are considered.
A. Whether the cancellation rate when the balance of the amountcharged to special account is below the guaranteed minimum amountis lower than the cancellation rate when the amount charged to special
account exceeds the guaranteed minimum amount.
B. Whether the cancellation rate during the surrender period is lower
compared to the cancellation rate after the surrender period is over.
C. When the balance of the amount charged to special account before
the start of pension payment is below the guaranteed minimum amountfor insurance contracts with guaranteed minimum accumulation benefit,
whether the cancellation rate is conservatively set.
D. Whether the expected cancellation rate set is verified by comparing itwith the past cancellation results, etc.

49

(vi) In cases where other base rate for calculation is used, whether thebase rate for calculation concerned has been rationally defined from thepast results and nature of the product, etc.
(vii) When the standard formula of (i) cannot inevitably be used due to thestructure of the product, an approximative formula may be used only if
the difference with the formula concerned is small.
(2) Alternative Method
The points to be considered when using an alternative method as theaccumulation method of insurance premium reserves shall be as follows.
(i) Whether the alternative method, which is deemed to be of the equivalentlevel that secures the performance of obligations for insurance premium
reserves calculated using the standard method, is used to calculate theamount corresponding to the level that can cover roughly 50% of theevents as a measure to address normally expected risks.
(ii) Whether the standard death rate for death insurance is used for
insurance contracts with guaranteed minimum death benefit and thestandard death rate for after the start of pension payment is used for
insurance contracts with guaranteed minimum accumulation benefit. In
addition, whether the standard death rate for death insurance or the
standard death rate for after the start of pension payment, whichever ismore conservative with respect to the accumulation of insurance
premium reserves, is used for insurance contracts with both guaranteed
minimum death benefit and guaranteed minimum accumulation benefit.
(iii) Whether the standard interest rate is used as the discount rate.
(iv) Whether the expected rate of return and the volatility (limited to that
listed in (5)(i)(d) of the Policy Reserve Notice; the same applies
hereinafter in II-2-1-3-1(iv)) meet the following conditions A. through C. tobe deemed to be of the equivalent level that secures the performance ofobligations for insurance premium reserves calculated using the standard
method, except when that prescribed in the same (d) is used. In the caseof an asset type other than those listed in the same (d), whether thevolatility concerned has been rationally defined from the past results, etc.
A. the expected rate of return and the volatility shall be established basedon rational and objective grounds from the points of view of the past
results, future prospects in asset management environment, and riskneutral, etc.

50

B. The observation period, which forms the basis in determining the
expected rate of return and the volatility, shall be appropriately
established. For instance, the period from 1955 to 1973 when the stock
prices and interest rates remained at a high level for a long time shallnot be included.
C. The amount of insurance premium reserves calculated using analternative method shall not differ more than 10% from the amount of
insurance premium reserves calculated using the standard method
based on the base rate for calculation (excluding the expected rate of
return and the volatility; the same applies hereinafter in II-2-1-3-1(iv)C.)
to be used in the alternative method. However, if the calculation result
using an alternative method and that using the standard method
cannot simply be compared for such reasons as that the base rate forcalculation to be used in the alternative method cannot be reflected in
the formula for the standard method, etc., it is permissible to comparethem by narrowing down the base rate for calculation to the level thatallows comparison, for example, by excluding the base rate forcalculation that cannot be reflected in the standard method.
(v) In cases where the unexpeded cancellation rate is used, whether theunexpected cancellation rate concerned has been rationally defined fromthe past results and nature of the product, etc. For example, whether thefollowing cases, etc. are considered.
A. Whether the cancellation rate when the balance of the amountcharged to special account is below the guaranteed minimum amountis lower than the cancellation rate when the amount charged to special
account exceeds the guaranteed minimum amount.
B. Whether the cancellation rate during the surrender period is lower
compared to the cancellation rate after the surrender period is over.
C. When the balance of the amount charged to special account before
the start of pension payment is below the guaranteed minimum amountfor insurance contracts with guaranteed minimum accumulation benefit,
whether the cancellation rate is conservatively set.
D. Whether the unexpected cancellation rate set is verified by comparing
it with the past cancellation results, etc.
(vi) In cases where other base rate for calculation is used, whether thebase rate for calculation concerned has been rationally defined from thepast results and nature of the product, etc.

51

(3) Treatment of Insurance Contracts Concluded Before March 31, 2005
Although (1) and (2) above do not apply to variable pension insurance
contracts, etc. concluded before March 31, 2005 that are not covered byregular policy reserve, for those insurance contracts that guarantee theminimum amount of insurance proceeds, etc., future cashflow analysis
shall be conducted every accounting period from FY2005 onward andwhen a shortage in insurance premium reserves is expected to occur,
efforts shall be made to protect the policyholders by accumulating required
reserves.
(4) Treatment of Hedge and Reinsurance(i) Whether insurance premium reserves calculated using the standard
method or an alternative method are accumulated regardless of thepresence or absence of hedge operations.
(ii) Whether insurance premium reserves calculated using the standard
method or an alternative method are accumulated in cases where theminimum amount of insurance proceeds,etc. guaranteed is covered byreinsurance for which the amount to be retained/ceded is determinedbased on the amount at risk pertaining to the insurance proceeds, etc.
concerned.

II-2-1-3-2 Contingency Reserve III
The points to be considered when accumulating contingency reserve III
shall be as follows.
(1) Of variable pension insurance contracts, etc. concluded before March 31,
2005, whether contingency reserve III is also accumulated for insurance
contracts that guarantee the minimum amount of insurance proceeds, etc.
(2) Whether contingency reserve III is accumulated, regardless of thepresence or absence of hedge operations, as prescribed in Article 3-2 ofthe Standards on Accumulation and Reduction specified by theCommissioner of the FSA under the provisions of Article 69(7) of theRegulation, etc. (Notice of the Ministry of Finance No. 231 of June 8, 1998).

52

(3) Whether, in cases where reinsurance is effected, a deduction is made to
the extent not exceeding the part transferred by cession whenaccumulating contingency reserve III.

II-2-1-4 Accounting
The points to be considered when insurance companies implement
appropriate accounting for the accumulation of policy reserves, etc. shall be as
follows.
(1) Future Cashflow Analysis(i) When the Responsible Actuaries conduct future cashflow analysis tocheck the matters listed in Article 121(1)(i)/(iii) of the Act (including thecases where it is applied mutatis mutandis pursuant to Article 199 of theAct) based on the accreditation standards prescribed in Article 2 of the
Notice of the FSA/Ministry of Finance No. 22 of June 23, 2000, if a
scenario that is different from the basic scenario prescribed in the said
accreditation standards is used, what scenario is used and the grounds
indicating the rationality, etc. shall be appropriately disclosed.
(ii) When disclosing the matters listed in Article 59-2(1)(iv)(c) of theRegulation, at least the following matters shall be disclosed in an easy-tounderstand manner.
A. The concept of ensuring the appropriateness of accumulation of policy
reserves in the third-sector
B. Rationality and adequacy of the level set for the frequency of risk inliability adequacy tests/stress tests
C. Test results (amount of additional policy reserves (insurance premium
reserves/unexpired insurance premiums) and contingency reserves)(2) Written Opinions of Responsible Actuaries
Future cashflow analysis is used to check whether policy reserves areappropriately accumulated based on sound actuarial science not to cause ashortage in the future. The points to be considered when requestingResponsible Actuaries to provide explanation for written opinions on future
cashflow analysis of insurance companies and when requesting the53management to provide explanation for their views on the said written
opinions and responses are considered to be as follows.
(i) Whether Responsible Actuaries appropriately perform checking inaccordance with the standards authorized by the Commissioner of the
FSAfor checking operation under the provisions of Article 121 of the Act(hereinafter referred to as the “standards of practice”).
(ii) When a scenario that is different from the basic scenario prescribed in thestandards of practice is used, whether it is a rational one that takes into
account the actual management conditions of the insurance company.
(iii) In cases where it is not judged, based on future cashflow analysis, thatthe current policy reserves are at a level that is not deemed to obstruct theperformance of obligations in the future, if it is described in the written
opinions that part or all of an amount equivalent to the said shortage ofpolicy reserves will not be required to be accumulated because ofchanging the management policy, whether the grounds (plans, etc.)
indicating whether the changes to the said management policy are to bemade immediately are presented. In this case, whether it is presented in
the written opinions of the next or following years that the changes to thesaid management policy are actually made.
(iv) In cases where it is not judged, based on future cashflow analysis, thatthe current policy reserves are at the level that is not deemed to obstruct
the performance of obligations in the future, if the said amount of shortageof policy reserves cannot be resolved by changing the management policy
and it is necessary to accumulate additional policy reserves under theprovisions of Article 69(5) or Article 70(3) of the Regulation, whether arational policy reserve accumulation plan that takes into account the actual
management conditions of the insurance company has been formulated
and appropriate measures such as accumulating them by changing the
documents listed in Article 4(2)(iv) of the Act have been taken.
(3) Treatment of Reinsurance in Which the Amount of Reinsurance Premiums
or Reinsurance Proceeds Is Adjusted Afterword
In cases where the insurance company has effected reinsurance in which
the amount of reinsurance premiums or reinsurance proceeds is adjusted
afterward to cover insurance contracts, if the additional payment ofreinsurance premiums or return of reinsurance proceeds (hereinafter referred
to as “additional payment of reinsurance proceeds, etc.”) is finalized, whether

54the full amount of liabilities corresponding to the additional payment of thereinsurance premiums, etc. (including the required allowance being made if
the additional payment of reinsurance premiums is likely to occur in the future
and the full amount can be rationally estimated) is recorded for theaccounting period concerned (excluding the cases where adjustment to bemade afterward is not an important factor in the reinsurance contract
concerned).
(4) Insurance Premium Reserves
When calculating policy reserves pertaining to insurance contracts that fallunder the following (i) or (ii) or the part thereof, they shall not be categorized
into “insurance premium reserves” prescribed in Article 69(1)(i), Article70(1)(i)(a), Article 150(1)(i), and Article 151(1)(i)(a) of the Regulation for thetime being, but categorized into unexpired insurance premiums prescribed in
Article 69(1)(ii), Article 70(1)(i)(b), Article 150(1)(ii), and Article 151(1)(i)(b) of
the Regulation.
(i) Insurance contrasts in which the amount calculated by multiplying theinsurance premiums equally received by the factors that depend on theremaining period is set as policy reserves to be accumulated, and the fullamount calculated by the same method is returned when the contractceases.
(ii) Insurance contracts pertaining to the insurance listed in Article 3(5)(i) of
the Act (excluding insurance contracts that are combined with theinsurance listed in Article 3(5)(ii) and (iii) of the Act and whose insurance
premiums cannot be categorized)(5) Recording of Revenue, etc.
Revenue, etc. of non-life insurance companies shall be recorded as follows.
(i) Recording of Direct Writing Premiums
For contracts for which reports on money received, written applications,and other documents necessary for recording the insurance premiums
have arrived before the account closing date, direct writing premiums shallall be recorded as revenue for the fiscal year concerned.
However, this shall not apply to those for which the above-mentioned
documents have arrived before the account closing date, but the insurance
premium rate could not be examined/determined or the existence of
insurance liabilities could not be confirmed due to deficiencies in their55

content.
When processing account settlement, particular attention shall be paid todelay in arrival of the above-mentioned documents or deficiencies in theircontent, and efforts shall be made to prevent delay of insurance premiums
recorded until the next fiscal year or omission of recording to the extent
possible.
(ii) Recording of Installment Premiums
For the recording of installment premiums pertaining to hull insuranceetc.,
the first installment premiums shall be treated in an equivalent manner as
described in (i), and the subsequent installment premiums for which themonth corresponding to the insurance premium payment due dateprescribed in the policy conditions of the contract concerned has comebefore the account closing date shall be recorded as revenue for the fiscal
year concerned.
(iii) Recording of Assumed Reinsurance Premiums
If recording of assumed reinsurance premiums is handled in a uniform
and continuous manner based on the recording standards established byeach company before the old Guideline for Administrative Processes was
issued, it is permissible to record reinsurance premiums received as
specified in the said standards.
In the case of a company established after the old Guideline for
Administrative Processes was issued, whether the said recording
standards of the company is rational in light of past examples shall beconsidered.
(iv) Reimbursement Right and Accounting of Salvage
For the reimbursement right obtained from the policyholders by thepayment of insurance proceeds or salvage, the amount expected to be
recovered by executing the said reimbursement right (excluding one forwhich a judicial decision or agreement between the parties has not beenobtained) or selling out the salvage shall be deducted from the payment
reserves for the fiscal year concerned in accounting.
(6) Reversal of Price Fluctuation Reserves(i) If the amount of reversal of price fluctuation reserves in insurancecompanies exceeds the amount (if it is a negative number, zero shall beused) calculated by deducting the amount of profits due to buying andselling, etc. of shares, etc. prescribed in Article 115(2) of the Act56

(hereinafter referred to as the “amount of profits due to buying and sellingof shares, etc.”) from the amount of the losses due to buying and selling,etc. of shares, etc. prescribed in the same paragraph (hereinafter referred
to as the “amount of losses due to buying and selling of shares, etc.”), thereversal shall be carriedout after obtaining approval fromtheCommissioner of the FSA under the proviso to Article 115(2) of the Act.
With regard to the amount of reversal of price fluctuation reserves in nonlife insurance companies, the total amount of the following amounts shallbe reversed.
In addition, the amount of reversal of price fluctuation reserves ininsurance companies shall not exceed the amount remaining at the end of
the previous term.
A. Total of the amount calculated by deducting the amount of profits due tobuying and selling of shares, etc. from the amount of losses due tobuying and selling of shares etc. and the amount to be transferred toreserves for dividend to policyholders (employees), etc. prescribed below(in the case of a non-life insurance company, the amount prescribed in(A), and in the case of a mutual non-life insurance company, the amountprescribed in (B)). However, if it is a negative number, zero shall be used.
(A) In cases where an accumulation account prescribed in Article 30-3(1)of the Regulation as applied mutatis mutandis pursuant to Article 63 of
the Regulation has been established, for assets covered by pricefluctuation reserves in the said account, the amount calculated bydeducting the amount of the losses due to buying and selling of sharesprescribed in Article 115(2) of the Act from the amount of profits due tobuying and selling, etc. of shares, etc. prescribed in the same
paragraph that is identified in the said account.
(B) The amount limited to the amount transferred from reserves for
dividend to employees.
B. In cases where the amount calculated by deducting the amount referred
to in A. above from the amount of price fluctuation reserves remaining at
the end of the previous term exceeds the maximum amount prescribed in
the second sentence of Article 66 of the Regulation, that amount ofexcess.
C. The amount other than above for which there are adequate compelling
reasons.
(ii) The following amount shall be included in the calculation of the amount of57

losses due to buying and selling of shares, etc. and the amount of profits
due to buying and selling of shares, etc. for price fluctuation reserves.
A. The amounts of profits (losses) from sales, profits (losses) from valuationof assets, and foreign exchange profits (losses) generated throughmargin transaction prescribed in Article 156-24(1) of the Financial
Instruments and Exchange Act, transactions listed in Article 47(ix) (orArticle 139 of the Regulation) through (xii) of the Regulation, and anyother transactions equivalent thereto (excluding interest rate-related
financial derivatives transactions) pertaining to assets covered by pricefluctuation reserves.
B. The amount of profits (losses) on the contribution of assets to retirement
benefit trust to be recorded at the time of creation of the trust.
(iii) When receiving an application for approval under the proviso to Article
115(1) of the Act, whether the amount falls under any of the following items
shall be considered.
A. In cases where the total amount of A. thorough C. of (i) above exceeds
the amount of price fluctuation reserves remaining at the end of theprevious term, that amount of excess.
B. In the case of a non-life insurance company, when assets corresponding
to policy reserves, etc. for earthquake insurance are categorized into
other assets in accounting, the amount equivalent to the amountaccumulated pertaining to assets corresponding to the said policy
reserves, etc. (in this case, the amount of losses due to buying andselling of shares, etc. and the amount of profits due to buying and sellingof shares, etc. pertaining to assets corresponding to the said policy
reserves, etc. shall be excluded from the calculation of the amount ofreversal in (i) above, and assets corresponding to the said policy
reserves, etc. shall be excluded from the calculation of the maximum
amount prescribed in the second sentence of Article 66 of theRegulation).
C. The amount other than above for which there are adequate compelling
reasons.
(7) Treatment of Contingency Reserves for Earthquake Insurance
Reversal of contingency reserves for advertisement/promotion costs in
non-life insurance companies shall be appropriately carried out.

58

(8) Non-Accumulation of Policy Reserves When Reinsurance Is Effected to
Cover Insurance Contracts(i) If reinsurance is effected to cover insurance contracts, it is permissible notto accumulate policy reserves corresponding to the part for which the said
reinsurance is effected. Whether this treatment is permissible shall be
determined with attention paid to whether the said reinsurance contract isof the nature to ensure transfer of risks into the future and whether the
possibility of recovering reinsurance proceeds, etc. pertaining to the said
reinsurance contract is high or not.
When evaluating the possibility of recovery, at least the financial
conditions of the insurance company or foreign insurer (meaning a “foreign
insurer” prescribed in Article 2(6) of the Act; the same applies hereinafter)that assumed the reinsurance contract shall be understood in as muchdetail as possible.
(ii) A “foreign insurer which is not likely to prejudice the soundness ofbusiness management of the Insurance Company which is the reinsurer”
prescribed in Article 71(1)(iv) of the Regulation shall mean, for instance,
any of the following foreign insurers.
A. The foreign insurer for which the percentage of the maximum amount ofreinsurance proceeds to be paid by the said foreign insurer due to asingle insured event pertaining to a single reinsurance contract assumed
by the said foreign insurer from the said ceding company in total assetsof the insurance company that has effected reinsurance to cover
insurance contracts (hereinafter referred to as the “ceding company”) is
less than 1% (excluding the cases where the said foreign insurer may
possibly terminate the payment of reinsurance proceeds or has clearlyterminated the payment of reinsurance proceeds).
B. In cases where the ceding company has not accumulated liability
reserves corresponding to the part for which reinsurance is effected, theforeign insurer that assumed the said reinsurance (excluding the cases
where the said foreign insurer may possibly terminate the payment ofreinsurance proceeds or has clearly terminated the payment ofreinsurance proceeds).
(9) Payment Reserves for Assumed Treaty Reinsurance From a Foreign
Country
With regard to payment reserves for assumed treaty reinsurance from a59foreign country, even when event reports cannot be obtained from the ceding
insurer, etc. due to a difference with the accounting system of the said ceding
country, etc. and other circumstances, if the amount of the said reserves canbe calculated using a rational method by taking into account the recent actual
values, that amount shall be accumulated as ordinary payment reserves.
(10) Treatment of Taxable Policy Reserves Associated With the Introduction ofTax Effect Accounting
For non-life insurance companies which apply tax effect accounting, thepoints to be considered for the treatment of policy reserves in the first fiscal
year of the application shall be as follows.
In addition, the following (i) and (ii) shall also be considered for non-life
insurance companies to which do not apply tax effect accounting.
(i) The amounts of the respective taxable reserves for automobile damage
liability insurance at the start of the fiscal year shall be the amounts
calculated by adding the amount equivalent to corporate tax calculated
based on the said reserves at the end of the previous fiscal year to theamounts of the said reserves at the end of the previous fiscal year as an
adjustment item.
(ii) The amount of contingency reserves for earthquake insurance at the startof the fiscal year shall be the amount calculated by adding the amountequivalent to corporate tax calculated based on taxable contingency
reserves at the end of the previous fiscal year to the amount ofcontingency reserves at the end of the previous fiscal year as an
adjustment item.
However, if an insurance company has concluded a reinsurance contractprescribed in Article 3(1) of the Act on Earthquake Insurance (Reinsurance
by the Government) with the government, this shall not apply to the said
company.
(iii) The amounts of extraordinary contingency reserves and reserves for
dividend to policyholders at the start of the fiscal year shall be the amountcalculated by adding the amount equivalent to corporate tax calculated
based on the taxable said reserves at the end of the previous fiscal year to
the amount of the said reserves at the end of the previous fiscal year as an
adjustment item.
However, the upper limit of the total amount to be added as an
adjustment item shall be the amount calculated by deducting the amount of60

B. and C. below from the amount of A. below (if it is a negative number,
zero shall be used).
A. The amount of deferred tax assets based on the temporary differencesin prior years to be recorded for the first fiscal year in which tax effectaccounting is applied.
B. The amount equivalent to corporate tax, etc. added as an adjustment
item in (i) above for automobile damage liability insurance.
C. The amount equivalent to corporate tax, etc. added as an adjustment
item in (ii) above for earthquake insurance.
(11) Treatment of Statement of Calculation Procedures for Policy Reserves, etc.
Associated With the Introduction of Tax Effect Accounting
Non-life insurance companies which apply tax effect accounting shall
implement the following measures for the statement of calculation proceduresfor policy reserves, etc. by the end of the first fiscal of the application
In addition, non-life insurance companies to which do not apply tax effectaccounting shall also implement the following measures (i) and (ii).
(i) In the statement of calculation procedures for Policy reserves forautomobile damage liability insurance, the provisions concerning thededuction of an amount equivalent to corporate tax, etc. pertaining to theaccumulation and reversal of the respective reserves shall be deleted. In
addition, the provisions concerning the accumulation and reversal at thetime of the tax rate change shall be newly established.
Insurance companies that has implemented the above measures are
deemed to have applied tax effect accounting in Article 2 (ii) of the Order on
the accumulation, etc. of reserves prescribed in Article 28-3(1) of the Act on
Securing Compensation for Automobile Accidents.
(ii) In the statement of calculation procedures for policy reserves forearthquake insurance, the provisions concerning the accumulation andreversal at the time of the tax rate change shall be newly established.
However, if an insurance company has concluded a reinsurance contractprescribed in Article 3(1) of the Act on Earthquake Insurance (Reinsurance
by the Government) with the government, this shall not apply to the said
insurance company.
(iii) In the statement of calculation procedures for policy reserves for lines forwhich reserves for dividend to policyholders are accumulated andAppendix on detailed rules concerning the operation of accumulation61

account of the statement of business procedures, the provisions
concerning the deduction of the amount equivalent to corporate tax, etc.
pertaining to the accumulation and reversal shall be deleted.
(iv) In the statement of calculation procedures for policy reserves for eachline, the provision rate of extraordinary contingency reserves and the
maximum rate shall be revised. The said provision rate and maximum rate
after the revision shall be the rate obtained by the following formulas inprinciple.
A. Provision rate after the revision= Provision rate before the revision (excluding the taxable part) + Provision
rate before the revision (taxable part)/ (100% - effective tax rate)(Note) The rate (percentage) shall be rounded up to the nearest tenth.
B. Maximum rate after the revision＝ Maximum rate before the revision / (100% - effective tax rate)(Note) The rate (percentage) shall be rounded up to the nearest ten.
(12) Disclosure of Ceded Policy Reserves
When noting the amount of ceded policy reserves prescribed in Appended
Form No. 7, 7-2, 12, and 12-2 of the Regulation, the amount corresponding
to the part provided for reinsurance effected (hereinafter referred to as“ceded part”), which is deducted in the calculation of insurance premium
reserves, unexpired insurance premiums and refund reserves, shall be noted.
In this case, if the amount of unexpired insurance premiums is calculated
based on the figures from which the ceded part is deducted and the amountof unexpired insurance premiums corresponding to the ceded part(hereinafter referred to as “unexpired ceded reinsurance premiums”) isdifficult to identify, the amount calculated using the following formula shall beable to be noted as the amount of unexpired ceded reinsurance premiums.
Unexpired ceded reinsurance premiums = Net ceded reinsurance
premiums × Unexpired insurance premiums / Net premium income
However, if a more rational and adequate calculation method is available inlight of the accounting standards that are generally accepted as fair andadequate, notwithstanding the above formula, the amount calculated using
the said calculation method shall be able to be noted as the amount of62

unexpired ceded reinsurance premiums.
(13) Disclosure of Ceded Payment Reserves
When noting the amount of ceded payment reserves prescribed inAppended Form No. 7, 7-2, 12, and 12-2 of the Regulation, if the amount of
insurance proceeds for which the occurrence of the grounds for payment
have not been reported but the grounds for payment prescribed in theinsurance contract are deemed to have already been occurred (hereinafterreferred to as “payment reserves for incurred but not reported losses”) is
calculated based on the figures from which the ceded part is deducted asprovided in Article 2(3) of the Notice of the Ministry of Finance No. 234 ofJune 8, 1998 (hereinafter referred to as the “Notice” in (13)) and the amountof payment reserves for incurred but not reported losses corresponding to theceded part is difficult to identify, the amount calculated using the following
formula shall be able to be noted as the amount of payment claims reserves
for incurred but not reported losses.
However, if a more rational and adequate calculation method is available inlight of the accounting standards that are generally accepted as fair andadequate, notwithstanding the following formula, the amount calculated using
the said calculation method shall be able to be noted as the amount of ceded
payment reserves for incurred but not reported losses.
Ceded payment reserves for incurred but not reported losses= Net payment reserves for incurred but not reported losses × Ordinary
ceded payment reserves/ Net ordinary payment reserves(14) Calculation of Large-Scale Natural Disaster FundThe points to be considered when calculating the large-scale natural
disaster fund prescribed in Article 1-2 of the Notice of the Ministry of FinanceNo. 232 of June 8, 1998 shall be as follows.
(i) The calculation shall be made using a rational risk model, such as themodel used by the General Insurance Rating Organization of Japan to
calculate the risk curve corresponding to the large-scale natural disasterrisk pertaining to the direct insurance contract (hereinafter referred to as
the “large-scale natural disaster model”).
(ii) When deducting the part for which reinsurance is effected, the calculation
shall be made using a rational method, for example, one that falls under63

any of the following, according to the actual conditions of the risk. In doingso, if there is a part that does not involve transfer of insurance underwriting
risk in the part for which reinsurance is effected, the amount deducted shallcorrespond to a substantial reinsurance recovery effect.
A. Calculate the large-scale natural disaster fund by calculating the risk
curve corresponding to the estimated net insurance proceeds paid byreflecting the reinsurance effect in the risk curve of the large-scale
natural disaster model and using it.
B. Calculate the percentage of the part for which reinsurance is effected on
the basis of ceded premiums and deduct it.
(15) Calculation of Unexpired Insurance Premiums, etc. Corresponding toLarge-Scale Natural Disaster Risks
The points be considered when calculating the unexpired insurance
premiums prescribed in Article 1-2 of the Notice of the Ministry of Finance No.
232 of June 8, 1998 (hereinafter referred to as the “Notice” in (15)) and theextraordinary contingency reserves prescribed in Article 2 shall be as follows.
(i) Fire insurance prescribed in Article 1-2 and Article 2(2) of the Notice shall
include fire mutual insurance, building endowment insurance, andpermanent insurance with maturity repayment.
(ii) The unit of account required for calculation shall be segmented andconsolidated in a rational manner.
(iii) If the premium income prescribed in Article 1-2 of the Notice is discounted
based

on

the

assumedinterest

rate,

the

insurance

premiums

corresponding to the fiscal year shall be calculated by adding the amountequivalent to the expected interest calculated using the following formula.
Amount equivalent to the expected interest = Unexpired insurance
premiums before adding the amount equivalent to the expected interest×
Assumed interest rate / (1 + Assumed interest rate)(iv) The amount of earned premiums other than for the large-scale natural
disaster fund prescribed in Article 1-2 of the Notice shall be the amountrationally calculated on the basis of the past results of incurred claims(excluding incurred claims pertaining to the large-scale natural disaster riskprescribed in Article 1-2 of the Notice) and the past results of operating
costs (excluding the cases where the amount of operating costs or incurred64

claims is temporarily deemed to be high for the reason of the calculation
period being short, etc., and the other rational method is used for
calculation). In addition, the said amount shall be no larger than theamount of insurance premiums corresponding to the fiscal year concerned
calculated on the basis of premium income.
(16) Disclosure of Indicators, etc. of Insurance Contracts(i) Policy reserves before deduction by ceded reinsurance and payment
reserve before deduction by ceded reinsurance, which are required for
calculating the “percentage of the total amount of incurred losses and loss
investment costs to the earned premiums” prescribed in the Appended
Form of the Regulation (related to Article 59-2(1)(iii) (non-life insurancecompany)), shall be calculated as specified in (12) and (13).
(ii) If a reinsurance contract of a foreign non-life insurance company, etc.
(meaning “foreign non-life insurance company, etc.” prescribed in Article
2(9) of the Act, a specified corporation which has obtained a specified nonlife insurance business license prescribed in Article 219(2) of the Act, andits underwriting member; the same applies hereinafter) is arranged for agroup including the foreign non-life insurance company, etc. concerned andcategorizing the reinsurance pertaining to the foreign non-life insurancecompany, etc. concerned is difficult, the disclosure of the framework for risk
management prescribed in Article 59-2(1)(iv)(a) of the Regulation (limited
to disclosure pertaining to reinsurance) and the disclosure of indicators, etc.
of insurance contracts prescribed in the Appended Form of the Regulation(related to Article 59-2(1)(iii) (non-life insurance company)) may be madeby disclosing them as indicators for the group concerned.
(17) Category of Insurance Lines for Disclosure(i) The “category of insurance lines” prescribed in the Appended Form of theRegulation (related to Article 59-2(1)(iii)(c) (non-life insurance company))
shall be fire insurance, marine insurance, injury insurance, automobile
insurance, automobile damage liability insurance, liability insurance,
credit/guarantee insurance, and other insurance. However, liability
insurance and credit/guarantee insurance may be treated as breakdown ofother insurance, and insurance lines for which the percentage of net
premium income is less than 5% of the percentage of net premium incomeof total insurance lines may be categorized into other insurance.

65

* With regard to the disclosure category of third-sector insurance with theloss ratio prescribed in item (iii) of the paragraph concerning indicators,
etc. of insurance contracts in the Appended Form of the Regulation,
injury insurance shall at least be categorized into medical, cancer, longterm care, and other products.
However, if significant information cannot be obtained due to extremely
small sales volume, it may be included in an appropriate category with anote to that effect.
(ii) The “type of insurance contract with long average payment term”
prescribed in Article 59-2(1)(iii)(e) of the Regulation shall be injury
insurance, automobile insurance, and liability insurance.
(iii) The “categorization of grounds for benefit claim or insurance type”
prescribed in item (x) of the paragraph concerning indicators, etc. of
insurance contracts of the Appended Form of the Regulation (related to
Article 59-2(1)(iii)(c) (life insurance company)) shall at least be categorized
into medical (sickness), cancer, long-term care, and others.
However, if significant information cannot be obtained due to extremely
small sales volume, it may be included in an appropriate category with anote to that effect.
(18) Matters Related to Ship Owners’ Mutual Protection and Indemnity
Association(i) Policy Reserves for Reinsurance Contracts(ii) A “person who is not likely to prejudice the soundness of managementof the association” prescribed in Article 51(iv) of the Regulation for
Enforcement of the Ship Owners’ Mutual Insurance Association Act shallmean, for instance, any of the following foreign insurers.
A. An association of the same type located in a foreign country as the shipowners’ mutual protection and indemnity association (hereinafter referred
to as an “association of the same type”) that is a party to the agreement
concluded among associations of the same type to share a certain
percentage of insurance proceeds to be paid to a single insured eventthat exceeds a certain amount (hereinafter referred to as the “Pooling
Agreement of the International P&I Group”).
B. The foreign insurer for which the percentage of the maximum amount ofreinsurance proceeds it is to pay due to a single insured event pertaining
to a single reinsurance contract assumed by the foreign insurer from the66

ceding association to cover insurance contracts (hereinafter referred toas the “ceding association”) of the total assets of the said ceding
association is less than 3% (excluding the cases where the said foreign
insurer may possibly terminate the payment of reinsurance proceeds, etc.
or has clearly terminated the payment of reinsurance proceeds).
C. In cases where the ceding association has not accumulated policy
reserves corresponding to the part for which reinsurance is effected, theforeign insurer that assumed the said reinsurance (excluding the cases
where the said foreign insurer may possible terminate the payment ofreinsurance proceeds, etc. or has clearly terminated the payment ofreinsurance proceeds).
(ii) Accumulation of Payment Reserves
A. Payment Reserves for Foreign Assumed Treaty ReinsuranceWith regard to insurance reserves for foreign assumed treaty
reinsurance, even when event reports cannot be obtained from theceding insurer, etc. due to a difference with the accounting system of thesaid ceding country, etc. and other circumstances, whether the amountcalculated using a rational method by taking into account the recent
actual values is accumulated as ordinary payment reserves.
B. Payment Reserves for Incurred but Not Reported Losses
With regard to payment reserves for incurred but not reported losses,
when event reports cannot be promptly obtained from an association of
the same type that is a party to the Pooling Agreement of theInternational P&I Group, whether the amount pertaining to insurance
proceeds, etc. of pooled reinsurance that is calculated using a rational
method is accumulated.
(19) Matters to Be Considered When Calculating Payment Reserves for
Incurred but Not Reported Losses of Non-Life Insurance Companies, etc.
(i) When establishing the unit of account pertaining to payment reserves forincurred but not reported losses prescribed in Article 2(1) of the Notice ofthe Ministry of Finance No. 234 of June 8, 1998 (hereinafter referred to as
the “Notice” in II-2-1-4(19)) and for the classification of each item of thesame paragraph of the same Article, the following points shall beconsidered.
A. The unit of account prescribed in Article 2(1) of the Public Notice shall beestablished for each underwriting category of domestic direct insurance67contracts, foreign direct insurance contracts, domestic assumed
reinsurance contracts, and foreign assumed reinsurance contracts foreach insurance type. If reasonable grounds due to characteristics of thepayment of insurance proceeds, etc. exist, the unit of account shall beable to be further segmented.
B. The “unit of account deemed to require a long-term payment of
insurance proceeds, etc. due and payable under the insurance contract”
prescribed in Article 2(1)(i) of the Public Notice shall mean the unit ofaccount in cases where, for the most recent three fiscal years until theprevious fiscal year of the target fiscal year, the average value of thepercentages of the insurance proceeds paid for insured events occurredin the fiscal year concerned and the previous fiscal year of the fiscal year
concerned to the insurance proceeds paid in the fiscal year is less than
90%, etc. In this case, the results of domestic direct insurance contracts
shall be able to apply mutatis mutandis to domestic assumed
reinsurance contracts, and in cases where the results of domestic direct
insurance contracts cannot be applied to domestic assumed reinsurance
contracts and for foreign contracts, the underwriting year shall be able tobe used in calculation in place of the year in which the insured event has
occurred. In the calculation of insurance proceeds paid, the amount ofreinsurance recovery shall not be deducted.
C. The “unit of account deemed not to be important” prescribed in Article
2(1)(ii) of the Notice shall mean the cases where the average value ofthe percentages calculated using the following formula for the mostrecent three fiscal years until the previous fiscal year of the target fiscal
year is less than 1%, etc. However, for those other than domestic direct
insurance contracts, the underwriting year shall be able to be used in
calculation in place of the year in which the insured event has occurred.
In the calculation of insurance proceeds paid, the amount of reinsurance
recovery shall not be deducted.
(Of the insurance proceeds paid in the fiscal year concerned in the unitof account, the amount excluding the insurance proceeds paid for insured
events occurred in the fiscal year and the previous fiscal year of the fiscal
year concerned) / (Of the total amount of the insurance proceeds paid in
the fiscal year concerned (excluding the insurance proceeds paid forautomobile damage liability insurance and earthquake insurance), the68amount excluding the insurance proceeds paid for insured eventsoccurred in the fiscal year concerned and the previous fiscal year of the
fiscal year concerned)(ii) When calculating payment reserves for incurred but not reported losses,
the following points shall be considered.
A. If reasonable grounds due to characteristics of the payment of insurance
proceeds exist, the unit of account shall be able to be aggregated.
B. For those other than domestic direct insurance contracts, if it is difficult
to identify the insurance proceeds, etc. paid by each year in which theinsured event has occurred, the insured proceeds, etc. paid by eachunderwriting year shall be able to be used in calculation in place of theinsured proceeds, etc. paid by each year in which the insured event has
occurred.

II-2-2 Appropriateness of Solvency Margin Ratio (Early Corrective Action)
II-2-2-1 SignificanceIn order to secure the confidence of the policyholders, etc., it is extremely
important that insurance companies work to improve their capital adequacy andsecure internal reserves and retain a sufficient financial basis that is suited to
the risks. Insurance companies whose financial conditions needs to be
improved are required to make efforts to make improvements on their own
initiative based on the principle of self-responsibility. The supervisors need toencourage the early correction of the their management by issuing necessary
correction orders in a prompt and appropriate manner based on the objective
standard of the “ratio indicating soundness of solvency margin for Insurance
Proceeds, etc. ” as a role of complementing the efforts of the insurancecompanies to ensure the soundness of management of insurance companies.

II-2-2-2 Supervisory Method and Actions
With regard to early corrective action, which is a supervisory method toensure the soundness of management of insurance companies, the content of69

concrete actions is prescribed in the “Order Providing for Categories
Prescribed in Article 132, Paragraph (2) of the Insurance Business Act” (Prime
Minister's Office Order/Ministry of Finance Order No. 45 of June 29, 2000;
hereinafter referred to as the “Order Providing for Categories” in II-2-2), and its
operational standards shall be as follows.
(1) Solvency Margin Ratio Forming Basis for the Issuance of an Order
The “ratio indicating soundness of solvency margin for Insurance Proceeds,
etc. ” (hereinafter referred to as the “solvency margin ratio”) pertaining to thecategory set forth in the table in Article 2(1) of the “Order Providing for
Categories” shall be based on the following solvency margin ratio.
(i) The solvency margin ratio reported in the financial results status report(interim financial statements if mid-term) (however, after submitting thebusiness report (interim business report if mid-term), the solvency margin
ratio that was reported in that business report)(ii) At times other than when (i) above has been reported, the solvency
margin ratio reported by an insurance company following discussion
between the insurance company and an audit corporation, etc. based on
the results of inspections by the supervisors, etc.
(2) Orders Based on the Category in the Table in Article 2(1) of the “Order
Providing for Categories”(i) Difference between a Category 1 Order and a Category 2 OrderThe purpose of Category 1 order, “a request to submit an improvement
plan deemed reasonable to ensure sound management, and an order for
its implementation”, is ensuring to steadily achieve a level of the solvency
margin ratio of at least 200% as a standard for ensuring the soundness ofmanagement. Therefore, it shall be emphasized that, in general, the plan
ensures the soundness of management, and the autonomy of theinsurance company when implementing that plan shall basically berespected.
The purpose of Category 2 order, “an order pertaining to any of thefollowing measures which contribute to the level of solvency in terms of theability to pay insurance proceeds, etc.”, is to promptly improve a solvency
margin ratio which falls considerably below the level ensuring soundness ofmanagement. Therefore, although the individual measures shall be basedon the opinions of the insurance company because of the need to take into70

account the actual management conditions of the insurance company, thedetails of the measures shall be prescribed at the discretion of thesupervisors. In addition, when implementing the measures, the insurancecompany will basically need to fulfill the orders for each measure.
(ii) Content of Improvement Plan for Category 1 OrderAn“improvement

plan

deemedreasonable

toensuresoundmanagement” shall mean a plan whose content is to achieve the level ofthe solvency margin ratio of at least 200% within a year in principle byexecuting the said improvement plan.
(iii) Content of Improvement Plan for Category 2 Order“Measures which contribute to the level of solvency in terms of the ability
to pay insurance proceeds, etc.” shall mean measures to achieve the levelof the solvency margin ratio of at least 100% within a year in principle.
(iv) Period Leading to Improvement
Although the time needed to improve the solvency margin ratio shallbasically be what is specified in (ii) and (iii) above, but it goes without
saying that the plans, etc. formulated by an insurance company for
improving management, etc. must be sufficient to maintain and restore theconfidence of policyholders, investors, and markets in the said insurancecompany. Therefore, depending on the degree of relationship between theinsurance company and markets, etc., the confidence of markets needs tobe promptly restored, and therefore the time specified above may need tobe significantly reduced.
In cases where an insurance company has, under Article 3(1) of the“Order Providing for Categories”, submitted a plan deemed reasonable for
ensuring improvement of the solvency margin ratio beyond the scope of thesolvency margin ratio pertaining to the category in the table in Article 2(1) of
the “Order Providing for Categories” applicable to the said insurancecompany, if the said insurance company is issued with an order listed in the
category of the same table pertaining to the solvency margin ratio which
exceeds the scope of the solvency margin ratio pertaining to the category
in the table which is applicable to the said insurance company, period
necessary to improve the solvency margin ratios of (ii) and (iii) above shallnot include the period for ensuring improvement of the solvency margin
ratio set forth in II-2-2-3 below beyond the scope of the solvency margin
ratio pertaining to the category in the table which is applicable to the said
insurance company.

71II-2-2-3 Standards for Judging the Reasonableness Prescribed in Article 3(1) of
the “Order Providing for Categories”
The standards for judging the reasonableness of a “plan deemed reasonable
to improve the ratio indicating the level of its solvency in terms of its ability to
pay insurance proceeds, etc. with certainty to exceed the range of the ratio
indicating the level of solvency in terms of the ability to pay insurance proceeds,etc.” set forth in Article 3(1) of the “Order Providing for Categories” shall be as
follows:
A plan by which, in principle, the solvency margin ratio steadily improves
beyond the scope of the solvency margin ratio pertaining to the category in thetable in Article 2(1) of the “Order Providing for Categories” which is applicable
to an insurance company, within a period of three months, including specificcapital enhancement plans aimed at sound and appropriate business
operations of the said insurance company and by which the confidence ofpolicyholders, etc. in the said insurance company can be secured.
(Note) In the case of capital increases, etc., the intent of the financiers, etc.
needs to be clear.

II-2-2-4 Solvency Margin Ratio Providing Basis for Order Category
In applying Article 3(1) of the “Order Providing for Categories”, the “order set
forth for the category (except for exception from the category) in that tablecorresponding to the ratio indicating the level of solvency in terms of the ability
to pay insurance proceeds, etc. which is not less than the ratio indicating thelevel of solvency in terms of the insurance company's ability to pay insurance
proceeds, etc. and not more than the ratio indicating the level of its solvency interms of its ability to pay insurance proceeds, etc. to be expected after the
implementation of the plan” shall, in principle, be regarded as the order listed in
the category (except for exception from the category) pertaining to the level ofthe solvency margin ratio expected with certainty after three months.

II-2-2-5 Reports on the Progress of Plans, etc.

72Supervisors shall require the submission of reports on the progress of a plan
every period (including interim periods), and not issue new orders, in principle,
during the term of the plan unless subsequent progress diverges considerablyfrom plan; however, in the case of an insurance company issued with Category
2 order, if its solvency margin ratio as a basis of the order subsequently falls
within the range of 100% or more but less than 200%, Category 1 order may be
issued at that point in time.
In addition, in cases where an insurance company has, under Article 3(1) of
the “Order Providing for Categories”, submitted a plan deemed reasonable for
ensuring improvement of the solvency margin ratio beyond the scope of thesolvency margin ratio pertaining to the category in the table in Article 2(1) of the“Order Providing for Categories” applicable to the said insurance company, andwhere the said insurance company is issued with an order listed in the categoryof the same table pertaining to the solvency margin ratio which exceeds thescope of the solvency margin ratio pertaining to the category in the table which
is applicable to the said insurance company, in principle, if, immediately after
the time needed for procedures for a capital increase, etc. has elapsed, thesolvency margin ratio of the said insurance company has not reached a level atleast as high as the solvency margin ratio pertaining to the category in the tablein which the order received by the said insurance company is listed, the order
listed in the category of the table pertaining to the solvency margin ratio shallbe issued at that point in time.

II-2-2-6 Operation of Article 3(3) of the “Order Providing for Categories”
In cases where Article 3(3) of the Order Providing for Categories” applies, anorder issued to an insurance company shall include a Category 3 order;
provided, however, that if the amount calculated by subtracting the difference
between the assessed market value and the book value of held-to-maturity
bonds and policy-reserve-matching bonds from the real difference between
assets and liabilities is a positive number and liquidity assets(Note) are secured,an order of the same category shall not be issued in principle.
However, if it is deemed necessary in comprehensive consideration of thestatus of cancellation and the status of securing liquidity assets, it shall be
noted that a business improvement order may be issued for enhancing the73management of contracts, complementing liquidity, and enhancing capital, etc.
(Note) Liquidity assets: Cash and deposits, call loans, securities held for
trading, and other securities (excluding those that are non-marketable ordifficult to sell immediately due to the holding purpose, etc.)

II-2-2-7 Others(1) When issuing an order pertaining to the provisions of Articles 2 through 5 of
the “Order Providing for Categories”, the Administrative Procedure Act andother relevant laws and regulations shall be observed, and it shall be notedthat it is necessary to take appropriate procedures, such as granting
opportunities for making explanations under Article 13(1)(ii) of the same Act.
(2) An insurance company with the solvency margin ratio of less than 100%shall be required, in principle, to calculate the value of its assets listed ineach item of Article 3(2) of the “Order Providing for Categories” by themethod specified in the relevant item and submit a revised balance sheet
reflecting this (forms may be at its discretion).
(3) Early corrective action is exercised on the premise that the solvency margin
ratio properly represents the financial conditions of the insurance company.
Therefore, insurance companies shall be required to pay sufficient attention
to prevent such acts as the deliberate manipulation of a solvency margin
ratio for the purpose of avoiding any early corrective action being exercised.

II-2-3 Early Warning System
II-2-3-1 SignificanceAs a means of ensuring the soundness of management of insurancecompanies, “early corrective action” based on the solvency margin ratio has
been established pursuant to Article 132(2) of the Act. Even in the case of an
insurance company that is not subject to this measure, continuous efforts toimprove management are needed so as to maintain and further enhance its
soundness.

74

To this end, early improvement of management of insurance companies shallbe promoted by taking the following administrative preventive/comprehensive
measures.

II-2-3-2 Supervisory Method and Actions(1) Profitability Improvement Measures
With respect to an insurance company found to be in need of
improvements in profitability on the basis of a fundamental profit index andthe prospects thereof, steady improvement shall be encouraged by holding
an in-depth hearing regarding the cause and improvement measures, etc.
and, when necessary, requiring the submission of a report under Article 128of the Act.
(2) Credit Risk Improvement Measures
With respect to an insurance company found to be in need of
improvements in the control environment for credit risks on the basis of thestatus of concentration of large borrowers, steady improvement shall be
encouraged by holding an in-depth hearing regarding the cause andimprovement measures, etc. and, when necessary, requiring the submissionof a report under Article 128 of the Act.
(3) Stability Improvement Measures
With respect to an insurance company found to be in need of
improvements in the control environment for market risks, etc. on the basis of
impacts of security price fluctuation, etc., steady improvement shall be
encouraged by holding an in-depth hearing regarding the cause andimprovement measures, etc. and, when necessary, requiring the submissionof a report under Article 128 of the Act.
(4) Cash Flow Improvement Measures
With respect to an insurance company found to be in need of
improvements in the control environment for liquidity risks on the basis of thetrends in contracts and the status of holding of assets, steady improvement
shall be encouraged by requiring frequent reporting on the trends in contracts
and the status of holding of assets, holding an in-depth hearing regarding the75

cause and improvement measures, etc., and, when necessary, requiring thesubmission of a report under Article 128 of the Act.
(5) Business Improvement OrderWith regard to above measures, in cases where action is deemed to benecessary in order to ensure the implementation of the improvement plan, abusiness improvement order shall be issued under Article 132 of the Act.

II-2-4 Clarification of Separate Accounting of Life Insurance Companies
II-2-4-1 SignificanceIn life insurance companies, it is important, from the point of view of ensuring
the fairness and transparency of redistribution of profits, banning internal
subsidization between insurance types, making business operations more
efficient, exhibiting originality and ingenuity in product design and pricing, etc.,
to carry out separate accounting according to the characteristics of insurance
products for general account. It is necessary, from the point of view of ensuring
the transparency of insurance accounting and the fairness between
policyholders, that each life insurance company carries out appropriate
separate accounting based on the principle of self-responsibility. In addition, in
introducing separate accounting, it is important that for the asset allocation
method and unrealized profit and loss allocation method, etc., appropriate
allocation methods are established based on asset share, etc.

II-2-4-2 Main Supervisory Focus
Whether each life insurance company has formulated the management
policy for separate accounting, for example, based on the following concepts tocarry out appropriate separate accounting. In addition, whether the status ofseparate accounting is reported to the board of directors or other equivalentbody.
(1) Product Category
In the product category, profits/losses and liabilities shall be managed. The

76

product category needs to be an appropriate unit for understanding profits
and losses in light of the characteristics and holding status of products ineach life insurance company, and should be made a theoretical and rational
category based on the differences in the characteristics of insurance.
Therefore, in cases where a significant impact on the income andexpenditure of the entire company, such as an increase in insurance in force
by selling new products and increase in contracts for some type of insurance
in the product category, etc., is expected, it is desirable to carry out
management by establishing new product categories. In addition, changes
shall not be made to the product categories established unless reasonablegrounds exist, including cases where insurance in force has decreased andthe existence of the product category becomes no longer important, etc.
(2) Corporate Category
The corporate category shall be established, for example, to have thefollowing functions:(i) Risk buffer function for death protection risk, etc.
(ii) Function to provide funding for business operations for developing new
products(iii) Function to manage assets shared by and costs common to the entire
company, etc.
(iv) Function to manage cash and deposits, etc.
(3) Asset Category
Appropriate asset category corresponding to the product category shall beestablished. In addition, in cases where asset in an asset category havedecreased and the existence of the asset category becomes no longer
important, the asset category concerned shall be abolished and integrated
into other asset category. In this case, residual properties that do not belong
to any contracts shall be integrated into the corporate category.
(4) Liability/Net Asset Allocation Method(i) Allocation to Product Category
Insurance contract reserves (excluding contingency reserves) andreinsurance balances payable, etc. shall be directly allocated to eachproduct category. Those that cannot be directly allocated shall be allocatedbased on the management policy for separate accounting.

77

(ii) Allocation to Corporate Category
Liabilities that are not allocated to the net assets (excluding earned
surplus carried forward/unappropriated surplus, valuation and translation
adjustments, etc.), price fluctuation reserves, contingency reserves, andother product categories are allocated to the corporate category.
(5) Asset Allocation Method and Management Standards(i) Allocation Method for Assets for Investment
The asset category to which assets for management are to be allocatedshall be determined at the time of purchasing the assets in principle.
(ii) Management of Assets for Investment
Assets for investment shall be managed by selecting an appropriate
method from the following methods for each asset category:A. Segregated asset management method: A method of directly vesting
individual assets in the asset category by issue
B. Asset unit-based interest management method: A method of managing
assets based on interest in the asset category for each transaction unit
(for example, by property in real estate)
C. Asset interest management method: A method of setting a mother fundfor each asset subject to investment and managing interests in themother fund for each asset(Note) In cases where the asset interest management method is used,the entire general account assets (excluding assets corresponding to
non-participating insurance) shall not be treated as a single motherfund.
(iii) Allocation Method for Assets Other Than Assets For Investment
Assets that can be directly allocated to each asset category such as
reinsurance credits shall be so allocated, and those that cannot be directly
allocated shall be allocated based on the management policy for separate
accounting.
(iv) Assets in Corporate Category
All or part of the assets that are suitable to be allocated to commercial
properties, stocks of subsidiary/affiliated companies, cash and deposits (ifthe function to manage cash and deposits, etc. exists), or other corporate
categories shall be allocated to the corporate category.
(6) Allocation of profits and losses

78

(i) Profits and Losses Related to Insurance
Revenues such as insurance premiums, payments such as insurance
proceeds, and provision for policy reserves, etc. shall be directly allocatedto each product category.
(ii) Profits and Losses Related to Assets For Investment
Assets for investment shall be allocated to the asset category to which
the asset belongs, and shall be further allocated to the corresponding
product/corporate category directly or according to interest. In cases wheremultiple product categories are managed by a single asset category, theyshall be allocated based on the management policy for separate
accounting.
(7) Transactions Between Each Category, etc.
(i) Transactions Between Asset Category
Requiredtransactions

such

as

funds

transfer(inflow/outflow)

management, securing of liquidity, improvement of portfolios, etc. to beappropriately managed at appropriate prices such as market prices.
(ii) Transactions Between the Product Category and the Corporate Category
A. Loan of Cash Deposits, etc.
(A) These transactions shall be managed by categorizing into the productcategory or the corporate category(B) Limits shall be established to prevent continued overdraft.
B. Loan of Items Other Than Cash Deposits(A) Loans from the corporate category to the product category shall belimited to cases where there is a compelling reason such as unusual
payment of insurance proceeds, fund for business operations
associated with sales of new products, and others.
(B) Loans from the product category to the corporate category shall belimited to the case where the functions of the corporate category
cannot be fulfilled sufficiently due to its small scale.
(C) For the above loans, the amount, interest rate (to be set based on themarket interest rate according to the loan period), due date, and otherrepayment conditions shall be determined in advance.
(D) Relaxation of loan conditions and debt relief shall not be available
except in cases where there is a compelling reason such as theoccurrence of unrecoverable losses. If profits are accrued after theloan conditions are relaxed, etc., the profits concerned shall be79allocated to repayment.
C. Contributions(A) Contributions from the corporate category to the product category
shall be limited to cases where there is a compelling reason such as
unusual payment of insurance proceeds, fund for business operations
associated with sales of new products, and others.
(B) Contributions from the product category to the corporate category
shall be limited to the case where the functions of the corporate
category cannot be fulfilled sufficiently due to its small scale.
(C) If surpluses are generated in the product category or the corporate
category to which contributions are made, the amounts corresponding
to the contributions shall be allocated to the product category or the
corporate category to which the contributions are made.
(D) Contributions may be repaid.
D. Other Transactions(A) When capitals or contingency reserves, etc. are increased in thecorporate category, transactions to receive the increased amount fromeach product category.
(B) Transactions to reduce capitals or contingency reserves, etc. and pay
the corresponding amounts to the product category in which the reason
for the reduction occurred.
(C) In cases where conversions, etc. are made, transactions to pay thepolicy reserves, etc. after the conversion, etc. to the product category.
(D) In cases where new contract costs are paid from the corporate
category, transactions to pay the amount equivalent to the new contract
costs from the product category to the corporate category.
(E) Transactions in which the use fees, etc. are paid from each productcategory as the considerations for shared assets, etc. in the corporate
category.
(F) When losses are realized due to the occurrence of specific risks in the
product category, transactions to pay the amount of the losses realized
from the corporate category to the product category concerned (limited
to those in which the considerations predetermined based on actuarial
science have been paid).
(G) In cases where significant losses that are expected to be
unrecoverable have occurred in the product category, transactions toreceive compensations for those losses from the corporate category80

(including

the

cases

where

the

corporatecategory

receives

compensations to compensate for those losses from other productcategories). However, when a compensation is received through thistransaction, necessary measures such as stopping sales of the new
products and ensuring proper insurance premiums, etc. for the
products pertaining to the product category that received thecompensation.
(H) In cases where significant losses that are expected to be
unrecoverable have occurred in the corporate category, transactions toreceive compensations for those losses from the product category.

II-2-4-3 Supervisory Method and Actions
If a problem is deemed to exist in the status of separate accounting,supervisors shall require the submission of a report under Article 128 of the Act
as necessary, and if it is deemed that there is a serious problem, they shall takean administrative measure under Article 132 of the Act.

II-2-5 Internal Control Environment for Product Development
II-2-5-1 SignificanceThe contents of insurance products are described in the “general policy
conditions” and the “statement of business procedures” and the rates aredescribed in the “statement of calculation procedures for insurance premiums
and policy reserves” (hereinafter referred to as the “statement of calculation
procedures”), and developments of new products or changes to the content of
insurance products are made through changes made to them.
If a request for approval for a product is made by an insurance company, thesupervisory authorities examine whether it complies with the standards
prescribed in the Insurance Business Act by checking whether the content of
the contract entails the risk of lacking protection for policyholders, etc., whether
it contains any unfair or discriminatory treatment, and whether the content of
the contract is harmful to public policy and good morals, etc., and approve it if it
is deemed appropriate.

81

In recent years, with structural changes in society and diversification of
economic activities, etc. in Japan, more diverse insurance products aredemanded to meet the policyholders’ needs, including increased life protectionneeds of the public and emergence of new risks, etc.
In order to respond to these needs in developing products, insurancecompanies are required to develop an internal control environment to consider
from every viewpoint risks, finance, offering, and legal affairs based on theprinciple of self-responsibility, taking into account the Insurance Business Act
and other laws and regulations, etc.
In addition, with regard to the regulation of insurance products, while theframework of the approval system is maintained, product lines that areconsidered less problematic in terms of protecting policyholders, etc. are beingtransferred to the registration system. Furthermore, for corporate insurance of
insurance listed in Article 3(5)(i) and (iii) of the Act (hereinafter referred to as“Second Sector”), improvement of the internal control environment for productdevelopment is becoming more important than before with the introduction of
Flexible Provision System, which enables establishing a new special provisionor modifying without notification, etc.

II-2-5-2 Main Supervisory Focus(1) Recognition of Directors and Roles of Board of Directors, etc. Pertaining to
Product Development(i) Whether the product development policy in line with the management
plans and management policy of the insurance company has been clearly
defined by the board of directors.
(ii) Whether the directors fully recognize that the internal control pertaining to
product development may have a serious impact on maintaining thesoundness and ensuring appropriate business operations.
(iii) Whether the board of directors has developed a system that enables
integrated management for the internal control pertaining to productdevelopment. In addition, in the above system, whether, for instance, thefunction of mutual checking between each section related to productdevelopment is fully performed. Whether the organizational structure isreviewed as needed and improvements are made according to changes tothe product development policy and internal control method.

82

(iv) In order to carry out internal control for appropriate product development,
whether a company-wide policy on personnel affairs and human resource
development for securing human resources with a good knowledge of
operations in required sections, etc. has been clearly defined by the boardof directors or the directors, etc. (including officers such as executive
officers, etc.) who are authorized by the board of directors.
(v) In deciding the outline of the content of products that are considered
important from the point of view of business management, whether it isensured that the issues concerning the prediction of income andexpenditure, insurance underwriting risks, compliance, sales plans, systemdevelopment, and moral hazard that is specific to insurance products, etc.
and the content of study, etc. are discussed by the board of directors, etc.
(vi) Whether Responsible Actuaries, in close cooperation with relevant
sections, accurately report the problems, etc. related to the method of
calculating insurance premiums and policy reserves and other mattersconcerning actuarial science to the board of directors, etc. when necessary.
(2) Recognition and Roles of Managers Involved in Product Development(i) Whether the head of sections related to product development and the
directors, etc. responsible for product development (hereinafter referred toas “product development-related managers”) make efforts to ensure
thorough understanding/recognition of internal control by themselves andpersons in charge in each section so as not to hinder appropriate internal
control for product development.
(ii) In cases where a coordination section has been established for productdevelopment, whether management and guidance necessary to create
appropriate control environment for product development are provided to
relevant sections. In addition, in cases where a coordination section has
not been established, whether the directors, etc. manage the status ofinternal control for overall product development in an integrated manner.
(iii) In order to carry out product development that ensures the maintenanceof soundness and appropriate business operations, whether the rules for
product development have been established after being discussed by theboard of directors, etc. In addition, whether appropriate measures havebeen taken to enhance/improve the rules for product development.
(iv) In order to ensure that organizations carrying out product development
can effectively perform their functions, whether product development-83related managers appropriately assign personnel by considering theirexpertise.
(3) System to Refer Matters to Board of Directors(i) When developing new insurance products or modifying/abolishing existing
insurance products that have a serious impact on business management,
for those requiring application to the supervisors, whether referring to theboard of directors, etc. is required before the application. In addition,
whether the standards for referring to the board of directors, etc. have beenclearly defined.
(ii) In cases where the insurance company expands its business throughbranch offices, etc., whether the responsibilities of the head office and the
local organizations have been clearly defined when making application to
the supervisors. In cases where an approval of the head office, etc. isrequired before making application to the supervisors, whether the statusof compliance to laws and regulations, etc. is confirmed by the localorganizations. In addition, whether the said confirmation is performed
based on their own responsibilities with the independence of the localorganizations being secured.
(4) Measures to Improve Product Development Capabilities(i) Whether the method/system to improve human resource development andproduce development capacities have been established to develop humanresources with expertise.
(ii) Whether market research on general consumers, for example, isconducted in a timely manner and utilized so as to ensure that the content
of insurance contracts matches the demand and convenience ofpolicyholders, etc.
(5) Cooperation with Relevant Sections(i) Whether the identification of product development projects is carried out
through appropriate processes. Whether it is considered from the points ofview of, for example, development requests based on customer needs andsales measures, requests in terms of insurance underwriting risk and profit
improvement, etc., and compliance requirements, etc.
(ii) Whether the selection of development projects is appropriately carried out,taking into consideration the compliance with the product development84

policy established by the board of directors and the level of developmentload, etc.
(iii) In deciding the outline of the content of products, whether the issues
concerningthepredictionofincomeandexpenditure,

insurance

underwriting risks, compliance, sales plans, system development, andmoral hazard that is specific to insurance products, etc. and the content ofstudy, etc. are discussed by each relevant section.
Whether it is confirmed that for each product, the prediction of income
and expenditure has no problems based on the incidence rate of insured
events, operating costs, and other scenarios, which take into account theactual management conditions of the insurance company and are likely tobe achieved.
(iv) Whether it is ensured that the method of calculating loading premiumsprescribed in the internal rules, etc. is rational and adequate, and theloading premiums calculated are not unreasonably discriminatory. In
particular, when establishing an increase/discount of loading premiums, it
shall be considered that it is based on the contract method and insurance
premium payment method, etc. and is not the provision of special
advantage virtually (Article 300(1)(v) of the Act).
(v) Whether relevant sections consider issues concerning products such as
risks associated with the products and points of attention in selling them,etc. without being unreasonably affected by, for example, sales promotion
sections and profitable sections, which place emphasis on expanding sales
volume and pursuing profits. In addition, whether the content ofconsideration, etc. is directly reported to the board of directors, etc. or thecoordination section, etc. (including the directors, etc. managing the overall
product development) timely as needed.
(vi) Whether relevant sections report the information that has a serious
impact on business management for product development to the board of
directors, etc. or the coordination section, etc. accurately without omission
in an easy-to-understand manner.
(vii) Whether the matters concerning product development for whichauthorities are delegated to the directors, etc. that manage overall productdevelopment, or the head of the product development section are
managed by means such as periodic inspections/audits on whether theauthorities are exercised properly.
(viii) Whether the check points to ensure the maintenance of soundness and85

appropriate business operation have been clearly defined, for example,
whether the content of products is consistent with various existing rules,
etc., it is appropriately expressed, and the data used is not wrong, etc.
(ix) In developing internal control environment, whether considerations are
made so as to ensure appropriate response to policyholders, insured
persons, and victims, etc. not only at the time of offering, but until the
payment of insurance proceeds.
(x) Whether efforts have been made in creating insurance clauses to makethem easy to understand from the point of view of policyholders. Whether it
is noted that the use of technical terms and legal terms without carefulconsideration may make the insurance clause difficult for policyholders tounderstand.
(xi) Whether a control environment has been developed to identify revisionhistories and planned revisions of laws and regulations, etc. that can affectthe content of insurance contracts without omission.
In addition, considering that in the Insurance Act, systems related toinsurance contracts are revised or newly established such as the right tointervene, request for cancellation by the insured, increase/decrease in risk,
rational appropriate return of the amount corresponding to the unexpired
period of insurance premiums, etc., whether a control environment that canappropriately responds to these systems has been developed.
(xii) For checking at the time of developing systems for insurance productdevelopment,

etc.

and

checking/management

after

the

systemdevelopment, also refer to “II-3-14-2 Control Environment for Information
Technology Risks”.
(6) System to Consider Application Procedures(i) Whether sufficient consideration is given in advance when preparing
application related documents (including materials deemed to benecessary for examinations by the supervisors). In addition, in order todevelop a sufficient offering system, whether efforts have been made toallow sufficient time for application by preparing in a planned matter as
early as possible.
(ii) Whether overall check is performed after checking by each relevant
section. In addition, whether a person responsible for supervising thechecking operation has been clearly defined.

86

(7) Response to Matters Pointed Out in Examinations by the supervisors(i) Whether the status and results of consideration of major matters pointed
out are recorded so as to enable verification afterward.
(ii) Whether the pointed out matters of particular importance that have
impacts on the prediction of income and expenditure, insurance
underwriting risks, compliance, sales plans, and system development, etc.,
which formed the basis for discussion by the board of directors, etc., arediscussed by the board of directors, etc.
(8) System to Ensure Correctness of Overall Documents
When preparing documents, whether measures to ensure correctness ofthe content have been taken, including the establishment of a control
environment for multi-layer checking such as strictly enforcing read throughby employees (members) other than those in charge of preparing application
documents, etc.
(9) Control Environment Before Starting to Sell Products(i) Whether the preparation period is available to enable the development of acontrol environment for developing operational rules for selling products,
preparing/checking

sales

materials,

managing

contract

data,

and

implementing required system support, etc.
(ii) Whether the preparation period is available to make the content ofoperational rules and the matters to be considered when offering products
such as the method of explaining to customers, etc. well known not only tothe head office, but also to business offices (including insurance agencies(“life insurance agencies” (meaning “life insurance agents” prescribed in
Article 2(19) of the Act who received entrustment from a life insurancecompany or received re-entrustment from them (limited to those who
obtained an authorization under Article 275(3) of the Act), and act as anagent or intermediary for the conclusion of an insurance contract on behalfof the life insurance company; the same applies hereinafter) and “non-life
insurance agencies” (meaning those prescribed in Article 2(21) of the Act;the same applies hereinafter))).
(10) Follow-up After Starting to Sell Products(i) Whether a follow-up mechanism is included in the product development
process to carry out appropriate risk management.

87

(ii) With regard to follow-up after sales, whether the viewpoint, the section in
charge, period, approach, and the method of using the results have beenclearly defined.
(iii) Whether follow-up is carried out at the appropriate time after starting
sales.
(iv) Whether the follow-up results are directly reported to the board of
directors, etc. in a timely manner as needed. In addition, whether thecontent of reports is easy to understand and correct.
(v) Whether it is checked to see if underwriting of insurance contracts iscarried out in accordance with the operational rules.
In particular, whether it is checked to see if sections other than the head
office having discretionary power over underwriting of insurance contracts
implement underwriting operations by understanding the content of that
discretionary power.
(vi) Whether cashflow analysis and examination of the adequacy of the baserate for the calculation of insurance premiums and policy reserves arecarried out for each appropriate unit such as insurance type.
In particular, for insurance types in which a group mainly targeting
contracts for which the Flexible Provision System is available and the othergroup are mixed, whether the examination is carried out for each group.
(vii) Whether the base rate for the calculation is revised as needed based on
the examination results in (vi) above, etc.
(viii) In order to prevent unexpected deterioration of cashflow and increased
risks, whether a control environment for analyzing/examining the variation
factor of the occurrence rate for each category of insurance contracts withat least the same base, implementing periodic monitoring to enable theidentification of the cause when the deterioration occurs, and considering
the responses such as changing the sales policy, revising the content of
products and prices, and stopping sales, etc. in a timely manner has beendeveloped.
(ix) Whether a system to reflect the results of follow-up by collecting opinions
on products from customers and insurance agencies to the future productdevelopment has been developed.

II-2-5-3 Supervisory Method and Actions88

If a problem is deemed to exist in the internal control environment for productdevelopment, supervisors shall require the submission of a report under Article
128 of the Act as necessary, and if it is deemed that there is a serious problem,
they shall take an administrative measure under Article 132 of the Act.

II-3 Control Environment for Enterprise Risk Management
II-3-1 SignificanceIn the management of risks in insurance companies, to maintain the financial
soundness and improve profitability into the future, appropriate risk management
needs to be performed in an organized and integrated manner not only forinsurance underwriting risks and asset management risks (market risks, credit
risks, etc.), but also for operational risks, etc. according to individual
management strategies and risk characteristics, etc.
In particular, for insurance companies facing large-scale complex risks, it isimportant to not only appropriately manage various risks involved by each risk
category, but also develop a control environment for enterprise risk management
to manage all risks in an integrated manner and control them by the entire projectas an important tool for achieving strategic goals of the insurance companies.
In addition, on an international level, it is stipulated in the “Insurance Core
Principles: ICP” adopted by the IAIS (International Association of Insurance
Supervisors) in October 2011 that the supervisors should supervise insurancecompanies and groups to implement Enterprise Risk Management (ERM) and
Own Risk and Solvency Assessment (ORSA).
Although a standard framework for such enterprise risk management has not
yet been established, insurance companies need to make consistent efforts forfurther advancement of risk management.

II-3-2 Identification of Risks and Risk Profile
II-3-2-1 SignificanceIt is important for insurance companies to actively identify the risk profile,89

determine risks to be taken as the management and acceptable losses, andperform risk monitoring and control them. The management teams are required
to identify all predictable important risks that the insurance companies arefacing or will face in the future and respond to them.

II-3-2-2 Main Supervisory Focus(1) In identifying risks, whether all risks that the insurance company recognizes
to be important, not only insurance underwriting risks and asset management
risks (market risks, credit risks, etc.), etc., but also liquidity risks, which isdifficult to quantitatively identify, etc., are considered.
(2) Whether the management teams identify changes in risk profile
corresponding to changes in the business strategies, etc. (for example, newacquisition and investment position change, etc.) in an appropriate andtimely manner. In addition, in order to identify changes in risk profile
corresponding to significant changes in business environment (for example,
revisions of laws and regulations, etc., external rating, political change, largescale disasters, or market turmoil, etc.) in an appropriate and timely manner,
whether a control environment that enables obtaining new information
promptly has been developed.
(3) In order to control risks, whether the insurance company considers thecauses and impacts of various risks and analyzes mutual relationships
between the risks. For instance, claims for payment of large amounts of
insurance proceeds due to catastrophe and cancellation of contracts
involving large amounts of money due to downgrading by credit rating
agencies for the reason of deterioration of financial conditions may lead to aserious liquidity problem; thus, whether the insurance company fullyrecognizes that certain significant events can be an opportunity leading toother risks.
(4) In cases where exposures pertaining to the guarantee of interest rate, etc.
and options such as cancellation, etc. included in insurance products are
assumed to have a significant impact on financial markets and the macro
economy under certain scenarios, whether the impacts of those exposures90

are considered when identifying risks.

II-3-3 Measurement of Risks
II-3-3-1 SignificanceIn order to evaluate the significance and the possibility of occurrence of
impacts that risks have on insurance companies, it is necessary to periodicallymeasure risks using appropriate forward-looking quantitative methods such as
risk measurement model, stress test, and scenario analysis, etc.

II-3-3-2 Measurement of Risks(1) In order to understand various risks in an integrated manner, whether
insurance companies measure important risks (including important risks
pertaining to group companies) among all risks including insurance
underwriting risks, asset management risks (market risks, credit risks, etc.),
and operational risks.
(2) When quantifying risks, whether it is basically carried out under common
standards, for example, by using economic value evaluation (meaningevaluation that is consistent with market values or evaluation based on thecurrent value of the future cash flow derived using principles, methods, andparameters that are consistent with markets; at present, evaluation of risks
ascribed to options/guarantees included in insurance contracts, etc., forexample, needs to consider the distribution of future cash flow, but is not acompletely established evaluation method, and therefore best methods thateach company can use are included; the same applies hereinafter) of totalbalance sheets, etc. In addition, whether objectivity and appropriateness ofquantification standards are ensured. For instance, in cases where VaR isused, whether the concept of establishing the confidence interval and holding
period has been clearly defined.
(3) In addition to measuring risks based on the most recent situations, whether
changes in total amount of insurance in force and changes in product mix,91

etc. are reflected in risk measurement, taking into account management
plans and business environment, or whether their impacts are analyzed.
(4) For the quantification of risks, whether studies and efforts are conducted to
improve the accuracy and expand target risks. For instance, whether studies
and research are conducted to ensure the appropriateness of mutual
relationships (diversification benefit) between different types of risks.
In addition, catastrophe risks and market risks between which a strong
mutual relationship is not observed in times of normal economic environment
may show a strong mutual relationship under stressful environment; thus,
whether studies and research are conducted on mutual relationships of thesetail risks.
Furthermore, with regard to operational risks, businesses should be
conducted to reduce operational risks themselves, and then whether studies
and research on the evaluation methods and data collection for quantification
are continuously conducted.
(5) When measuring risks, whether appropriate methods are used according to
the characteristics, scale, and complexity of risks and the possibility ofobtaining reliable data. For instance, whether it is based on the best methods
that each company can use, taking into consideration that while complex
models are appropriate for measuring some catastrophe risks of non-life
insurance, relatively simple calculation may be appropriate for other cases.
(6) A certain limit exists for the risk measurement model even if advanced
models are introduced and, therefore, it is not possible to completely identify
all risks; whether the management teams understands such limits on models.
(7) Whether the insurance company fully recognizes that internal models canbe strategically important tools for supporting or examining business decision
making. In addition, with regard to internal models used, whether continued
efforts are made to ensure the reliability of the models by periodicallyexamining

them

and

considering

receiving

third-party

examinations(including examinations by external experts) as needed.
(8) when measuring risks, risks covered, measurement methods used, andmain prerequisites for using them are appropriately documented.

92II-3-3-3 Stress Test
II-3-3-3-1 Main Supervisory Focus
Insurance companies need to check the impacts that future disadvantages
have on the financial soundness and take managerial and financial measures
as needed. As tools for this, stress test (analysis of the impacts whenassumed future disadvantages occur) including sensitivity test, etc. andreverse stress test (stress test for identifying scenarios that are likely tocause managerial crisis and preparing necessary measures to control suchrisks) are important. In particular, under circumstances where markets
fluctuate significantly, risk management using VaR is limited, and the use ofstress test is extremely important. Insurance companies are required to
conduct stress tests on their initiative according to their financial conditions
and the status of risks that they have while also considering market trends,
etc. However, notwithstanding the following policy, if there are provisions ofother laws and regulations, etc. such as calculation of the solvency margin
ratio and future cashflow analysis, etc., it shall be governed by the provisionsof those laws and regulations, etc.
(1) With regard to stress test, whether the analysis is conducted using not
only historical scenarios (applying cases of past major crisis and caseexample of maximum loss), but also theoretical stress scenarios. With
regard to theoretical stress scenarios, whether stress scenarios are
created for multiple elements on domestic and overseas economic trends
such as stock prices, interest rates, exchange rates, and credit spreads,
etc. according to the risks that the insurance company has. Furthermore,
for scenarios in which these multiple elements fluctuate at the same time,
whether the situations where the mutual relationships between the assets
held, which form the basis, are broken are also considered. Whenestablishing these stress scenarios, whether the situations where market
liquidity of the assets held decreases are considered.
In addition, for savings-based insurance, which can be canceled any timeand a large part of insurance premiums paid are guaranteed, options suchas variable pension insurance, and elements with high guarantee, whether

93appropriate stress scenarios have been established with consideration of
their characteristics. Other than these, whether stress scenarios have been
established with consideration given to counter party risks pertaining toreinsurance transactions and derivative transactions.
In addition, with regard to reinsurance transactions and similar risk
transfer transactions, whether stress scenarios have been established withconsideration of reduced reinsurance capacity and increased transfer costs,
etc. after the occurrence of catastrophe.
Furthermore, whether the reliability of models used in stress tests isperiodically examined.
(2) When establishing stress tests, whether the basic concept of the risk
management policy of the insurance company has been clearly defined by
the board of directors. In doing so, whether the basic concept is consistent
with the enterprise risk management and consideration is given from thepoint of view that the risks cannot be identified by the quantification methodof enterprise risk management. In addition, whether the content of theestablishment is reviewed, periodically and when needed, by the board of
directors, etc., taking into account the content of operations of theinsurance company.
(3) When conducting stress tests, whether those with expert knowledge andskills required are involved.
(4) Whether the results of stress tests are periodically and adequately
examined/analyzed by the representative director or directors in charge
and a control environment to be used for making specific decisions on risk
management has been developed.
(5) Whether, independent of the sections conducting stress tests, a system tocheck whether stress tests are adequately designed and conducted by theentire company has been developed (excluding the cases where stresstests are conducted in an integrated manner by the risk management
section that is independent of operational sections).
(6) In order to identify scenarios that are likely to cause managerial crisis andprepare necessary measures to control such risks, whether reverse stress94

tests are periodically conducted.
(7) Whether an insurance company with licenses for its branch offices
conducts stress tests to cover those branch offices. In addition, whether
those branch offices make efforts to identify risks of the entire company bycollecting the results of stress tests conducted at the head office to theextent possible.

II-3-3-3-2 Disclosure of Outline of Stress Tests
When disclosing the framework for risk management prescribed in Article59-2(1)(iv)(a) of the Regulation, the outline of stress test conducted on its
own initiative and the method of utilizing the results shall also be disclosed inan easy-to-understand manner.

II-3-3-3-3 Disclosure of Indicators of Loss Ratio Sensitivity
When disclosing the “fluctuations in the amount of ordinary profits andlosses corresponding to an increase in the loss rate” listed in the Appended
Table of the Regulation (related to Article 59-2(1)(iii)(c) (non-life insurancecompany)), the following points shall be considered:(1) Whether the outline (analysis method, scenarios, etc.) of the sensitivity
analysis is also disclosed in an easy-to-understand manner.
(2) With regard to scenarios used in the sensitivity analysis, whether
standard scenarios where, for example, the loss rate of each insurance
type uniformly has increased by 1%, etc. are used.
(3) Whether the amount of reduction of extraordinary contingency reserves isnoted.

II-3-4 Risk Management Policy95II-3-4-1 SignificanceInsurance companies are required to establish the risk management policy,
including the monitoring system and management method for all risk categories
that are considered important based on the strategic goals in line with the risk
profileandmanagement

policy,andformulatethepolicyonquantitative/qualitative risk tolerances for the entire company to be incorporated
into their daily operations. Furthermore, in association with changes in the risk
profile, etc., the risk management policy needs to be reviewed on time.

II-3-4-2 Main Supervisory Focus(1) Whether the board of directors has clearly presented the purpose of
implementing enterprise risk management and established the risk
management policy, taking into account the strategic goals in line with the
management policy of the entire insurance company.
(2) Whether the risk management policy, etc. is designed to ensure consistency
amongproduct

design,premium

ratesetting,andrelevant

asset

management strategies. In particular, asset management and benchmarking
of insurance products have been appropriately established in accordancewith the financial objectives of ALM, etc. In addition, whether the risk
management policy, etc. are clearly reflected in the asset management policy,etc.
(3) Whether the board of directors clearly has established the basic concept forestablishing the risk tolerance in line with the risk management policy. For
instance, whether the board has formulated the risk preference policy, etc. toclearly establish operation management of the level of risks that it intends totake and the tolerance of risks that it can bear. In addition, whether the risk
tolerances are appropriately incorporated into business processes by, forinstance, conducting stress tests to verify the appropriateness of the risk
tolerances.

II-3-5 Own Risk and Solvency Assessment96II-3-5-1 SignificanceIn order to assess the appropriateness of own risk management and thesufficiency of the current and future solvency according to the management
strategies and characteristics of risks, insurance companies are required toperiodically conduct own risk and solvency assessment under the responsibilityof the board of directors. In the own assessment, in consideration of the future
economic conditions and changes in other external factors, reasonably
predictable significant relevant risks need to be included

II-3-5-2 Own Risk and Solvency Assessment(1) Whether the insurance company conducts assessment on the quality andadequacy of capital with consideration given to reasonably predictable
significant relevant risks, including the future economic conditions andchanges in other external factors.
In addition, whether risk factors and the degree of importance of risks are
periodically assessed. Furthermore, when there is a significant change in therisk profile, whether risks and solvency are reassessed promptly.
When conducting own risk and solvency assessment, whether the
insurance company sufficiently considers the medium- to long-term businessstrategies (for example, three to five years), in particular new business plans.
(2) Whether the insurance company has developed the risk and capitalmanagement process by periodically conducting own risk and solvency
assessment to monitor whether the required economic capital and the capitalrequirements based on the solvency margin regulations are met. In addition,
whether the management teams appropriately recognize the difference
between the required economic capital and the capital requirements basedon solvency margin regulations.
(3) Whether the insurance company appropriately documents the results of
own risk and solvency assessment along with the action plans that take into
account the results risk identification, risk profile, risk measurement, risk
management policy, and own risk and solvency assessment, etc.

97(4) Whether the insurance company conducts overall internal (for example, by
officers in charge of risk management) or external assessment on theeffectiveness of own risk and solvency assessment.
(5) Whether the internal audit section examines the effectiveness of enterpriserisk management and own risk and solvency assessment from an
independent position and makes recommendations to the management
teama as required.

II-3-5-3 Management Plan and Solvency Assessment(1) Whether the insurance company analyzes own risks and solvency required
to continue its business for the period (for example, three to five years)
longer than that normally used to calculate the capital requirement based on
the solvency margin regulations.
(2) Whether the insurance company makes prediction of the future financial
position and analyzes the sufficiency of the required future economic capitaland the capital requirements based on the solvency margin regulations,taking into consideration the medium- to long-term business strategies
based on changes in external factors such as events that may occur in the
future, including changes in the economic conditions, etc. In doing so,whether prediction of the future financial position and analysis of thesufficiency of the capital requirements based on the solvency margin
regulations are conducted in consideration of new business plans, productdesign that includes minimum guarantee and options, premium rate setting,and product sales prospects.

II-3-6 Control Environment for ReportingII-3-6-1 SignificanceIn order to implement appropriate risk management into the future andensure adequate solvency, insurance companies are required to periodically98

conduct own risk and solvency assessment and report to the board of directors.

II-3-6-2 Main Supervisory Focus(1) Whether the board of directors periodically makes use of identified
information in the execution of business and the development of risk
management systems by making necessary decisions based on the reportson the sufficiency status of required economic capital and sufficiency statusof capital based on the solvency margin regulations, etc.
(2) Whether, after clearly defining a section that implements enterprise risk
management according to the operations of the insurance company and thecharacteristics, scale, and complexity of risks and assigning the head of thesaid section and the officer in charge, a control environment for appropriately
reporting the status of enterprise risk management of the entire insurancecompany to the said officer, representative director, and board of directors
has been developed and reports are made in a timely and appropriatemanner in accordance with the control environment. In addition, whether thesection that implements enterprise risk management ensures a function formutual checking with relevant sections.
Furthermore, whether the framework of enterprise risk management isappropriately reviewed according to changes in conditions, etc.

II-3-7 Business Continuity Management (BCM)
II-3-7-1 SignificanceGiven the increased diversity and complexity of risks faced by insurancecompanies and changes in the business environment for them in recent years,
such as the increasing use of information systems, the possibility that a crisis
that cannot be dealt with by ordinary methods of risk management will occur
cannot be denied, which means that crisis management has become more
important than ever. For insurance companies, which play the role of meetingthe needs for safety/security and the management of various risks, initial
response at the occurrence of crisis and response such as providing

99

information, etc. are extremely important. Therefore, insurance companies
need to make appropriate preparations in normal times, such as establishingbusiness continuity management (BCM) systems and formulating business
continuity plan (BCP).
As management of reputational risks, etc. in particular may have significant
impacts on insurance companies’ financial conditions and the society, thepoints of attention in supervision are separately provided.
(Note) “Crisis” means events such as (1) an event such as bankruptcy oflarge borrowers, etc. that can lead to deterioration of the insurancecompany’s financial conditions to the extent unrecoverable if it is notaddressed; (2) an event such as a sharp increase in the cancellation of
insurance contracts due to negative reputations, etc. that can cause aproblem in liquidity that is difficult to deal with; (3) an event such as system
failures and deplorable events that can significantly damage the insurancecompany’s credibility; and (4) an event such as large-scale natural
disasters and large scale terrorism that cause significant damage, making
it difficult to continue business operations.

II-3-7-2 Preparations to Be Made in Normal Times(1) Response
Based on the understanding that measures to prevent crisis from occurringin normal times is important in crisis management, when conducting off-sitemonitoring of the early warning system, etc. and hearings on notifications ofdeplorable event, etc. or when complaints/information on insurancecompanies are received, etc., whether there is any problem in the insurancecompany’s control environment for risk management shall be examined. In
addition, the appropriateness of the business continuity plan shall also be
examined through hearings. In doing so, the following points shall beconsidered in particular.
(2) Main Supervisory Focus(i) Whether the insurance company recognizes what constitutes a crisis andis striving as much as possible to prevent or guard against any crisis(prepare countermeasures against a crisis that may be unpreventable) by,
for example, conducting inspections and anti-crisis practices periodically in100normal times.
(ii) Whether the insurance company has formulated a crisis management
manual. In addition, whether the crisis management manual is constantly
reviewed according to the actual state of its business operations and its
risk management conditions. It should be noted that it is desirable that theinsurance company use objective benchmarks as a basis for theformulation of the crisis management manual.
(Reference) Examples of Conceivable Crisis
A. Natural disasters (earthquakes, typhoons, abnormal weather,
epidemics of infectious diseases)
B. Acts of terrorism and wars (including those that occur outside Japan)
C. Accidents (large-scale power failures, computer system breakdowns,
etc.)
D. Negative reputations (word-of-mouth rumors, Internet messages, email messages, news articles based on speculation, etc.)
E.

Crimescommitted

againstinsurancecompanies(blackmail,intervention by anti-social forces, data theft and abduction of officers or
employees)
F. Problems involved in business processes (inappropriate response tocomplaints and inquiries, errors in data entry, etc.)
G. Problems related to personnel management affairs (accidents andcrimes involving officers and employees, internal disputes, sexual
harassment cases, etc.)
H. Problems related to labor affairs (cases of whistle-blowing, deaths
from excessive workloads, occupational diseases, drain of humanresources, etc.)(iii) Whether the crisis management manual notes the importance of initial
responses, such as accurate identification and objective judgment of thesituation and dissemination of information in the period immediately after
the occurrence of the crisis.
(iv) Whether the crisis management manual clarifies the allocation of
responsibilities in the event of a crisis and specifies arrangements andprocedures for reporting the occurrence of the crisis throughout theorganization and to other parties concerned (including the relevant
authorities). In addition, whether the crisis management manual specifies
arrangements and procedures for reporting the occurrence of a crisis to
relevant

overseasorganizations,101

includingoverseassupervisoryauthorities, depending on the extent of its possible impact abroad as wellas its level and type. It is desirable that anti-crisis arrangements andprocedures be established under the supervision of the crisis management
headquarters that oversees institution-wide response in light of the levels
and types of crisis assumed for each section and local office, etc.
(v) Whether the business continuity plan (BCP) ensures quick recovery fromdamage caused by acts of terrorism, large-scale disasters, etc., as well as
continuance of the minimum necessary business operations and services
for the protection of policyholders, etc. Whether arrangements andprocedures are in place for ensuring response coordinated with theindustrial organization to which the insurance company belongs (The Life
Insurance Association of Japan, The General Insurance Association ofJapan, and Foreign Non-Life Insurance Association of Japan) and otherinsurance companies. In addition, whether the BCP enables the insurancecompany to deal with international disruptions of business operations in amanner suited to the actual state of its own business operations.
For example, attention shall be paid to:
A. Whether measures to secure the safety of computer systems andcustomer data in the event of disasters, etc., have been taken (storing
information printed on paper in electronic media, creating backups ofelectronic data files and programs, etc.).
B. Whether the above backup measures have been taken in ways to avoid
geographic concentration.
C. Whether the insurance company is prepared to handle operations thatare important from the point of view of protecting policyholders, etc. suchas appropriate payment of insurance proceeds, etc. based on insurance
contracts through provisional measures (manual operations based on
backup data, etc.).
D. Whether the insurance company obtains the approval of the board of
directors when it formulates the BCM and makes important revisions. In
addition, whether the BCM is subjected to examination by independent
entities, such as internal and external audits.
(Reference) “Business Continuity Planning at Financial Institutions”” (Bankof Japan, July 2003)““High-level principles for business continuity”” (Joint Forum,
August 2006)(vi) Whether a control environment for ensuring continuation/restoration of102

payment operations at the occurrence of disasters, etc. has been
established in normal times, which is clearly positioned as a function tocontinue/restore the operations for the payment of insurance proceeds at
the occurrence of crisis such as large-scale natural disasters, etc. In
addition, whether a control environment to ensure convenience measures(refer to III-1-7 Measures Regarding Financial Services Support in the
Event of Disasters) for the payment of insurance proceeds, etc. has beendeveloped.
(vii) Whether the insurance company is striving to disseminate and gather
information in normal times in a conscientious manner. In addition, at theoccurrence of crisis, whether information provision/collection systems are
sufficient depending on the level/type of crisis.

II-3-7-3 Actions to Crisis(1) When supervisors have recognized the occurrence of a crisis or the
possibility of a crisis occurring, they shall hold hearings periodically andcheck the situation first-hand so that they can identify and keep track of how
the relevant insurance company is responding to the crisis, including
whether the response (status of the development of a control environmentforcrisismanagement,

communications

withrelevant

partiesanddissemination of information) is sufficient in light of the level and type of thecrisis, until the situation is stabilized. In addition, they shall require thesubmission of a report under Article 128 of the Act when necessary.
(2) In the case of above (1), supervisors shall make sure to maintain close
cooperation with relevant departments and bureaus, by, for example,
immediately reporting to the responsible divisions and offices of the FSA.

II-3-7-4 Post-Crisis Actions
In cases where supervisors have concluded, after the crisis has beenbrought under control, that it is necessary to examine the insurance company’s
response to the crisis, they shall require the insurance company, under Article
128 of the Act, to submit a report regarding the outline of the crisis, its

103response, the analysis of the cause, and measures to prevent a recurrence.

II-3-7-5 Control Environment for Crisis Management Regarding Reputational
Risk(1) Whether the insurance company has developed a control environment for
managing reputational risk. In addition, whether it has specified how theheadquarters, sections, and local offices, etc. should respond to thecirculation of negative reputations. It is desirable that the insurance company
considers how to respond when negative reputations regarding otherinsurance companies or their business clients, etc. are circulated.
(2) Whether the insurance company regularly checks whether there arenegative reputations circulating in each media category (e.g., Internet
messages, news articles based on speculation, etc.).
(3) With regard to how to respond when negative reputations led tocancellation of insurance contracts, whether the rules have been establishedon the identification of business sites such as local offices, etc., customer
response, provision of explanation to external parties, etc., and initial
response.
(4) Whether a system to immediately contact the responsible divisions andoffices of the FSA, business partners, and security companies, etc. in cases
where the situation described in (3) above occurs has been established.

II-3-8 Comprehensive Management of Assets and Liabilities
II-3-8-1 SignificanceIn order to ensure that assets and liabilities, the asset management policy,
and the liability management policy comply with the characteristics of the risks
and solvency status, it is necessary to develop an effective control environment
to understand and manage the status of the total assets and liabilities andmanage the total assets and liabilities appropriately.

104II-3-8-2 Main Supervisory Focus(1) Whether, after establishing a section that comprehensively understands thetotal assets and liabilities and assigning the head of the said section and theofficer in charge, a control environment for reporting the status ofcomprehensive management of assets and liabilities to the said officer,
representative director, board of directors, etc. has been developed andreports are made in a timely and appropriate manner in accordance with thecontrol environment.
In addition, whether the section that comprehensively understands thetotal assets and liabilities ensures a function for mutual checking with
relevant sections by, for example, being functionally independent of profitablesections.
(2) Whether the board of directors has set the strategic objectives for thecomprehensive management of the total assets and liabilities and clarified
the risk tolerance policy in the strategic objectives.
(3) Whether a control environment in which asset management and liability
management (including the management of not only existing liabilities, butalso liabilities to be incurred in the future by the development of new
products, etc.) are carried out based on the said objectives has beendeveloped.
(4) Whether the management of assets and liabilities is carried out based on
the economic value, which is evaluated consistently with market value or thepresent value of the future cash flow derived by the method that uses
principles, methods, and parameters that are consistent with markets.
Whether, for example, the evaluation of risks ascribed to options included ininsurance contracts, etc., which requires consideration of the future cash
flow distribution is based on the best method that each company can takealthough there is no fully established evaluation method available at present.
(5) When comprehensively managing assets and liabilities, whether at least therisks that are considered important in terms of the potential impacts on

105

economic values are evaluated in the asset and liability management
framework.
Whereas such risks include the following:(i) Market risk
The market risk refers not only to the asset management risk, but also
to the risk associated with market fluctuations for the total assets andliabilities, including interest rate risk of liabilities. Therefore, for example,(a) interest rate risk (including the interest rate risk of liabilities in addition
to the interest rate risk of assets), (b) price fluctuation risk of stocks, realestates, and other assets, (c) exchange risk, and (d) market-related
credit risk are included.
(ii) Insurance underwriting risk(iii) Liquidity risk
(6) Whether relevant employees, including the section head and officers incharge, have sufficient understanding of the strategic objectives for thecomprehensive management of the total assets and liabilities and theevaluation methods used for the management according to their roles.
(7) Whether the examination to ensure the appropriateness of the said
objectives and management is appropriately performed according tochanges in the business policy, external environment, and solvency status.
(8) Whether the interaction between all the assets and liabilities of theinsurance company is identified, and the risk interaction between different
asset types and the interaction between different products and insurancelines are considered in the asset and liability management policy.
(9) There may be a gap in duration (or sensitivity) because of a small numberof long-term assets that match liabilities of long duration available. Whether
the risk caused by such mismatch between assets and liabilities is
considered. In addition, whether such mismatch is effectively managed byholding sufficient capital or appropriately reducing risks, etc.

II-3-9 Control Environment for Insurance Underwriting Risks106

II-3-9-1 SignificanceInsurance underwriting risk refers to a risk that an insurance company suffersa loss due to a fluctuation in the economic conditions or the occurrence rate of
insured events, etc. contrary to predictions at the time of setting the insurance
premium. It is important that each insurance company develops a control
environment to appropriately manage such insurance underwriting risks.

II-3-9-2 Main Supervisory Focus(1) Development of Control Environment for Managing Risks(i) Whether the insurance underwriting risk management section effectively
utilizes the following as data for examination:
A. the content of transactions and analysis results, etc. of relevant sections
implementing the development, revision, and discontinuation of products,
prediction

of

the

occurrenceof

insuredevents,predictionofinterest/exchange rates, identification of risks, conclusion of ceded
reinsurance, accumulation of policy reserves and payment reserves, etc.,
sale of insurance products, and underwriting examination of insurance
contracts, etc., andB. written opinions of Responsible Actuaries, etc.
(ii) Whether a control environment in which important information for eachrelevant section on product development, revision, and discontinuation, etc.
(whether the definition of important information is prescribed in the rules)
are reported to the insurance underwriting risk management section is inplace.
(iii) In order to comprehensively manage assets and liabilities, whether close
cooperation with the asset management risk management section is
implemented and the information necessary on the assets side is identified.
(2) Risk Management(i) Whether risks are identified for each product periodically (at least once
every half-year) by methods such as identification/analysis of the current
income and expenditure and prediction of the future income andexpenditure, etc. In addition, whether the prediction of the future income
and expenditure is based on reasonable scenarios from the viewpoints of107

the current interest rate trends, economic conditions, and occurrence of
insured events, etc.
(ii) When selling new insurance products or revising/discontinuing existing
insurance products, whether the appropriateness of the insurance
premiums of the said products is examined from the points of view of, forexample, the asset management environment such as the interest ratelevel, occurrence rate of insured events related to the content of the said
insurance, method of expending operating costs, policy reserve status,
solvency margin ratio status, etc.
(iii) Whether a measure to verify that the underwriting standards are the sameas or its risk is lower than the offering conditions assumed at the time ofthe development of products has been taken.
(iv) Whether a measure to verify that for free rate, standard rate, range rate,
and margin rate products in non-life insurance company, the individual
price settings conform to the risk management policy, etc. has been taken.
(v) It is desirable that a system equipped with a versatile analytical method
for the total insurance underwriting risk has been developed.
(vi) Whether the identified risks are analyzed and appropriate risk control isimplemented in accordance with the risk management policy.
(vii) Whether business sites and insurance agents are instructed/managed sothat they comply with the underwriting standards, etc. in insurance
solicitation. In addition, whether a measure to verify actual compliance has
been taken. It is desirable that a system to disallow insurance contracts
violating the underwriting standards to be concluded has been established.
(viii) For the management of risks related to the third-sector primary
insurance, since the risks that occur during the period from the productdevelopment to the payment are interrelated, and the intrinsic risks varydepending on the type of insurance and therefore the uncertainties such asexternal factors and unexpected acts by insured persons may be realized
at the occurrence of insured events, whether a control environment has
been developed, taking into account how the internal control, including
senior managers, should be such as managing as a series of operations,from solicitation/underwriting to payment by insurance type and carefully
observing/analyzing these uncertainties, etc.

II-3-10 Risk Management for Reinsurance108II-3-10-1 Risk Management for Retention/Cession
For retention and cession of risks to be assumed in direct insurance
contracts and assumed reinsurance contracts carried out by insurancecompanies (excluding cessions to the reinsurance pool for automobile liability
insurance and earthquake insurance), the following points shall be considered(excluding the cases where the percentage of cession to retained risks is verysmall):(1) In order to properly manage the scale/concentration of risks retained
through cessions, whether an appropriate retention/cession policy has beenformulated.
(2)

Whethertheretention/cession

policyincludesstandards

onthemanagement of the retention limits for a single risk and accumulated risks,
the soundness of ceding destination, and concentration to a single reinsurer
according to the characteristics of risks underwritten.
(3) Whether the risks underwritten exceeding the retention limits of theretention/cession policy are appropriately covered by the reinsurance
arranged.
(Note) It is necessary to check that the reinsurance arranged reduces therisks underwritten as intended.
(4) Whether a system to autonomously check the status of compliance with theretention/cession policy has been established at each ceding section, and asystem to check the status of compliance with the retention/cession policy forthe entire company independent of each section has been established.
(5) Whether the recovery status and future recoverability of reinsurance
proceeds as well as the performance of ceded reinsurance is checked.
(Note) It is desirable that the recovery status of reinsurance proceeds iscollectively managed with those for which debts/credits to each ceding
destination relate to assumed reinsurance contracts. In addition, it isdesirable to check the performance of reinsurance using an effective
method for managing risks by type, type contract, and counterparty, etc.

109

(6) In cases where reinsurance is ceded to subsidiary insurance companies,
etc., whether the risk management described in (1) through (5) above isproperly implemented for each group.

II-3-10-2 Risk Management for Assumed Reinsurance
For assumption of insurance carried out by insurance companies (excluding
assumptions from the reinsurance to automobile liability insurance andearthquake insurance), the following points shall be considered (excluding thecases where the percentage of assumption to retained risks is very small):(1) In order to properly manage risks increased through assumption ofreinsurance, whether an appropriate assumption policy has been formulated.
(2) Whether the assumption policy includes standards on types and regions,etc. for which underwriting is performed.
(3) When concluding assumed reinsurance contracts, whether the profitability
and risks of the said assumes reinsurance contracts are sufficiently
considered by obtaining sufficient information from ceding insurers. In
addition, whether, after understanding the estimated maximum amount oflosses for major accumulated risks, appropriate management is performed
so as not to exceed the retention limits.
(Note) The estimated maximum amount of losses and the retention limits
need to be managed together with direct insurance contracts.
(4) Whether a system to autonomously check the status of compliance with theassumption policy has been established at each assuming section, and asystem to check the status of compliance with the assumption policy for theentire company independent of each section has been established.
(5) Whether the performance of assumed reinsurance are checked.
(Note) It is desirable to check the performance of reinsurance using aneffective method for managing risks by type, type contract, andcounterparty, region/type, and underwiring fiscal year, etc.

110(6) In cases where reinsurance is assumed from subsidiary insurancecompanies, etc., whether the risk management described in (1) through (5)above is properly implemented for each group.

II-3-10-3 Disclosure of Policy for Reinsurance(1) Life Insurance Companies(i) When disclosing those listed in items (vi) through (ix) of the paragraphconcerning indicators of insurance contracts, etc. of the Appended Table of
the Regulation (related to Article 59-2(1)(iii)(c) (life insurance company)),
disclosure shall be made separately for third-sector primary insurance(limited to insurance contracts that elect not to accumulate insurance
premium reserves under Article 71 of the Regulation).
(ii) When disclosing the risk management system listed in Article 592(1)(iv)(a) of the Regulation, the following matters shall be disclosed in aneasy-to-understand manner.
A. Policy for effecting and assuming reinsurance
B. Method of obtaining reinsurance coverage(2) Non-Life Insurance Companies(i) When disclosing those listed in items (v) through (viii) of the paragraphconcerning indicators of insurance contracts, etc. of the Appended Table of
the Regulation (related to Article 59-2(1)(iii)(c) (non-life insurancecompany)), disclosure shall be made separately for third-sector primary
insurance (limited to insurance contracts that elect not to accumulate
insurance premium reserves under Article 71 of the Regulation).
(ii) When disclosing the risk management system listed in Article 592(1)(iv)(a) of the Regulation, the following matters shall be disclosed in aneasy-to-understand manner.
A. Policy for effecting and assuming reinsurance
B. Method of obtaining reinsurance coverage
C. Specific content of reinsurance for earthquake disaster risks andtyphoon disaster risks that are major accumulated risks, including typesof reinsurance applicable when the said risks occur and the approach tosetting the maximum amount in the reinsurance scheme, etc.

111II-3-11 Control Environment for Assets Management Risks
II-3-11-1 SignificanceInsurance companies manage money received as insurance premiums andother assets through acquisition of securities, acquisition of real properties,
money loans, and other methods. Based on the understanding of risks related
to such asset management, it is important to develop an appropriate control
environment for managing asset management risks.

II-3-11-2 Main Supervisory Focus(1) Development of Control Environment for Managing Risks
From the point of view of maintaining the soundness of the insurancecompany, whether a control environment for managing asset management
risks on a daily basis that takes into account market risks, credit risks, andliquidity risks, etc. has been adequately developed. In particular:(i) Whether a basic policy for managing risks that take into account market
risks, credit risks, and liquidity risks, etc. has been specified.
(ii) Whether the representative director or directors in charge are actively
involved in the formulation of the said basic policy.
(iii) Whether the internal rules (including the rules of the internal approvalsystem) have been properly established.
(iv) Whether the allocation of responsibilities in asset management has beenclearly defined. In particular, whether the roles and authorities of managers
of each of sections conducting transactions (front offices), back-end
administrative sections (back offices), and risks management sections inmarket risk management (middle offices) have been clearly defined.
Moreover, whether the function for mutual checking between the sections
conducting transactions and back-end administrative sections or risks
management sections is effectively performed.
(v) Whether a control environment for appropriately and periodicallyconducting valuation of assets has been established.
(vi) Whether acontrol environment for broadly collecting/analyzing112

information that affect the prices of assets held, etc., including domestic
and overseas economic trends, has been established.
(vii) Whether a system to understand the amount of risks for the overallmanagement has been established.
(viii) In order to enable the representative director or directors in charge toappropriately and promptly determine the policy for business operations
and risk management, etc., whether a control environment for reporting
important information to the representative director or directors in charge
on time has been developed.
(ix) In cases where operational sections carry out investment management
for each type of assets held without cooperation, based on the recognition
that effective risk management may be hindered by causing a
concentration of risks as a whole or being unable to close positions in an
appropriate timing with each section adhering to its own positions, whether
a control environment to enable making appropriate and prompt
investment decisions from the point of view of the entire portfolio has beendeveloped.
(x) In cases where investments are made in products whose money-market
liquidity is low or is likely to be reduced in times of market disturbance (forexample, the following products), whether appropriate investment policies(policy for managing the maximum amount of investment, control
environment for managing risks, etc.) have been developed and executed.
- Hybrid investment products- Structured bonds- Private equities- Hedge funds(xi) Whether a control environment for managing risk of concentration of
exposures (including those for off-balance items) for, for example, thefollowing points by setting risk preference and maximum amount, etc. has
been developed. In particular, whether it is considered that exposures forfinancial institutions may amplify risks in times of financial market
disturbance.
- Types of assets- Credit ratings- Issuers, counterparties, or related entities thereof (liabilities that can beoffset are considered as needed)- Sectors

113

- Geographical areas(2) Content and Method of Market Risk Management(i) Whether breakdowns by assets held and by period, etc. are appropriately
understood for positions and risks In particular, whether the risks of assets
with special characteristics of risks held are appropriately identified.
(ii) When the VaR values are used for risk management, whether efforts havebeen made to appropriately select the observation period, holding period,
confidence interval, measurement method, and input data, etc. as well as
to verify the measurement results to secure the adequacy, taking into
account characteristics of the products.
(iii) In cases where there is no sufficient past performance data available ordata is not reliable, etc., whether various risk measurement methods (forexample, understanding the gross position of notional principal, etc.,
understanding changes in the volatility, etc.) are utilized and efforts are
made to enhance risk management methods, including stress tests, taking
into account that statistical risk measurement methods have limitations
such as the VaR values are too small. In the implementation of risk
management, whether the prerequisites are reviewed flexibly based on
economic trends, etc.
(iv) When establishing each of the risk limits (allowable range of the
anticipated loss of VaR, etc.) and loss limits, whether the basic concept of
the risk management policy of the insurance company has been clearly
defined by the board of directors. In addition, whether the content ofoperations of each section is reconsidered and the content of theestablishment is reviewed periodically (at least once a half year) by theboard of directors, etc.
(v) Whether the system for reporting to managers and the specific authorities(policy and procedures, etc.) when the risk limits or loss limits are
exceeded or are likely to be exceeded have been clearly defined.
(3) Risk Management of Credit Investment of Securitization Products, etc.
Whether risk management is conducted for investments in marketable
credit products such as securitization products with consideration given to thefollowing points. In addition, the same consideration needs to be given tomarketable loans (regardless of whether they are originated by the own
company or acquired in secondary markets) and CDS transactions. In cases

114where credit risks are guaranteed in the form of insurance, basically thesame consideration needs to be considered according to the characteristics
thereof.
(i) Appropriate valuation of products
For marketable credit products (including marketable loans and CDS
transactions), whether the valuation is conducted and reflected in theaccounting treatment in consideration of the following points (whether thesame consideration is given and additional insurance contract reserves areaccumulated as needed also in cases where credit risks are guaranteed in
the form of insurance).
A. In conducting valuation, whether if the prices frequently used intransactions exist, the said prices are used for evaluation and even if
such prices do not exist, rational valuation is conducted by taking into
account the frequency of trading and the price difference between sellers
and buyers. In addition, in cases where the valuation model is used,
whether, based on the understanding that the model is created on certain
assumptions, the assumptions and logic of the model are periodicallyreviewed and its appropriateness is verified, including whether thecontent of the product, actual situation of the market, and status of credit
risks are appropriately reflected (In the case of insurance forguaranteeing credit risks, for example, based on the evaluation at thetime of underwriting, identifying subsequent changes in credit risks, etc.
and then reevaluating the value of liabilities may be considered).
B. In cases where the product prices calculated by the sections conducting
transactions are used as assessed market values in risk management,
whether the said values are verified from the independent position in therisk management section, etc.
C. In cases where valuation is obtained from brokers or external vendors,
whether efforts have been made to verify the adequacy of the saidvaluation by requesting them to provide information on the valuation
methods to the extent possible. In addition, in cases where the valuation
models provided by external vendors, etc. are used, whether efforts havebeen made to understand the prerequisites, characteristics, and limits ofthe models by requesting the said vendors, etc. to provide theinformation as detailed as possible.
(ii) Appropriate understanding of the product content in making investments insecuritization products, etc.

115

A. Whether a control environment for not excessively relying on externalratings when making investment in and conducting interim control of
securitization products, etc. has been developed, including using externalratings based on the prior correctly understanding of the rating methods
and the meaning of ratings of credit rating agencies, etc.
B. In making investments in securitization products, etc., whether voluntary
efforts are made to understand the content of the securitization products,
etc., including understanding the content of underlying assets, the statusof analysis of structures such as the senior-sub structure (degree ofleverage), status of credit enhancement and liquidity facility, and content
of credit events, etc., and the status of price fluctuation, etc.
C. Since the operation and management of the underlying asset portfolio
rely on relevant parties such as originators and managers, etc. ininvestments in securitization products, whether efforts have been madeto understand and monitor the abilities/systems, etc. of the parties
concerned.
D. With regard to securitization products, in the composition of underlying
assets by the originators, if it is intended to transfer all such underlying
assets to the securitization vehicle from the beginning of the composition,
underlying asset may not be composed appropriately with attention not
being paid to asset analysis, etc., resulting in an increased risk in shareof those securitization products. For this reason, it is desirable that theoriginators continue to retain part of the risk in the securitization products.
Based on these, whether it is checked whether the originators continue
to retain part of risks pertaining to securitization products. In addition, if
the originators do not continue to retain the risks, whether detailed
analysis is conducted on the status of involvement of the originators in
the underlying assets and the quality of the underlying assets.
(iii) Management of market liquidity risks
A. Whether the market liquidity is appropriately examined in the investment
in and interim control of securitization products, etc. As methods toexamine the market liquidity, the followings may be considered:(A) Compare the market scale with the amount of own investment tocheck whether the share is excessively large(B) Understand the price difference between sellers and buyers in themarket and the actual sellable price level through hearings, etc.
(C) Monitor changes in market environment through analysis on various

116indictors (indices of securitization products, etc.)(D) Create stress scenarios on the exhaustion of market liquidity using
the past stress events as a reference to check profit and loss, etc. ofthesecuritization portfolio, etc.
B. Whether a control environment for considering responses on time if aconcern is found in the market liquidity of securitization products, etc. has
been developed.
(iv) Improvement of safety of CDS transactions
When conducting CDS transactions, whether appropriate transaction
practices are adopted from the point of view of improving safety oftransactions, with an eye on efforts of relevant parties such as
standardization of transactions and use of central clearing organizations,etc.
(4) Other Individual Asset Management
When conducting individual asset management, whether the following
points are considered:(i) Trading Account Securities
Whether the rules for carrying out appropriate accounting have been
established.
(ii) Derivative Transactions
A. Whether appropriate management is carried out with the purpose of
conducting derivative transactions, limits, and content of contracts, etc.
being clearly defined.
B. Whether measures to implement risk management have been taken.
C. Whether a system to understand the quantity of risks on time has been
established.
D. Whether the risk management is appropriate on the financial basis.
(iii) Short Selling and Lending/Borrowing of Bonds
A. Whether measures to implement risk management have been taken.
B. Whether a system to understand the quantity of risks on time has been
established.
C. Whether the risk management is appropriate on the financial basis.
D. Whether management is carried out with the execution limits being
clearly defined.
(iv) Stock Transactions on Credit
A. Whether appropriate management is carried out with the purpose of117

conducting transactions on credit, limits, and content of contracts, etc.
being clearly defined.
B. Whether measures to implement risk management have been taken.
C. Whether a system to understand the quantity of risks in a timely mannerhas been established.
D. Whether the risk management is appropriate on the financial basis.
(v) Credit Risks of Counterparties
Whether the credit risks of major counterparties in derivative transactions,etc. are appropriately managed, including the following points.
A. Management of exposures by counterparty and, when needed, by typeof counterparty
B. Understanding of risks of increased exposures by changes in market
values of reference assets in derivative transactions
C. Verification of the effectiveness of security and other credit
enhancement measures(vi) Non-Cleared Over-the-Counter Derivative Transactions
Whether the insurance company (including those whose average total
notional amount of outstanding over-the-counter derivative transactions
falling under Article 123(10)(iv)(b) of the Cabinet Office Order on Financial
Instruments Business, etc. is less than 300 billion yen) makes efforts indeveloping a control environment for managing counterparty risks,
including payment and receipt of variation margins, etc., in non-cleared
over-the-counter derivative transactions with counterparties being financial
institutions, etc.
In addition, whether the insurance company that is subject to theprovisions (on initial margin) of Article 123(1)(xxi)-6 of the Cabinet Office
Order on Financial Instruments Business, etc. makes efforts in developing
a control environment for managing counterparty risks, including receipt ofinitial margins, etc., in non-cleared over-the-counter derivative transactions
that is subject to the said provisions.
For specific supervisory focus, reference shall be made to “IV-2-4(4)Non-Cleared

Over-The-Counter

Derivative

Transactions”

of

the

“Comprehensive Guidelines for Supervision of Financial Instruments
Business Operators, etc.”, etc.
(vii) Other Transactions
For transactions carried out by the insurance company, whether internal
rules that take into account the impacts on the purpose, execution limits,118

and impacts on income and expenditure have been developed. In addition,
whether the rules take into consideration maintenance of social credibility,
etc. For instance, whether internal rules have been developed for security
loan transactions with cash collateral. In addition, whether appropriate
interest is paid for cash collateral.
(viii) Acquisition of Commercial Properties
A. Whether management that clearly distinguishes commercial real
properties from investment properties is implemented.
B. Whether the acquisition of commercial properties is carried out inconsideration of the point of view of effective business operations being
considered.
(ix) Loan of Funds
A. Whether measures to enhance and strengthen review/management
have been taken. In addition, whether the mutual checking function
between sections in charge is effectively performed.
B. Whether measures to appropriately perform debtor management havebeen taken. In addition, when giving credits, whether the aspects such as
business plans, repayment plans, sources of repayment, uses of funds,
investment effects, and conservation, etc. of the debtors are included in
the review items.
C. Whether measures to eliminate inappropriate treatment such as indirectloans, name splitting manipulations, and fictitious names, etc. have beentaken.
D. Whether the calculation of losses and treatment pertaining to loans, etc.
are properly carried out.
(x) Liquidation of Loan Claims
A. Whether the company with loan claims sufficiently consider protection oforiginal debtors.
B. Whether loan claims are transferred to parties who apply pressure or
would harm the steady life and operations of the debtors, etc.
(xi) Operations by Discretionary Investment Contracts
A. Whether the insurance company makes overall asset management
plans (formulation of the basic policy, profit plans, and risk management
plans, etc.) on its own accord.
B. Whether the basic policy of discretionary investment contracts such as
its positioning in overall asset management, etc. has been formulated.
C. Whether the content of discretionary investment contracts is appropriate119as an asset management method of the insurance company.
D. Whether measures to implement risk management, including thediscretionary investment account, have been taken.
E. Whether a system to ensure compliance with asset management
regulations and examine it, including the discretionary investment
account, has been developed.
(xii) Performance Guarantee
In cases where the insurance company provides performance guaranteeof construction work, etc. such as so-called performance bonds as debt
guarantee, whether the content of contracts requires the insurancecompany to conduct businesses that it cannot conduct in light of Article 100of the Act such as requiring it to complete the construction by itself in thecase of performance guarantee, etc.
(xiii) Management of Special Account in Market
Whether internal rules for management of special account in market has
been appropriately established. In addition, whether a system to ensure
appropriate management based on the internal rules has been established.
(Note) When establishing the internal rules, whether the following points
are considered:
A. Whether it is stipulated that management shall be carried out in goodfaith for the benefit of the policyholders.
B. Whether it is stipulated that the management policy and content ofmanagement (including matters concerning lending stocks), etc. shallbe explained to the policyholders.
C. Whether the principles to be observed in markets (for example,
prohibition of price fixing/spread of rumors, matters concerning closing
price guarantee transaction, etc.) have been established.
D. Whether standards on the selection of entities to which orders areplaced, entities to which management is entrusted, and advisors thatcomprehensively take into account the transaction execution capacity,
compliance with laws and regulations, etc., credit risks, andperformance of management, etc.
(xiv) Surety Bond Business of Non-Life Insurance Company and Guaranteeof Obligation
With regard to surety bond business of the non-life insurance company
and guarantee of obligation, whether guaranteed securities activities, which
are carried out using the methods specific to insurance such as setting the120amount of consideration, establishing a reserve, and distributing the risks
by reinsurance, etc. based on actuarial science, and guarantee ofobligation prescribed in Article 98(1)(ii) of the Act are clearly distinguishedin management.
A. Guarantees implemented as surety bond business include, for example,
guarantee for derivative transactions
B. Guarantees implemented as guarantee of obligation include, forexample, guarantee for securitization of loans, corporate bonds, etc., andassets(xv) Acquisition/Holding of Stocks Utilizing Subsidiary Companies Specializedin Investment
When acquiring/holding the shares of “companies specified by Cabinet
Office Order as those exploring new business fields or conducting new
business activities found to contribute considerably to the improvement ofmanagement” prescribed in Article 106(1)(xiii) or Article 271-22(1)(xiii) of
the Act, the insurance company itself is considered to have certain risk
shields. Even in such cases, whether a control environment forunderstanding, analyzing, and managing the status of risk management of
its subsidiary companies has been developed.
(5) Procurement of Funds
Purchasing of external funds produces leverage effects, and sufficientconsideration needs to be given to the management of limits on holding ofassets, etc. such as the following:(i) Funds
When soliciting funds, whether the effects of burden of interest on funds,
enhancement of retained earnings, and protection of policyholders, etc. areconsidered.
(ii) Corporate Bonds
A. Whether the purpose of issue, limits on issues, and impacts on income
and expenditure are considered.
B. Whether measures to implement appropriate management of issue andredemption, etc. have been taken.
(iii) Purchase of Subordinated Debts
A. Whether the purpose of purchase, limits, and impacts on income andexpenditure are considered.
B. Whether measures to implement appropriate management of repayment121

plans, etc. have been taken.
(iv) Overdrafts
A. Whether the overdrafts correspond to temporary cash flow conditions
associated with asset management.
B. Whether the purpose of purchase and limits are considered.
(v) Purchase of Debts in Foreign Currency
Whether the purpose of purchase, limits, and impacts on income andexpenditure are considered.
(vi) CPA. Whether the purpose of issue, limits on issues, and impacts on income
and expenditure are considered.
B. Whether measures to implement appropriate management of issue andredemption, etc. have been taken.
(6) Ideal Methods of Self-Assessment of Assets(i) Whether measures to correctly understand the soundness of the content ofassets have been taken.
(ii) Whether the insurance company has formulated self-assessment
standards,

examines/analyzes

own

assets,andcategorizes

themaccording to the degree of risk of default and impairment of the asset value(hereinafter referred to as “self-assessment”).
(iii) When formulating self-assessment standards, whether the standards
comply with relevant laws and regulations such as the Companies Act (ActNo. 86 of 2005), etc. and have been established in writing through formalinternal procedures with active involvement of senior managers. Whether
specific standards for asset assessment and the sections implementing
self-assessment have been clearly defined. Whether the rationality andclarity of the standards can be explained.
(iv) Whether the section responsible for self-assessment has been clearly
defined. For the said section, whether the mutual checking function is
ensured by, for example, being independent of the section approving loans.
(v) Whether a system in which internal audit sections such as theexamination section, etc. conduct audits of the self-assessment results has
been established. Whether experts are secured at the self-assessment
sections.
(vi) Whether self-assessments are conducted in accordance with thestandards.

122

(vii) Whether a business flow to report the self-assessment results to senior
managers has been established. Whether senior managers correctly
understand the reports and the content of the company’s assets.
(viii) Whether the policy of reserve for bad debts that takes into account the
self-assessment results has been clearly defined. Whether cooperation
with external auditors is sufficient.
(ix) Whether depreciation/reserve is conducted in accordance with thePractical Guidelines of the Japanese Institute of Certified Public
Accountants.
(x) Whether rational standards have been developed on the assessment of
bad debt losses expected to occur in particular in relation to specificcountries or regions (hereinafter referred to as “country risks”) due tooverseas political or economic situations, etc.
(xi) Whether the policy of reserve for specific foreign loans that take into
account the results of assessment of country risks has been clearly defined.
Whether reserve is conducted in accordance with the reserve policy.
Whether cooperation with external auditors is sufficient.
(xii) Whether the standards for assessment of country risks can properly
assess credits granted to the governments of the countries or regions
where the following facts, etc. are occurring, natural persons having
domicile or residence in those countries, or corporations having theirprincipal offices in those countries.
A. The payment of the principal or interest of loans of private insurancecompanies to the government, central bank, government-affiliated organs,or national enterprises (hereinafter referred to as the “government, etc.”)(here in after referred to as “private loans to the government, etc.”) of thecountry concerned is delayed for one month or more.
B. For private loans to the government, etc., a contract on postponement ofdebt repayment, refinancing by a method that is uniform across major
creditor banks, or other equivalent measures (hereinafter referred to as“postponement of debt repayment, etc.”) is concluded within five years
from the closing of accounts.
C. For private loans to the government, etc., after receiving a request for
postponement of debt repayment, etc., one month or more has passed
without being able to conclude the contract.
D. For private loans to the government, etc., the facts listed in thepreceding items are expected to occur in the near future.

123

E. For loans of private insurance companies to natural persons having
domicile or residence in those countries or corporations having theirprincipal offices in the countries concerned, the facts similar to thoselisted in A. through C. above are occurring or expected to occur in thenear future.
F. Other events that are expected to have impacts on the assessment ofcountry risks.

II-3-12 Control Environment for Managing Liquidity Risks
II-3-12-1 SignificanceIf cash flow is hindered by the status of premium revenue, etc, it may havesignificant impacts on business management. Therefore, it is important toappropriately manage risks by regularly paying close attention to the status ofcash flow.

II-3-12-2 Main Supervisory Focus(1) Development of Control Environment(i)

Whether

a

cash

flow

management

sectionthat

carriesoutmanagement/operation of daily cash flow has been established.
(ii) Whether a control environment for reporting, policy planning, anddirections/instructions on cash flow management has been appropriately
developed among the representative director, directors in charge, board of
directors, cash flow management section, and each operational section. In
addition, whether a control environment in which the checking function isadequately performed has been developed by, for example, separating the
cash flow management section and the risk management section, etc.
(Note) The “cash flow management section” refers to a section that carries
out management/operation of daily cash flow, and the “risk management
section” refers to a section that monitors the status of compliance withinternal standards on cash flow, etc.
(iii) Whether the liquidity risk management policy has been formulated.
Whether cash flow management based on the liquidity risk management

124

policy includes the following management where needed:- Establishment of risk preference, risk tolerance, and risk limits, etc for
liquidity risks and checking the compliance status therewith- Conducting stress tests on the liquidity (including checking that it is within
the range of risk preference, etc.)- Establishing and reviewing measures to respond to the liquidity crises(iv) Whether the cash flow status is categorized according to the urgency ofthe cash flow and the rules such as the management methods, reporting
methods, and settlement methods, etc. have been developed for eachcategory upon approval by the board of directors, etc.
(2) Risk Management(i) Whether the board of directors considers cash flow risks when setting
strategic goals. Whether the board checks whether reports on cash flow
management comply with the liquidity risk management policy. In addition,
whether the board approves measures to respond to the liquidity crisis andimportant revisions thereof.
(ii) Whether the representative director has established and reviews limits
such as the maximum amount of investments in assets with no market orvery low liquidity, when needed, according to the content of asset
investment and status of procurement, etc.
(iii) Whether the risk management section provides information to the boardof directors and cash flow management section and checks the cash flow
management section. In addition, whether the risk management section, in
cooperation with the cash flow management section, has been developing
and reviewing measures to respond to the liquidity crisis.
(iv) Whether the cash flow management section appropriately manages cash
flow by evaluating the liquidity from the aspects of both assets andliabilities, understanding the status of ensuring the liquidity, and preparing
the statement of cash flow and cash flow outlook for Japanese and foreign
currencies, etc. in accordance with the liquidity risk management policy
and the risk management rules. Whether it has developed factor analysis
and response measures for cash flow risks. When liquidity risks are
identified by currency and by site, whether the cash flow management
section manages them in an integrated manner. In addition, whether it
secures the procurement mechanisms.
(v) Whether each operational section conduct business operations in125

consideration of liquidity risks.
(vi) When managing cash flow risks, whether the cash flow status ofconsolidated subsidiary companies is understood/considered. In addition,
whether ceded reinsurance is managed.
(vii) For derivative transactions that include insurance for guaranteeing credit
risks and CDS transactions, etc., if the conditions require collaterals basedon the level of credit of guaranteed debts or reference debts or the rating of
the insurance company, whether liquidity management is carried out basedon the assumption of provision of collaterals.

II-3-13 Control Environment for Operational Risks
A control environment for managing operational risks is composed of a control
environment for managing administrative risks, that for information technology
risks, and that for other operational risks.
II-3-13-1 Control Environment for Managing Administrative Risks
II-3-13-1-1 Significance“Administrative risks” refers to risks that insurance companies will incur
losses because of officers/employees of the insurance companies failing tocarry out accurate administration, causing accidents, or committing frauds,
etc. Insurance companies are required to make efforts to ensure credibility
through sound and appropriate business operations by appropriately
developing an internal control environment, including personnel managementof officers/employees involved in such risks.

II-3-13-1-2 Main Supervisory Focus(1) Control Environment for Managing Administrative Risks(i) Whether an appropriate control environment for managing administrative
risks has been developed based on the understanding that administrative
risks exist in all operations.
(ii) Whether the importance of reducing administrative risks is recognized126

and concrete measures to reduce administrative risks have been taken,
for instance, whether measures such as developing an internal control
environment and providing guidance to employees and insurance
agencies not to cause leakage of personal information or infringe privacyof policyholders, etc. have been taken, and whether measures to prevent
insurance contracts violating laws, regulations, or the internal rules suchas contracts lacking the purpose of insurance (so-called fictitious
contracts), etc.
(iii) Whether the administrative section has developed a system to enable
the checking function to be adequately performed. In addition, whether
various administrative rules have been clearly defined.
(2) Control Environment for Internal Audits
Whether the internal audit section appropriately conducts internal audits
to audit the control environment for managing administrative risks.
(3) Control Environment for Managing Risks at Local/Branch Offices, etc.
Whether the administrative section has taken measures to check thecontrol environment for administrative management at business offices
such as local offices and branch offices, etc.

II-3-13-2 Control Environment for Managing Information Technology Risks
II-3-13-2-1 Significance“Information technology risks” refers to risks that customers and insurancecompanies will incur losses because of a computer system breakdown,
malfunction, or other inadequacies, or because of inappropriate or illegal useof computer systems. Information systems used by insurance companies are
becoming increasingly advanced and complex, in line with the integration ofsystems due to mergers, management integration through conversion into
holding companies, and other management restructuring moves and an
expansion of the range of products and services, etc. This, combined with an
expansion of computer networks, has increased the risk of important
information being illegally accessed or leaked, etc. As the secure and stable
operation of computer systems is the overriding prerequisite for ensuring127

public confidence in insurance companies, it is extremely important toenhance the control environment for managing information technology risks.
In addition, considering recent environmental changes surrounding
financial business, IT strategies of financial institutions are becoming
important issues that now affect business models of financial institutions.
Therefore, financial institutions are increasingly required to consider both thebusiness strategies and the IT strategies in an integrated manner. Fromthese standpoints, it is extremely important that the managers demonstrate
their leadership to link IT and business strategies to ensure “IT governance”,
a mechanism to achieve the creation of corporate values, functions
appropriately.
(Reference) “Discussion Paper on Dialogues and Practices Regarding
Financial Institutions' IT Governance” (June 2019)II-3-13-2-2 Main Supervisory Focus(1) Recognition of Information Technology Risks, etc.
(i) Whether the representative director as well as officers/employees
adequately recognize the importance of information technology risks andconduct periodical reviews, and whether a basic policy for company-wide
management of information technology risks has been formulated.
(ii) Whether the representative director recognizes that prevention andefforts for speedy recovery from system troubles and cybersecurity
incidents (hereinafter referred to as "system trouble, etc.") is an important
issue for business management and has developed an appropriate
control environment.
(Note) “Cybersecurity incidents” refers to instances of cybersecurity being
threatened by so-called cyberattacks, including unauthorized intrusion,
theft, modification and destruction of data, failure or malfunction of
information systems, execution of illegal computer programs, and
DDoS attacks, committed via the Internet through malicious use of
information communication networks and information systems, etc.
(iii) Whether the board of directors adequately recognizes the importance of
information technology risks and appoints an officer responsible foroverall

information

technology

management(chiefinformation

technology officer). It is desirable that the chief information technology

128

officer has sufficient knowledge/experience of information technology toappropriately perform its duties.
(iv) Whether the responsibilities of and actions to be taken by the
representative director and directors (in the case of a company with anominating committee, etc., executive officers) in times of crisis due tothe occurrence of system trouble, etc. have been specifically defined.
In addition, whether training in which they take command themselves isconducted to secure its effectiveness.
(2) Control Environment for Managing Information Technology Risks(i) Whether the board of directors has developed a control environment for
managing risks with due consideration to the fact that when a risk isfound due to expansion of computer networks, etc., it may havesignificant impact on business management; for instance, the impacts
may cause a chain reaction, which tends to spread out and become
more serious.
(ii) Whether a basic policy for managing information technology risks has
been specified. Whether the basic policy for managing information
technology risks includes a security policy (a basic policy for
appropriately protecting information assets of the organization) and apolicy on external contractors.
(iii) Whether the insurance company has developed a control environment
for managing information technology risks based on guides that allow it
to judge the objective levels of the details of the control environment.
In addition, whether the control environment for managing information
technology

risks

is

constantly

reviewedaccordingtotheidentification/analysis of system troubles, etc. and the results of exerciseof risk management as well as technological advancement, etc.
(3) Assessment of Information Technology Risks(i) Whethertheinformation

technology

risk

management

sectionrecognizes and assesses risks periodically and in a timely manner byrecognizing the fact that risks are becoming diverse due to changes inthe external environment, such as seen in the examples of system
troubles that bring about a more complex and broad-based impact
induced by large-scale transactions as a result of increased customer
channels and efforts to expand information networks.

129

In addition, whether it is taking sufficient measures to address the risks
that have been identified.
(ii) Whether the information technology risk management section
understands/controls, for example, the limit of computer systems, suchas the number of contracts that can be processed per day and considers
response measures to be taken when the control values are exceededfromsystematic and administrative aspects.

(iii) Whether the product design section cooperates with the information
technology risk management section when introducing new products andchanging the content of products, and the information technology risk
management

sectionconducts

assessmentofrelevantsystemsregardless of the existence of system development.
(4) Information Security Management(i) Whether the insurance company has developed a policy to appropriately
manageinformation

assets,preparedorganizational

readiness,

introduced in-house rules, and developed an internal control environment.
In addition, whether it is making continuous efforts to improve its
information security control environment through the PDCA cycle, taking
notice of illegal incidents or cases of problematic conduct at othercompanies.
(ii) Whether the company is managing information security by designating
individuals responsible for it and clarifying their roles/responsibilities in
efforts to maintain the confidentiality, integrity, and availability of
information. In addition, whether the individuals responsible for
information security are tasked to handle the security of system, data,and network management.
(iii) Whether the insurance company is taking measures to prevent
unauthorized use of computer systems, unauthorized access, andintrusion by malicious computer programs such as computer viruses.
(iv) Whether the insurance company identifies important customer
information it is responsible for protecting in a comprehensive manner,
keeps its records, and manages them.
Whether the insurance company, in identifying important customer
information, has set business operations, systems, and external
contractors as the scope of protection and includes data, such as thoselisted below, in the scope.

130

- Data stored in the areas within the system that are not used in ordinary
operations- Data output from the system for analyzing system troubles- Transaction logs stored in ATMs (including those outside of branches),etc.
(v) Whether the insurance company is assessing importance and risks
regarding important customer information that has been identified.
In addition, whether it has developed rules to manage information,such as those listed below, in accordance with the importance and risksof each item.
- Rules to encrypt or mask information- Rules for utilizing information- Rules on handling data storage media, etc.
(vi) Whether the insurance company has introduced measures todiscourage or prevent unauthorized access, unauthorized retrieval, dataleakage, etc. such as those listed below, for important customer
information.
- Provision of access authorizations that limits access to the scopenecessary for the employee's responsibility- Storage and monitoring of access logs
- Introduction of mutual checking functions such as by separating theindividuals in charge of development and those responsible for
operations, administrators and those responsible for operations, etc.
(vii) Whether the insurance company has introduced rules for controlling
confidential information, such as encryption and masking. In addition,
whether it has introduced rules regarding the management of encryption
programs, encryption keys, and design specifications for encryption
programs.
Note that “confidential information” refers to information, such as PIN,
passwords, credit card information, etc., whose misuse could lead tolosses by customers.
(viii) Whether the insurance company gives due consideration to thenecessity of holding/disposing of, restricting access to, and taking
outside, of confidential information, and treats such information in astricter manner.
(ix) Whether the insurance company periodically monitors its information
assets to see whether they are managed properly according to131management rules, etc. and reviews the control environment on an
ongoing basis.
(x) Whether the insurance company conducts security education (includingby external contractors) to all officers and employees in order to raiseawareness of information security.
(5) Cybersecurity Management(i) Whether the board of directors, etc. recognizes the importance ofcybersecurity amid increasingly sophisticated and cunning cyberattacks
and has introduced the necessary control environment.
(ii) Whether the insurance company has developed a control environment
for managing cybersecurity, such as those listed below, in addition todeveloping the organizational structure and formulating internal rules.
- Monitoring systems against cyberattacks- Systems to report cyberattacks and public-relation systems when
attacks occur- Emergency measures by Computer Security Incident Response Teams(CSIRT) and systems for early detection- Systems of information collection and sharing through informationsharing organizations, etc.
(iii) Whether the insurance company has introduced a multi-layered
defense system against cyberattacks that combines cybersecurity
measures respectively for inbound perimeter control, internal network
security control, and outbound perimeter control.
- Security measures for inbound perimeter control (e.g., introduction of afirewall, anti-virus software, intrusion detection system, intrusion
protection system, etc.)- Security measures for internal network security control (e.g., proper
management of privileged IDs/passwords, deletion of unnecessary IDs,
monitoring of execution of certain commands, etc.)- Security measures for outbound perimeter control (e.g., retrieval andanalysis of communication/event logs, detecting/blocking inappropriate
communication, etc.)(iv) Whether measures such as those listed below are implemented toprevent damage from expanding when cyberattacks occur.
- Identification of IP addresses from which the cyberattacks originate andblocking off of attacks

132

- Functions to automatically spread out accesses when under DDoS
attacks- Suspension of the entire system or its part, etc.
(v) Whether necessary measures for vulnerabilities in the system, such as
updating of the operating system and application of security patches, areintroduced in a timely manner.
(vi) Whether the insurance company is assessing its security levels
periodically by utilizing tests on network intrusion and vulnerability
diagnosis, etc. and making efforts to improve security measures.
(vii) Whether the insurance company, when executing transactions without
any face-to-face contact using communication methods such as theInternet, has introduced appropriate authentication methods in line withthe risks associated with such transactions, such as those listed below.
- Authentication methods that do not rely on fixed IDs/passwords, such as
variable passwords and digital certificates- Transaction authentication through multiple channels by using, forexample, devices other than the PC web browser used in transactions,such as a mobile phone- Transaction authentication using transaction signatures by means of a
hardware token, etc.
(Note) If measures to prevent illegal withdrawals from customer accounts
through unauthorized access (e.g., when, in services to designate orchange the accounts to which insurance proceeds can be transferred,designations of or changes to accounts of holders different from thecustomer are not allowed, and measures are introduced to prevent
transfers to accounts of a holder who is not the customer, for example
by sending an application form for designating/changing accounts tothe customer's address by transfer-prohibited mail) are implemented,
the insurance company is deemed to have introduced measures in linewith the risks associated with such transactions.
(viii) Whether the insurance company, when executing transactions without
any face-to-face contact using communication methods, such as theInternet, has introduced preventative measures in line with operations,such as those listed below.
- Provision of security software that allows the user to detect and remove
viruses, etc. when executing transactions- Introduction of software that allows the insurance company to detect133virus infection of the user's PC and issue a warning- Adoption of methods to store digital certificates in mediums or devices
separate from PCs used in transactions, such as IC cards- Introduction of a system that allows the insurance company to detect
unauthorized log-ins, abnormal transactions, etc. and immediately
notify such anomalies to users(ix) Whether the insurance company has developed contingency plans
against potential cyberattacks, conducts exercises, and reviews suchplans. In addition, whether it participates in industry-wide exercises, asnecessary.
(x) Whether the insurance company has formulated plans to train andexpand the personnel responsible for cybersecurity and implementsthem.
(6) System Planning/Development/Management(i) Whether the insurance company has clearly defined a policy for systemstrategy as part of its business strategy and developed medium- to longterm development plans. In addition, whether such medium- to long-term
development plans are approved by the board of directors.
(ii) Whether the insurance company is making continuous efforts to identify
the risks inherent in the current system and making scheduled
investments to maintain and improve it.
In addition, whether it has allocated sufficient budget and humanresources in system development/administration.
(iii) Whether rules to authorize plans, development, and transitions ofdevelopment projects have been clearly established.
(iv) Whether individuals responsible for development projects aredesignated and progress of the development plans are managed
accordingly.
In addition, whether they report the status of progress of systemdevelopment to the board of directors, etc., taking into account theimportance and characteristics of the system. Furthermore, whether theboard of directors, etc. gives necessary instructions when a problem isfound in the status of progress.
(v) In order to prevent disadvantages caused by system defects in theinsurance company to policyholders, etc., whether the insurancecompany has considered the following points and taken measures to134

prevent program errors from occurring when developing systems fordeveloping/revising insurance products.
A. Cooperation at the Time of System Development
When introducing new products or mechanisms for insurance
contracts (including the cases when they are revised), whether
sufficient cooperation is made among the product design section,
administrative design section, and computer system section.
In making cooperation, the following points shall be considered:(A) Whether the rules and scope of responsibilities for cooperation
among relevant sections have been clearly defined.
(B) Whether the product design section and administrative designsection are involved in checking the system functions for the
calculation results of important matters such as insurance premiums
and dividends, etc. on their initiative.
(C) Whether necessary information is shared among relevant sections.
(D) Whether responsible persons and persons in charge in relevant
sections have been clearly defined.
(E) Whether the records on system development and changes are
retained as documents with predetermined retention periods.
B. Checking at the Time of System Development(A) Whether system design, program design, and tests are conductedin cooperation among the product design section, administrative
design section, and computer system section by appropriately andsufficiently assuming all possible cases where differences intreatment occur in the context of the content of products andmechanisms.
(B) Whether a particular focus is placed on checking the calculation
results of important matters such as insurance premiums anddividends, etc. In addition, whether the status of checking is verified
before the system operation.
(C) Whether checking is done by those with sufficient examination
capacity for each specific content in each section.
(D) Whether the checking methods are appropriately chosen.
C. Checking/Management After System Development(A) Whether the product design section and administrative designsection conduct sample checking, etc., as needed, even after the
introduction of new products and mechanisms.

135

(B) In cases where the implementation period of part of the systemdevelopment for introducing new products and mechanisms isdelayed, whether the product design section, administrative designsection, and computer system section cooperate in appropriately
managing the schedule after clarifying the main management entity
for the subsequent system development.
(vi) Whether the insurance company has formulated specific plans for thecurrent system structure and development technology to be inherited andto train specialized personnel, and implements them.
(7) Computer System Audits(i) Whether an internal audit section that is independent of the computer
system section conducts periodic audits of the computer system.
(ii) Whether the insurance company conducts internal audits by personnel
with a good knowledge of computer systems and is utilizing external
audits by information system auditors, etc.
(iii) Whether the audited sections account for all business operations
involving information technology risk.
(iv) Whether the results of computer system audits are appropriately
reported to the board of directors.
(8) Management of Outsourcing of Business Operations(i) Whether the insurance company is assessing outsourced contractors(including system-related subsidiaries) against selection standards,
giving careful consideration and selecting them.
(ii) Whether the insurance company sets out division of roles andresponsibilities with outsourced contractors, supervising authority ofauditors, re-entrustment procedures, level of services provided, etc. inoutsourcing contracts. In addition, whether the insurance company haspresented to outsourced contractors the rules their officers andemployees are required to adhere to and security requirements, as well
as defined them in contract forms, etc.
(iii) Whether risk management is carried out properly in outsourced systemrelated work (including work further subcontracted).
In cases where multiple outsourced contractors are involved andtherefore management operations are more complex, in particular,
whether a system has been developed based on the recognition that136

more advanced risk management is required.
Whether risk management is carried out properly in system-related
office functions outsourced in an equivalent manner as system-related
work outsourced.
(iv) Whether the insurance company, as an entruster, periodically checks to
confirm that outsourced work (including work further subcontracted) is
carried out appropriately.
In addition, whether it takes necessary measures such as, for example,
assigning personnel, as an entruster, not to leave the operations to
outsourced contractors. Furthermore, whether there is a system thatallows the entruster to monitor and track the status of customer data
being processed at outsourced contractors.
(v) Whether the insurance company conducts audits on external
contractors by the internal audit section or information system auditors,
etc.
(9) Contingency Plan(i) Whether the insurance company has formulated a contingency plan andhas established arrangements and procedures for dealing withemergencies.
(ii) Whether the insurance company is basing the details of its contingency
plan on manuals that allows it to judge objective levels of its details (suchas “Manual for the Development of Contingency Plans in Financial
Institutions” compiled by the Center for Financial Industry Information
Systems).
(iii) Whether the insurance company, in developing a contingency plan,assumes not only contingencies due to disasters but also system
troubles, etc. due to internal or external factors.
In addition, whether it assumes risk scenarios of sufficient extent forcases such as a major delay in batch processing.
(iv) Whether the insurance company reviews assumed scenarios in its
contingency plan by, for example, taking into consideration case studies
of system troubles at other financial institutions and results ofdeliberations at the Central Disaster Management Council, etc.
(v) Whether exercises in accordance with the contingency plan involve theentire company and are periodically conducted jointly with outsourced
contractors, etc.

137

(vi) Whether off-site backup systems, etc. are introduced in advance forimportant systems whose failure could seriously affect business
operations, and that a control environment is in place to address
disasters, system troubles, etc. so that normal business operations canbe speedily brought back.
(10) Actions to System Troubles, etc.
(i) Whether the insurance company is prepared to implement appropriate
measures to avoid causing unnecessary confusion among customers
when system troubles, etc. occur.
In addition, whether it has developed a worst-case scenario in
preparation for system troubles, etc. and is prepared to take necessary
measures accordingly.
(ii) Whether the insurance company has prepared procedures that also
subjects outsourced contractors to reporting system troubles, etc., andhas a clearly defined system of command and supervision.
(iii) Whether the insurance company is prepared to immediately notify the
representative director and other directors when a system trouble, etc.
that seriously affects business management occurs, and report thelargest potential risk it poses under the worst-case scenario (for example,
if there is a possibility that the failure could seriously affect customers,
the reporting persons should not underestimate the risk but immediately
report the biggest risk scenario).
In addition, whether it is prepared to launch a task force, have therepresentative director issue appropriate instructions and orders, andseek resolution of the issue in a swift manner, as necessary.
(iv) Whether the insurance company, in preparation for system troubles,
etc., has clearly defined a support system such as registering humanresources with know-how and experience within and outside thecomputer system sections and outsourced contractors, etc. in advance toenable promptly convening them.
(v) When a system trouble, etc. occurs, whether the insurance company
has promptly made public the details of the trouble, its cause, andprospects for recovery and other matters, and also, as necessary,
immediately established a call center, etc. to adequately respond toinquiries from customers.
In addition, in preparation for system troubles, etc., whether it has

138clearly defined the method of providing information to relevant
operational sections and the details of the information to be provided.
(vi) Whether the insurance company, after system troubles, etc. haveoccurred, analyses the cause, adequately investigates impacts until
recovery, takes improvement measures, and implements measures toprevent recurrence.
In addition, whether it periodically analyzes tendencies of factors thathave led to system troubles, etc. and introduces measures to addressthem.
(vii) Whether the insurance company has developed a systematicmechanism to, for example, bypass the location of trouble, etc. tominimize the impacts of system troubles, etc.

II-3-13-3 System Integration Risks/Project Management
II-3-13-3-1 SignificanceII-3-13-3-1-1 System Integration Risks
With diversification in insurance products, the scale of the systems of
insurance companies is becoming larger and their configuration is
becoming more and more complex. Combined with increased reliance on
IT (information technologies) in insurance operations and expansion ofcomputer networks, ensuring safety and stability of the system has now
become an important business issue.
In particular, in the integration of systems due to mergers, management
integration through conversion into holding companies, and othermanagement restructuring moves, large-scale system troubles may occur.
Therefore, establishment of a control environment for managing system
integration risks is one of the most important issues when making mergers,
management integration through conversion into holding companies, andother management restructuring moves.
(Reference) Attachment “Approaches and Viewpoints Concerning theControl Environment for Managing System Integration Risk (Detailed)”of the “Discussion Paper on Dialogues and Practices Regarding139

Financial Institutions' IT Governance” (June 2019)(i) “System integration” refers to integration, division, or new
establishmentofsystems(including

joint

systemdevelopment/operation) due to mergers, transfer of businesses,
management integration through conversion into holding companies,
subsidiary acquisitions, business tie-ups, and other management
restructuring moves (“management integration”).
(ii) “System integration risks” refers to risks that will cause losses tocustomers, etc. or risks that insurance companies, etc. subject tointegration will incur losses due to insufficient preparation for
integrating administration/systems, etc. in system integration such as
officers/employees without sufficient experiences failing to carry out
accurate

administration

orcomputersystems

crashingormalfunctioning, etc., resulting in causing confusion in confusion incustomer services or, in some cases, undermining the foundation forsustaining the insurance company, etc.

II-3-13-3-1-2 “Risk Characteristics” of System Integration and Risks
Reduction Measures(1) Basic Concept of Risk Characteristics“System integration risks” are not just limited to risks related to systemdevelopment, but also include broad areas of “administrative risks” suchas administrative processing-related response by the user section andcustomer response by insurance agents, agencies, and contact offices,
etc. It is important to note that composite risk management that attaches
utmost importance to “customer convenience” at the responsibility ofsenior managers of the target insurance companies is required.
(2) Basic Concept of Risk mitigation measure
The quantity of system integration risks should be recognized as the
product of the probability of the occurrence of events and the impacts
when they occur, and it must be noted that, considering the nature ofbusiness of insurance companies, strict risk mitigation measure that take
into account II-3-13-3-1-3 and II-3-13-3-2 below are required.
In addition, a control environment that can avoid significant impacts on

140customers even when various risk events are multiply actualized (multiple
troubles occur at the same time) shall be developed by establishing acontingency plan that matches risk mitigation measure.

II-3-13-3-1-3 Importance of Project Management
In the integration of systems due to mergers, management integration
through conversion into holding companies, and other management
restructuring moves, due to merger-specific circumstances(Note) such as thefollowing, establishment of an effective control environment for project
management is considered essential not only for the companies developing
the system, but also for insurance companies.
(Note) Note that in the case of system integration for the reason otherthan merger, similar circumstances as those for merger also exist.
(1) Constrained Schedule
Senior managers of multiple insurance companies that carry out
system integration (hereinafter referred to as the “target insurancecompanies”) shall be required to promptly (i) establish the businessstrategies/models

for

after

the

merger,(ii)

formulatepersonnel

system/restructuring plans, and (iii) make important business decisions
such as determining the merger ratio, etc. under a constrained scheduleand competitive environments(2) Long-Term Complex Project
The basic pattern of processes to achieve system integration shall
include (i) basic study, (ii) basic design, (iii) detailed design, (iv)manufacturing, (v) integration test, (vi) comprehensive test, (vii)
comprehensive operational test, (viii) migration, thus constituting a
project requiring a long period for the achievement.

II-3-13-3-2 Main Supervisory Focus
The main supervisory focus in examination is as described in Attachment

141

“Approaches and Viewpoints Concerning the Control Environment forManaging System Integration Risk (Detailed)” of the “Discussion Paper on
Dialogues and Practices Regarding Financial Institutions' IT Governance”(June 2019). The followings are examples to show more specific supervisory
focus that takes into account reflections gained and lessons learned from thepast cases, etc.
(1) Clarification of Responsibility Sharing and Business Attitudes of
Directors
Whether the representative directors of the target insurance companies
correctly recognize the characteristics of system integration risks such as
those described in II-3-13-3-1-1 and the importance of project
management.
Whether the representative directors of the target insurance companies
have clearly defined responsibility sharing among officers/employees
involved in system integration and their own business attitudes.
(2) Rationality of Business Decisions Concerning System Integration
Methods
Whether the boards of directors of the target insurance companies
eliminate conflicts between the target insurance companies, havesufficient discussions, and rationally make decisions on system
integration methods after securing sufficient budgets and humanresources for the sufficient preparation period until the implementation ofsystem integration based on the schedule leading up to the merger, etc.
and business strategies after the merger, etc.
(3) Development of Basic System for Project Management(i) Whether the boards of directors of the target insurance companies,
based on sufficient recognition that system integration is not just asystem problem, but also inseparable with administrative risks ofadministrative processing-related response and customer response
and that risks occurring in one area may spread to other areas tocause significant troubles for the entire management restructuring,cooperate in establishing officers and sections responsible forsupervision and management of planning and operations of system
integration (hereinafter referred to as the “supervising officers and142sections”), etc.
(ii) Whether a system to promote sufficient communication between thetarget insurance companies, between directors/supervising officers andsections, between development/user sections, within the same
sections, and within business offices (including insurance agencies)
has been established.
(iii) Whether the boards of directors and supervising officers and sections
cooperate in developing a system to enable correct understanding of
the status of progress of integration projects. Whether a reporting
system within insurance companies and between insurance companies
to ensure that the information on system integration does not remain
within some officers/employees of the target insurance companies has
been developed.
(4) System Integration Plan and Adequacy Thereof(i) Strict Risk Identification and Reduction Measures Encompassing BothAdministrative and Systemic Aspects
Whether the boards of directors of the target insurance companies
have formulated system integration plans after conducting strict risk
identification

andreductionmeasuresencompassing

both

the

administrative and systemic aspects, taking into account the actual
conditions of the respective systems before the merger and pastsystem trouble cases, etc., from the point of view of not causing
troubles to customers in system integration.
Whethersufficientandconservativetransfer

judgment

items/standards encompassing both the administrative and systemic
aspects have been formulated.
(ii) Adequacy of System Integration Plan
Whether the plan, etc. does not put the utmost importance on thepredetermined time limit of integration and neglect risk management,
and whether the adequacy of the plan is objectively and rationallyverified by also utilizing third-party assessments, etc.
In addition, whether the transfer judgment items/standards, etc.
clearly define what all officers/employers should do and by when.
(5) Establishment of Sufficient Test/Rehearsal Systems in Insurance
Companies143

(i) Whether sufficient test/rehearsal systems have been established so as
to ensure not to cause troubles that affect customers or serious
miscalculations in documents for risk management used to makebusiness decisions due to insufficient reviews or testing. Moreconcretely, whether a system has been established in which theimplementation status of reviews in each process is examined andreview implementation plans for managing the quality status and testplans that comply with the content of development associated withsystem integration are formulated and implemented.
In particular, whether the test plans take into account the fact that the
final quality of file transfer, etc. cannot be determined without functional
confirmation using the entire data. Furthermore, whether schedulemanagement is carried out by reflecting additional administrative
burdens such as data cleansing for unexpected inconsistent data
identified during the test period.
(ii) Whether tests, etc. are planned as much as possible to check for
impacts even on parts that are expected not to be affected inconsideration of the fact that totally unexpected risk events may occur
in parts not related to the content of system development, for instance,
potential defects of vendors’ packaged software used for external
connection becoming apparent during the integration, resulting indevelopment into significant troubles, etc.
(iii) In order to examine business operations after the integration, whether
training and rehearsals that assume the production environment are
conducted by replicating an environment that is as close as possible tothe production environment by placing a peak load to the extent
possible on business offices (including insurance agencies), etc.
simultaneously, etc.
(iv) Whether education to learn about administrative procedures andtraining for recovery from trouble, including responses to increased
administrative

burdens

due

to

not

adopting

so-calledcatch-

up/difference development, are sufficiently conducted at businessoffices (including insurance agencies) where administrative processing
methods are dramatically changed due to the integration. Furthermore,whether a system to understand/evaluate the progress status has beendeveloped.

144

(6) Establishment of a System to Provide Explanations to Customers andConduct Connection Tests(i) Whether specific individual examination is conducted on theestablishment of a sufficient control environment for disseminating andproviding explanations to customers and the feasibility of training andmanuals, including plans to conduct customer negotiations and specificplans to conduct officer/employee training necessary for conducting
negotiations, etc.
(ii) If the system integration results in some changes to services provided(for example, the method and date of charging insurance premiums,etc.), whether dissemination to customers is appropriately conducted
after due consideration of customer convenience.
(iii) With regard to transactions that relate to customers such as bankaccount transfer of insurance premiums and payment of insurance
proceeds to bank accounts, etc., whether the schedule for conducting
connection tests that take into account the circumstances of connection
destinations such as financial institutions, etc. has been formulated andsufficient explanation has been provided to the connection destinations.
In particular, whether connection tests on transactions that relate tocustomers are planned on the basis of conducting all of them to theextent possible.
Even in cases where connection tests are not conducted or are notconsidered necessary, whether it is checked to ensure no problem will
occur using the actual data, etc. to the extent possible.
(iv) Whether a system to understand/evaluate the status of progress ofproviding explanations to customers and conducting connection tests,
etc. has been developed.
(7) Project Management from the Design/Development Phase
Since a difference in recognition between the user section and thecomputer system section or an omission in the identification ofadministrative requirements and the coordination of specifications
occurring

from

the

design/development

phase

for

the

development/integration of products, etc. can be a factor for causing
troubles at the time of integration, quality management in each phase ofdesign and development is important.
In consideration of these, whether appropriate management is carried145

out by clearly defining the rules for examination and approval of eachprocess, etc. In particular, whether the utmost importance is not put on
the predetermined time limit of integration, thus resulting in proceeding to
the next process with quality sacrificed and without meeting thecompletion criteria of each process.
(8) Control Environment for Managing Outsourced Contractors
In cases where operations such as system development for the
integration are outsourced, whether a system to ensure sufficient
communication between the outsourced contractors concerned and thesupervising section has been developed.
Whether the content of outsourced operations and the status of theirprogress are correctly understood, taking into account that a delay may
occur due to the need to conduct additional tests if problems in theoperations of outsourced contractors are not identified and corrected inan early stage.
In particular, whether a system has been established in which thetarget insurance companies cooperate in involving themselves aftersufficiently understanding that the risks of control environment becoming
more complex when the target insurance companies and multiple
outsourced contractors are involved.
(9) Project Management for Examination of Progress Management, Delay,and Adequacy of Plans(i) With regard to the progress management of the system integrationplans, whether a system has been established in which the boards of
directors and supervising officers and section of the target insurancecompanies cooperate in sufficiently understanding remaining issues
and undecided matters, etc. and determining the plans to eliminate
them.
(ii) In the progress management of the projects, whether the plans areproceeded with while their adequacy is retroactively examined.
(iii) Whether a system that allows the target insurance companies tocooperate in appropriately responding to unexpected events such as adelay in the system integration, etc. has been developed. Moreconcretely, whether a system has been developed in which standards
to review the schedule when the system integration is delayed146

compared to the plan are formulated and are approved by the boardsof directors, and appropriate responses are taken based on thestandards.
In addition, whether a system in which the target insurancecompanies cooperate in identifying and responding to the root cause of
the delay has been developed.
(10) Project Management for Allocating Resources and Changing Plans,etc.
(i) Whether the target insurance companies cooperate in examining the
progress of each phase of the integration, including whether
management resources are appropriately allocated in each phase of
the integration, and if any problem is found, whether appropriate
measures

are

to

be

taken

immediately.

Whether

operational

management is appropriately carried out not to cause concentration ofwork in certain sections/personnel.
(ii) Whether the plans are revised after sufficiently examining andconsidering the adequacy of the revised plans and what impacts therevision would have on the entire project.
(11) Implementation of Strict Judgment on Migration
Whether the supervising officers and sections of the target insurancecompanies make judgments on the feasibility of migration to control theenvironment for business operation including operation of systemsafter
the integration, obtain approval of the boards of directors, and executethe migration in accordance with the judgment criteria on migration ofoperations (including judgment criteria on migration of systems) that areformulated based on II-3-13-3-1 to ensure safety and stability and areapproved by the boards of directors.
Whetherschedules and plans have been established to ensure thatnecessary tests, rehearsals, education, and training, etc. (including
training for the contingency plan and review of the plan based on the
results) are completed and all essential information for senior managers
to make decisions on migration are ready in time.
Whether the time to make judgment on migration is set sufficiently
early from the scheduled date of integration so as to allow smooth
fallback, including external connection and response to customers.

147

(12) Control Environment for Fallback
Whether control environment has been developed to ensure smooth
operation of system, internal administration and customer responses if it
is judged at the time of making the judgment that the integration is notpossible (turn back, postpone, etc.).
Whether the plan to respond to unexpected events before and after thesystem integration (including cancellation of system integration) has beenformulated in cooperation between the target insurance companies andthe approval is obtained from the boards of directors.
(13) Establishment of Contingency Plans
Whether the existing contingency plans are revised based on thesystem configuration and organizational structure after the system
integration and approved by the boards of directors.
In addition, whether a contingency plan for the system integration has
been similarly formulated. In particular, based on past cases:(i) Whether the target insurance companies have cooperated inconsidering/developing alternative mechanisms to be used until
complete system recovery if unexpected events such as system
troubles, etc. occur.
(ii) Whether the target insurance companies have cooperated indeveloping a system to provide sufficient training for business offices(including insurance agencies) on manual-based responses to preventa secondary disaster, such as double withdrawals of insurance
premiums due to double counting of contracts and phantom
withdrawals and miscalculation of insurance proceeds/cancellation
returns, etc. when system troubles occur on the transaction peak dates.
In addition, whether the target insurance companies have cooperated
in developing a system to prevent customer service degradation due to
confusion, etc. at business offices (including insurance agencies) thatare not fully familiar with the administrative operations after the
integration.
Whether the target insurance companies have cooperated indeveloping, in preparation for cases where they must rely on manual
operations until the system is fully recovered, a system to enableappropriate understanding of the volume of administrative operations

148

and prompt securing of necessary personnel, taking into account thateven minor troubles can occur simultaneously within a short period oftime.
(iii) When an unexpected event such as a system trouble, etc. occurs,
whether the target insurance companies have made public the detailsof the trouble, its cause, and prospects for recovery and immediately
established a call center, etc. to adequately respond to inquiries from
customers.
(iv) Whether the target insurance companies not just make theoreticalplans, but actually conduct a sufficient number of training and review
the plans based on the results of the training as necessary to ensure
their effectiveness.
(14) Effective Internal Audits and Third-Party Assessments(i) Whether the internal audit sections of the target insurance companies(hereinafter referred to as the “internal audit sections”) not only conduct
monitoring and examination of the progress status, but also conduct
audits on operations and systems in cooperation from the points ofview of the impacts that each problem has on the integration plan andthe effectiveness of the control environment for managing system
integration risks. In addition, whether personnel with a good knowledgeof audits on processes such as system development process, etc. aresecured.
(ii) When making judgments on important matters concerning system
integration, whether third-party assessments such as audits by
information system auditors, etc. are used effectively after determining
their limits.
(15) Supervising Function by Insurance Holding Company
In cases where system integration of subsidiary insurance companies
is carried out under the control of the insurance holding company,
whether the system integration risk management function (including the
project management function) is appropriately performed as part ofgovernance functions of the insurance holding company.

II-3-13-4 Control Environment for Other Operational Risks

149

II-3-13-4-1 Significance“Other operational risks” refers to risks that insurance companies havedefined as operational risks, but excluding administrative risks andinformation technology risks.
For example, “legal risks” due to negligence to customers, etc., “humanrisks” such as losses/damages caused by unjust/unfair/discriminatory
treatment in personnel administration, and “reputational risks” such as
losses/damages caused by lowered credit due to worsened reputation andspread of negative reputations, etc. are included.
It is important that each insurance company develops a control
environment to appropriately manage these other operational risks.

II-3-13-4-2 Main Supervisory Focus(1) Whether senior managers fully recognize that disregarding otheroperational risks seriously affects the achievement of the strategic goals,
and understand the locations and characteristics of these risks.
(2) Whether the insurance company has formulated the management policy
for other operational risks and defined those risks, and whether it hasdeveloped and operated an appropriate control environment for
managing risks by carrying out appropriate management and reporting to
the board of directors, etc. as necessary, etc.

II-3-14 Supervisory Method and Actions
If a problem is deemed to exist in the control environment for enterprise risk
management, supervisors shall require the submission of a report under Article
128 of the Act as necessary, and if it is deemed that there is a serious problem,
they shall take an administrative measure under Article 132 of the Act (in cases
where it is deemed that there is a serious problem in the control environment for
managing insurance underwriting risks, risk management for reinsurance, andthe control environment for managing asset management risks, Article 132 or 133

150

of the Act).
For the control environment for managing information technology risks, it shallbe responded with consideration also given to the following points.
(1) At Time of System Troubles(i) Immediately after recognizing an occurrence of computer system trouble or
cyber security event, the insurance company shall be required to report thefact to the authorities and submit a report using the “Report on Occurrenceof Troubles” (Form II-3-15(1) in II. Other Forms for Reporting, etc. of Forms
and Reference Materials) to the authorities.
In addition, at the time of recovery and at the time of identification of thecause, the insurance company shall also be required to report the fact.
However, even if the recovery or the identification of the cause is notcompleted, the insurance company shall also be required to report thecurrent status within a month.
(Note) Computer System Troubles, etc. to be Reported
Regardless of the cause, troubles occurring in systems or devices (bothhardware and software) currently used by the insurance company that:
A. have caused or may cause a delay or termination of the payment of
insurance proceeds, etc.;
B. have or may have impacts on the understanding of cash flow andfinancial conditions; or
C. are otherwise deemed to be similar to the above in the course ofbusiness.
However, cases where even if those troubles occur in some computer
systems/devices, the occurrence of substantive impacts can be avoided by
immediately replacing these computer systems/devices are excluded.
It shall be noted that even if no computer system troubles have occurred,a report must be made in cases where problems involving customers orbusiness operations occur or the probability of the kind of problem
described above is deemed to be high, including cases where a warning ofa cyberattack is received or where such a cyberattack is detected, etc.
(ii) Supervisors shall require the submission of a report under Article 128 of the
Act as necessary, and if it is deemed that there is a serious problem, theyshall take an administrative measure under Article 132 of the Act.
(2) At Time of System Renewal

151

When the insurance company renews important computer systems,
supervisors shall require the submission of a report under Article 128 of the Act
as necessary to understand the plan and status of its progress and check theappropriateness/effectiveness of project management, etc., and if it is deemedthat there is a serious problem, they shall take an administrative measure
under Article 132 of the Act.
(3) At Time of System integration(i) When the insurance companies integrate their computer systems, etc., after
the basic agreement is publicly announced, supervisors shall require thesubmission of periodical reports on the system integration plan (including theschedule) and progress status as well as the control environment for system
integration risk management

and project management to understand theactual conditions and check for any serious problems.
(ii) When the results of inspection of the control environment for managing
system integration risks is notified, supervisors shall also require, under
Article 128 of the Act, the submission of a report, which compiles the fact
checking, analysis of the cause, and improvement measures, etc. on thematters pointed out, and a report on measures to properly control the risk(measure to adequately implement the plan and the internal control
environment including internal audits, etc.) to check for any problems in thecontrol environment for managing system integration risks (including thecontrol environment for project management; the same applies hereinafter).
Furthermore, supervisors shall require the submission of periodical followup reports to check the status of progress of improvement/response
measures for the inspection results and the effectiveness of the control
environment for project management, etc.
(iii) When a judgment on the migration pertaining to the system integration is
made, supervisors shall require the submission of a report on the grounds forthe judgement, etc. under Article 128 of the Act.
(iv) As a result of the examination described in (i) through (iii) above, if it isdeemed that there is a problem, supervisors shall require the submission of areport under Article 128 of the Act, and if it is deemed that there is a serious
problem, they shall take an administrative measure under Article 132 of theAct.
(v) Case where the business integration to which the system integration
pertains requires approval of the authorities

152

Supervisors shall require, within the scope of the examination criteria
under laws and regulations, the submission of materials in consideration of
the descriptions of II-3-13-3-2 such as measures to adequately implement
the system integration plan and the internal control environment includinginternal audits to examine whether there is any problem in the control
environment for managing system integration risks, and after making
necessary adjustment as required or attaching conditions under Article 310 of
the Act, they shall approve the business integration.
In addition, supervisors shall require the submission of periodical reports
under Article 128 of the Act for the period from the approval of the merger, etc.
to the completion of the system integration.
(vi) Case where a system trouble occurs
II-3-13-2-2(10) and II-3-14(1), etc. of the Comprehensive Guidelines forSupervision shall also be considered.

II-4 Appropriateness of BusinessII-4-1 Control Environment for Legal ComplianceII-4-1-1 SignificanceIn order to establish the confidence of customers, it is important to sufficiently
recognize the public nature of the business of insurance companies, strictly
comply with laws and regulations as well as business rules, and maintainsound and appropriate business operations.

II-4-1-2 Main Supervisory Focus(1) Whether the representative director, directors, and board of directors countcompliance with laws and regulations, etc. among the most importantmanagement issues and are making efforts to ensure legal compliance.
(Refer to the items in “II-1 Governance”)(2) Whether the basic policy for legal compliance and compliance standards
have been formulated by the board of directors.

153

(3) Whether a specific manual for achieving compliance (compliance manual)
has been formulated. In addition, whether it is appropriately informed to
officers/employees and insurance agents.
(4) Whether a specific implementation plan for achieving compliance(compliance programs) has been formulated in a timely manner as a rational
plan.
(5) Whether a supervising section for compliance has been established as astructure to unify management of legal issues such as compliance, etc. In
addition, whether its functions are fully performed.
(6) Whether personnel in charge of compliance has been appropriately
assigned to each operational section and office, etc.
(7) Whether an internal control environment for compliance has beenadequately developed.

II-4-1-3 Supervisory Method and Actions
If a serious problem is deemed to exist in the control environment forcompliance, supervisors shall require the submission of a report under Article
128 of the Act as necessary, and if it is deemed that there is a serious problem,
they shall take an administrative measure under Article 132 or 133 of the Act.

II-4-2 Control Environment for Managing Insurance Solicitation
In order not to harm the interests of policyholders, etc., insurance companies
and insurance agents need to establish a control environment for insurance
solicitation.
For this reason, they are required to appropriately implement the following
measures, etc. and verify their appropriateness, etc. afterward through audits by
the internal audit section or audits of insurance agencies, etc. to improve them as
required.

154

II-4-2-1 Establishment of Control Environment for Managing Proper Insurance
Solicitation(1) Significance of Insurance Solicitation(i) Insurance solicitation prescribed in Article 2(26) of the Act means thefollowing acts A. thorough D.
A. Encouraging to conclude insurance contracts
B. Explaining the content of insurance products with the aim of encouraging
to conclude insurance contracts
C. Receiving the applications for insurance contracts
D. Otherwise acting as an agent or intermediary for the conclusion of
insurance contracts(ii) Whether an act falls under D. above shall be comprehensively determinedin light of the following requirements A. and B., taking into account thepositioning of the act concerned in a series of acts.
A. Some circumstances suggest unity or continuity with the acts ofsolicitation conducted by the insurance company or insurance agents
such as when receiving remunerations from the insurance company or
insurance agents, etc. or when having a capital relationship with theinsurance company or insurance agents, etc.
B. Acts of recommending or explaining specific insurance products are
involved.
(2) “Solicitation-Related Acts”
Of the processes of insurance solicitation in a broad sense, from finding
potential customers to concluding contracts, the solicitation regulations will
not immediately apply to the acts that do not fall under insurance
solicitation in light of (1) above (hereinafter referred to as “solicitationrelated acts”).
However, in cases where solicitation-related acts are entrusted to a third
party or have a third party conduct these act based on the equivalentrelationship, it shall be checked whether the insurance company or
insurance agents consider, for example, the following points (i) through (iii)
to ensure that the third party who has received the entrustment of the said
solicitation-related acts (hereinafter referred to as the “party engaging insolicitation-related acts”) does not commit inappropriate acts.

155In addition, in cases where insurance agents have entrusted solicitationrelated acts to a third party or have had a third party conduct these act
based on the equivalent relationship, whether the insurance company gives
guidance to the insurance agents to implement appropriate management of
external

contractors,

etc.

according

to

their

scale

and

businesscharacteristics.
(Note 1) “Solicitation-related acts” are considered to include, for example, theacts of only providing the information of potential customers to theinsurance company or insurance agents without recommending/explaining
insurance products to them, or merely reproducing information from theinsurance company or insurance agents in services mainly aimed atproviding product information, such as comparison websites, etc.
(Note 2) It should be noted, however, that the following acts, for example,
may fall under insurance solicitation.
A. Acts of actively introducing products (product groups) of a certain
insurance company to potential customers on a regular basis inconsideration of remunerations from the insurance company or insurance
agentsB. Acts of actively recommending/explaining specific insurance products inconsideration of remunerations from the insurance company or insurance
agents by those who provide services mainly aimed at providing productinformation, such ascomparison websites, etc.
(Note 3) In cases where, for example, only the following acts are conducted,
they are basically considered not to fall under either of insurance
solicitation or solicitation-related acts.
A. Distributing leaflets introducing products under the instructions of theinsurance company or insurance agents
B. Accepting administrative communications or explaining administrative
procedures, etc. by call center operators
C. Explaining the mechanisms and utilization methods of general insurance
products at financial instruments seminars
D. Acts of posting advertisements of the insurance company or insurance
agents(Note 4) It should be noted that insurance agents entrusting insurance
solicitation operations falls under re-entrustment prescribed in Article
275(3) of the Act and is not allowed in principle.
(i) Whether acts of insurance solicitation or acts that may lead to156

circumvention of the regulations, such as offering of special advantage,etc. are conducted by the party engaging in solicitation-related acts.
(ii) Whether acts that may hinder customers’ correct understanding ofproducts are conducted when insurance agents conduct the act of
insurance solicitation such as providing incorrect explanations or making
inappropriate evaluations of products in services mainly aimed atproviding product information, such as comparison websites, etc.
operated by the party engaging in solicitation-related acts.
(iii) Whether the procedures to obtain customers’ consent for the provisionof personal information to a third party is appropriately implemented by
the party engaging in solicitation-related acts appropriately in accordancewith the Act on the Protection of Personal Information, etc.
In addition, whether the setting of the fees to be paid to the party
engaging in solicitation-related acts is carefully considered.
(Note) For instance, in cases where insurance agents pay high referral feesor incentive remunerations to receive referral of potential customers,such remuneration structure is generally considered to increase theprobability ofproviding specific recommendations/explanations of

insurance products that the party engaging in solicitation-related acts
cannot supposedly provide.
(3) Acceptance/Entrustment/Registration/Notification of Insurance Agents(i) When accepting insurance agents or entrusting operations to insurance
agencies, whether their qualifications are examined.
In addition, whether the examination criteria to be used in suchexamination have been developed.
When entrusting operations to insurance agencies, whether knowledge
on laws and regulations concerning insurance solicitation, etc. andinsurance contracts, ability to perform insurance solicitation operations, andthe following points with respect to objectives and content of their primarybusiness, etc. are checked in the examination.
A. An internal control environment and a control environment for managing
insurance solicitation to ensure protection of policyholders, etc. andfairness in insurance solicitation shall have been developed.
B. The insurance agency shall not be a person who cannot engage ininsurance solicitation under laws and regulations, etc.

157

C. The insurance agency shall be a person who is qualified to engage ininsurance solicitation in light of the objectives and content of its primarybusiness.
D. It should be noted that for officers or employees of the insurance agency
to engage in insurance solicitation, the following requirements must be
met.
(A) Officers or employees to engage in insurance solicitation shall bepersonswho

appropriate

engageeducation,ininsurance

solicitation

after

receiving

management,

instructionson

insurance

solicitation from the insurance agency.
(B) For employees, in addition to (A) above, they shall work at theinsurance agency’s offices and engage in insurance agencies under
the control, supervision, and direction of the insurance agency.
(C) Officers or employees engaging in insurance solicitation prescribed in
Article 302 of the Act must not be officers or employees engaging ininsurance solicitation of other insurance agencies or non-life insurancecompanies.
(Note) It should be noted that, except for the cases prescribed in Article
275(3) of the Act, re-entrustment of insurance solicitation isprohibited.
(ii) For those engaging in insurance solicitation, whether specified insurance
agents prescribed in Article 276 of the Act (meaning “specified insurance
agents” prescribed in Article 276 of the Act, but excluding “small amountand short term insurance agents”; the same applies hereinafter) areregistered, and in the case of officers or employees of a non-life insurance
agency, whether the notification prescribed in Article 302 of the Act is made.
(iii) Whether the life insurance company has taken measures to eliminate theacts of circumventing laws and regulations, etc. such as entrusting
corporations,

etc.

to

act

as insurance

agencies without making

registrations.
For instance, whether the life insurance company entrusts corporations,etc. to act as referral agencies, etc. and makes payment without receiving
any return or provides other convenience as referral fees, etc.
(4) Education/Management/Guidance of Specified Insurance Agents, etc.
(meaning specified insurance agents and employees of non-life insurancecompanies exclusively engaging in insurance solicitation; the same applies in158

II-4-2-1(4))
Whethertheinsurancecompany

providesappropriate

education,

management, and guidance by establishing internal rules, etc. on compliancewith laws and regulations, etc. concerning insurance solicitation, knowledgeof insurance contracts, and development of a control environment for
managing internal administration (including appropriate management ofcustomer information) and taking measures to train specified insurance
agents and improve their qualifications.
Whether appropriate education, management, and guidance on insurance
solicitation are also provided to employees exclusively engaging in insurance
solicitation of the non-life insurance company.
(i) Education of Specified Insurance Agents, etc.
Whether sufficient knowledge of diverse insurance products, knowledgeof insurance contracts, and sufficient education for appropriate insurance
solicitation activities are provided to enable customers to sufficiently
understand insurance products according to their characteristics.
(ii) Management/Guidance of Specified Insurance Agents, etc.
A. Whether the insurance company understands the status of the points
that can be the beginning of inappropriate insurance solicitation andtakes appropriate measures for management/guidance to ensure soundand appropriate business operations of specified insurance agents, etc.
More concretely, for example, the following (A) through (C) may beconsidered.
(A) Provide management to enable understanding of the status of sales of
specified insurance agents, etc. and the status of continuation of
insurance contracts, etc.
In doing so, it should be noted in particular that acts ofofficers/employees of the insurance company conducting substantive
insurance solicitation and treating the resulting insurance contracts as
those gained by insurance agencies and acts of exchanging performance
between specified insurance agents, etc. may lead to inappropriate
insurance solicitation such as insufficient explanation of importantmatters, etc. at the time of solicitation, etc., and therefore shall not be
conducted.
(B) In order to ensure the appropriateness of the reception of insurance
premiums from policyholders and the pay-off of insurance premiums to
the insurance company by insurance agencies, establish a system in159which the insurance company provides management/guidance to issue
receipts when insurance premiums are received, clearly distinguishinsurance premiums received by insurance agencies from their own
assets and paid off to the insurance company without delay, and ensurethat the status of such management can be checked afterward.
(C) In order to prevent the occurrence of unlawful insurance contracts suchas fictious contracts and insurance contracts intended to fraudulently
obtain insurance proceeds, etc., take appropriate measures not to
conduct the acts of issuing insurance policy certificates and acts ofmaking payment of maturity refunds to policyholders, etc. throughinsurance agencies without justifiable reasons.
B. Whether the matters to be observed by insurance agencies have been
specified in the agency entrustment contracts to be concluded with theinsurance agencies.
(iii) Audits on Insurance Agencies, etc.
With regard to the content of insurance solicitation operations bybusiness sites such as business offices and insurance agencies, whether
audits, etc. are appropriately implemented, including the following points, tounderstand the actual conditions of insurance solicitation operations bybusiness sites such as business offices and insurance agencies and thestatus of internal administrative management, etc.
In addition, whether appropriate measures have been taken for businesssites such as business offices and insurance agencies in which
inappropriate internal administrative management is found in audits, etc.
and a control environment for providing guidance for and checking
improvements has been developed.
A. Whether the cycle of conducting audits on business sites such as
business offices and insurance agencies is effective for ensuring qualityof operations of business sites such as business offices and insurance
agencies.
B. Whether the selection of business sites such as business offices andinsurance agencies to be audited, etc. and the items for audits, etc. areappropriately reviewed in a timely manner with attention paid to theinformation

identified

duringdaily

management

andabnormalmanagement indictor values, etc.
C. Whether a control environment to enable audits, etc. by visiting without
prior notice has been developed as a method used for audits, etc.

160

II-4-2-2 Points of Attention in Solicitation of Insurance Contracts(1) Matters Related to Article 282(3) of the Act (application of exceptions to therestrictions on life insurance agents (being captive to one company))(i) For life insurance agents with two or more entrusting insurance companies,
whether measures have been taken to prevent them from unfairly inducing
policyholders etc. to apply a new insurance contract of an entrusting
insurance company in the termination of an already effected insurance
contract with other entrusting insurance company, and whether measures
have been taken to appropriately manage customer information, etc.
(ii) When the life insurance company intends to entrust insurance solicitation
to life insurance agents of other insurance companies under the provisionsof Article 282 of the Act, whether the said life insurance agents meet therequirements prescribed in Article 40 of the Order and the Public Notice.
(iii) Whether an entrustment is made by a method that may lead to a lack ofprotection of policyholders, etc. such as circumvention of the said
requirements, etc.
(iv) In cases where the situation in which the said requirements are not met
has continued for six months or more, whether measures to improve thesituation have been taken.
(v) In applying the above requirements, the following matters shall also be
considered.
A. Even in cases where the entrusting insurance company of a life
insurance company that received entrustment to act as an agent(including intermediation) to conclude insurance contracts of a single
other insurance company, in light of the purpose of the provisions ofArticle 40(i) of the Order, if the said life insurance company that received
entrustment meets the requirements of the same provisions, those who
act as its officers or employees to engage in insurance solicitation shallalso meet the requirements of the same provisions.
B. When applying Article 40(ii) of the Order, the case of multiple life
insurance agents to which (i) of the same Article cannot be applied shallbe assumed.
C. With regard to the date of determining Article 40(ii) of the Order, it shallsuffice that the requirements are met at the time when individual life161

insurance agencies is registered as a shared agent.
D. The “annual gross sales” used to determine the exclusive engagement
shall mean that for a year immediately before the registration as a sharedagent or of the business year preceding the year in which the registration
as a shared agent is made.
E. In cases where Article 40(ii) of the Order applies and an insurance
agency that has met the requirements of (i) of the same Article no longer
meets those requirements, the situation shall basically be corrected byhaving the insurance agency meeting the requirements of (i) of the same
Article within a certain period of time. If the situation could not becorrected, however, only the registration as a shared agent for life
insurance companies subject to (ii) of the same Article and the first
entrusting company shall be allowed.
(2) Matters Related to Articles 294 and 300-2 (obligation to provide information)(i) Whether the insurance company or insurance agents properly provide thecontent of insurance contracts and other information that can be used as areference for policyholders, etc. regarding the conclusion of insurance
contracts or insurance solicitation, taking into account types and nature of
insurance contracts, etc.
(ii) When providing information by delivery of documents or other alternativeelectronic or magnetic means, whether the information that is necessary
for customers to understand the content of insurance products (hereinafterreferred to as “contract outlines”) and the information that customers
should be alerted with (hereinafter referred to as “alerting information”) aredescribed.
The main items of the “contract outlines” and “alerting information” shallbe as follows.
(Note 1) When the “contract outlines” and “alerting information” aredescribed in an integrated manner using the same media, it shall suffice
to indicate that the information concerned as being “contract information”
with A.(A) and B.(A) below being omitted.
(Note 2) It shall be noted that for specified insurance contracts prescribedin Article 300-2 of the Act (hereinafter referred to as “specified insurance
contracts”), the provisions of Article 294(1) of the Act shall not apply andthe information must be provided by delivery of documents (hereinafterreferred to as “documents to be delivered before concluding contracts” )162prescribed in Article 37-3(1) of the Financial Instruments and Exchange
Act applied mutatis mutandis pursuant to Article 300-2 of the Act(hereinafter referred to as the “Financial Instruments and Exchange Act
as Applied Mutatis Mutandis”) or other alternative electronic or magnetic
means.
A. Items of “contract outlines”(A) The indication that the information concerned is “contract outlines”.
(B) Mechanism of products(C) Content of coverage (compensation)(Note) The major ones of the grounds for payment of insurance
proceeds, etc., cases where the grounds for payment does not apply,and cases where insurance proceeds, etc. are not paid for the
grounds for exemption, etc. shall be described.
In cases where insurance proceeds, etc. are not paid are notcommon, they shall be described in particular.
(D) Main special provision s that can be added and their outlines(E) Insurance period(F) Underwriting conditions (amount of insurance proceeds, etc.)(G) Matters concerning insurance premiums(H) Matters concerning the payment of insurance premiums (payment
method of insurance premiums, payment period of insurance
premiums)(I) Matters concerning dividends (availability of dividends, dividend
method, method of determining the amount of dividends)(J) Availability of cancellation refunds, etc. and relevant matters
B. Items of “alerting information”(A) The indication that the information concerned is “alerting information”.
(B) Cooling-off (revocation of application for insurance contracts, etc.
prescribed in Article 309(1) of the Act)(C) Content of obligation of notification(Note) If there are provisions in the terms and conditions providing that
there are cases where the insurance contract cannot be continued
even with increased insurance premiums due to increased risk
(terminate in the middle of the insurance period), the applicable
cases shall be described.
(D) Effective date of contract

163

(E) Major ones of the cases where the grounds for payment does not
apply and cases where insurance proceeds, etc. are not paid for the
grounds for exemption, etc.
(Note) If those cases are not common, they shall be described inparticular.
(F) Grace period for the payment, expiration of contracts, restoration, etc.
(Note) For insurance products with the automatic premium loan system,
the explanation of the said system shall be included.
(G) Cancellation and availability of cancellation refunds(H) Safety net(I) Trade name or name of the designated ADR organization (meaning“designated dispute resolution organization” prescribed in Article 2(28)of the Act; the same applies hereinafter) that is the other party of the
Basic Agreements to Implement Procedures (if the designated ADR
organization does not exist, the content of complaint processing
measures and dispute resolution measures)(J) Following matters concerning duplicate compensation(Note) “Duplicate compensation” refers to the situation where multiplecompensations of the same type exist for the same insurable interest
due to the conclusion of multiple non-life insurance contracts.
a. Fact that if another insurance contract with the same compensation
content exists, duplicate compensation may be causedb. Alert concerning the payment of insurance proceeds in the case of
duplicate compensationc. Major cases of duplicate compensation(K) Matters that are required to be alerted by laws and regulations, etc. inparticular(iii) Matters Related to Article 37-3 of the Financial Instruments and Exchange
Act as Applied Mutatis Mutandis
A. When delivering the documents to be delivered before concluding
contracts or providing them by other alternative electronic or magnetic
means,

whethertheinsurancecompanyorinsurance

agentsappropriately deliver/provide them according to the type and nature, etc.
of the specified insurance contract.
B. Concerning the documents to be delivered before concluding contracts,
whether the “contract outlines” and “alerting information” have been
prepared and delivered.

164

The main items of the documents to be delivered before concluding
contracts shall be as follows.
(Note) When the “contract outlines” and “alerting information” are to beprepared in an integrated manner using the same media, (A)a. and(B)a. below may be omitted by stating “Please carefully read thecontent of the documents to be delivered before concluding contracts”
at the beginning of the documents to be delivered before concluding
contracts.
In this case, either one of (A)b. and (B)d. below may also be omitted.
(A) Items of “contract outlines” (related to Article 37-3(1)(iii), etc. of the
Financial Instruments and Exchange Act as Applied Mutatis Mutandis,etc.)
a. The indication that the information concerned is “contract outlines”
and the content should be read carefully.
b. Trade name or name and address of the insurance company(Note) The contact method shall also be clearly stated.
c. Mechanism of products
d. Content of coverage (compensation)(Note) The major ones of the grounds for payment of insurance
proceeds, etc., cases where the grounds for payment does not
apply, and cases where insurance proceeds, etc. are not paid forthe grounds for exemption, etc. shall be described.
In cases where insurance proceeds, etc. are not paid are notcommon, they shall be described in particular.
e. Main special provision s that can be added and their outlines
f. Insurance periodg. Underwriting conditions (amount of insurance proceeds, etc.)
h. Matters concerning insurance premiums
i. Matters concerning the payment of insurance premiums (payment
method of insurance premiums, payment period of insurance
premiums)
j. Matters concerning dividends (availability of dividends, dividend
method, method of determining the amount of dividends)
k. Level of cancellation refunds, etc. and relevant matters
For the products listed below, the following items shall also be
described for each product.
(Variable insurance, variable pension insurance)165

l. Type and assessment method of assets belonging to a special
account
m. Management policy of assets belonging to special accountn. Matters concerning various costs (insurance contract-related costs,
asset management-related costs, etc.)
o. The fact that the amount of insurance proceeds, etc. may vary in the
future according to the performance of management of assets
belonging to special account, and is therefore unreliable and that aloss may result.
p. A note suggesting referring to documents prescribed in Article 23421-2(1)(viii) of the Regulation, in addition to l. through o. above.
(Insurance in foreign currency)l. The fact that the amount of insurance proceeds, etc. converted in yen
based on the foreign exchange rate at the time of payment of theinsurance proceeds, etc. may be lower than the amount converted
into yen based on the foreign exchange rate at the time of concluding
the insurance contract and that a loss may result.
m. Explanation of special fees, etc. arising from concluding contracts inforeign currencies.
(Products using MVA (Market Value Adjustment)(Note))
l. Explanation that in this insurance, fluctuation in the values of the
managed assets according to the market interest rate is reflected tothe amount of cancellation refunds
m. The fact that if an insurance contract is canceled within a certain
period from the conclusion of the insurance contract, the amount ofcancellation return is calculated based on the market interest rate,
and therefore a loss may result
n. Matters concerning various costs (costs during the management
period, etc.)(Note) MVA (Market Value Adjustment) refers to a method in whichcancellation returns are calculated by adding the amount adjusted
based on the fluctuation of fair values of assets subject tomanagement arising due to difference in interest rates between
that at the time of the contract and that at the time of cancellation
to the insurance premium reserves (meaning insurance premium
reserves prescribed in Articles 63 and 92 of the Insurance Act).
(B) Items of “alerting information” (related to Article 37-3(1)(vii), etc. of the166

Financial Instruments and Exchange Act as Applied Mutatis Mutandis(Article 234-24 of the Regulation), etc.)
a. The indication that the information concerned is “alerting information”
and the content should be read carefully.
b. Outlines of the matters concerning various costsc. The fact that a loss may result(Note 1) The indicators that can be the direct cause of the said loss
and the reason that a loss may result due to fluctuations in the said
indicators shall also be clearly stated.
(Note 2) The items b. and c. above shall be described at the
beginning of the “alerting information” section.
d. Trade name or name and address of the insurance company(Note) The contact method shall also be clearly stated.
e. Cooling-off (revocation of application for insurance contracts, etc.
prescribed in Article 309(1) of the Act)f. Content of obligation of notification(Note) If there are provisions in the terms and conditions providingthat there are cases where the insurance contract cannot be
continued even with increased insurance premiums due toincreased risk (terminate in the middle of the insurance period), theapplicable cases shall be described.
g. Effective date of contracth. Major ones of the cases where the grounds for payment does not
apply and cases where insurance proceeds, etc. are not paid for the
grounds for exemption, etc.
(Note) If those cases are not common, they shall be described inparticular.
i. Grace period for the payment, expiration of contracts, restoration, etc.
(Note) For insurance products with the automatic premium loansystem, the explanation of the said system shall be included.
j. Cancellation and level of cancellation refunds
k. Safety net
l. Outlines of the matters concerning taxation
m. Existence of a certified investor protection organization by which theinsurance company is covered (including the name of theorganization, if it is covered)n. Trade name or name of the designated ADR organization that is the167other party of the Basic Agreements to Implement Procedures (if thedesignated ADR organization does not exist, the content of complaint
processing measures and dispute resolution measures)
o. Matters that are required to be alerted by laws and regulations, etc.
in particular
C. Whether the documents to be delivered before concluding contracts
have been prepared in accordance with the statutory requirements (fontsize of 8 points or larger, and 12 points or larger for certain matters, etc.)
and delivered.
D. With regard to the delivery of the documents to be delivered before
concluding contracts or their provision by other alternative electronic or
magnetic means, whether explanations are provided by the method andto the extent necessary for the customer to understand the content of the
documents in advance according to the status of knowledge, experience,and properties of the customer concerned and the purpose of thespecified insurance contract to be concluded.
E. For the matters to be described in the documents to be delivered before
concluding

contractsforperformance-linked

insurance

contracts

prescribed in Article 100-5(1) of the Act in life insurance, whether thefollowing points are considered.
(A) The following items (including those that fall under them) shall fallunder the “financial status or business (limited to those pertaining toperformance-linked insurance contracts)” prescribed in Article 23424(1)(ix)-2(b) of the Regulation.
a. Audit certification under the provisions of Article 193-2(1) of the
Financial Instruments and Exchange Act (hereinafter referred to as“financial statement audit”) and audit certification under theprovisions of (2) of the same Article (hereinafter referred to as“internal control audit”)
b. Audit by a financial auditor under the Companies Act
c. Assurance engagements on internal controls of outsources(hereinafter referred to as “assurance engagements on internal
controls”) in accordance with the standards, including the Audit andAssurance Practice Committee Practical Guidelines No. 86, the“assurance report on internal control of entrusted business” (JICPA),
the Statement on Standards for Attestation Engagements (SSAE)
No.16 “Reporting on Controls at a Service Organization” (AICPA),

168

and the International Standard on Assurance Engagements (ISAE)
No.3402 “Assurance Reports on Controls at a Service Organization”(IAASB)d. Examination of whether the performance disclosure information ofasset management companies conforms to the Global Investment
Performance Standards (GIPS)(B) When describing the matters listed in items of Article 54-4(2) of theRegulation in the documents to be delivered before concluding
contracts under the provisions of Article 234-24(1)(xv) of theRegulation, with regard to the “capital relationship between theinsurance company and the person concerned with the fund” referred
to in (iii) of the same paragraph, if the person concerned with the fund
falls under a person in which an insurance company holds the majorityof all shareholders' voting rights, any other person that is listed in itemsof Article 13-8(1) of the Order as being closely related to the relevant
insurance company, or a subsidiary company, etc., that fact shall be
stated.
In addition, with regard to the “personal relationship” between therelevant insurance company and the person concerned with the fundreferred to in Article 54-4(2)(iii), the conditions of concurrent holding of
positions by officers or employees at a specific time which is deemed tobe reasonable shall be stated.
(iv) The “amounts reserved for the insured” prescribed in Article 227-2(3)(ix)and Article 234-21-2(1)(vii) of the Regulation shall include the amountwhich is the basis of the calculation of the policyholder value prescribed in
Article 10(3) of the Regulation and those prescribed in Article 30-5(1)(i) of
the Regulation (members' dividend reserve), Article 70(1)(i)(b) of theRegulation (outstanding insurance premiums), (iii) of the same paragraph(refund reserve), and (iv) of the same paragraph (policy dividend reserve,etc.), etc.
(v) Whether the “method by which the existing contract and the new contract
can be compared” prescribed in Article 227-2(3)(ix) and Article 234-212(1)(vii) of the Regulation is as follows.
A. The matters prescribed in Article 227-2(3)(ix)(a) and Article 234-212(1)(vii)(a) of the Regulation shall be described in comparison between
the existing contract and the new contract for each description item indocuments or electronic or magnetic records.

169

B. Notwithstanding A. above, in the following cases, the documents orelectronic or magnetic records in which the matters prescribed in Article
227-2(3)(ix)(a) and Article 234-21-2(1)(vii)(a) of the Regulation are
described respectively for the existing contract and the new contract may
be delivered for comparison.
(A) The types of insurance are different, and the contents of coverage or
warranty of the existing contract and the new contract (both including
special provision s) are completely different.
(B) There are reasonable grounds that the description items are notdescribed in comparison (as per A. above) due to issues concerning
the contents of the existing contract and the new contract or thesystem such as cases where multiple existing contracts areconsolidated into a single new contract, etc.
(vi) Whether the comparison between the existing contract and the newcontract prescribed in Article 227-2(3)(ix) and Article 234-21-2(1)(vii) of theRegulation is appropriately conducted.
Note that “other material matters concerning insurance contracts”
prescribed in Article 227-2(3)(ix)(a) of the Regulation and “other material
matters concerning specified insurance contract” prescribed in Article 23421-2(1)(vii)(a) of the Regulation shall mean the following matters.
- The applicable matters out of the insurance premium payment method,
availability of policyholder dividends or distribution of surplus to members,
the fact that insurance premiums may increase with fluctuations in theassumed interest rate and other matters that are deemed to be importantfrom the point of view of the characteristics of the insurance contract.
(vii) Whether the way to review the insurance details prescribed in Article
227-2(3)(ix)(b) and Article 234-21-2(1)(vii)(b) of the Regulation areappropriately described in documents or electronic or magnetic records tobe delivered.
Note that the “way to review the insurance details, while maintaining theexisting contract” prescribed in Article 227-2(3)(ix)(b) and Article 234-212(1)(vii)(b) of the Regulation shall mean the following ways.
A. Way of adding special provision s to the existing contact cancellation
before maturity
B. Way of concluding other insurance contracts in addition to the existing
contract(viii) When describing the rationality of the projected incidence rate in170

documents listed in article 227-2(3)(xi) and Article 234-21-2(1)(ix) of theRegulation, from the point of view of indicating to the policyholders, etc.
that the establishment of the right to change base rate would not result inchanging the insurance premiums, etc. by changing the projected
incidence rate without careful consideration, whether it is described thatthe projected incidence rate is set based on the rational basic data.
(ix) Exemptions on the Obligation to Provide Information (Article 227-2 of theRegulation)
A. Even in cases prescribed in Article 227-2(3)(iii)(a) of the Regulation, theinsurance company or insurance agents need to provide appropriate
explanations according to the level of the customer’s knowledge on
insurance, regardless of whether the customer is a sole proprietor or a
corporation.
B. The amount prescribed in Article 227-2(3)(iii)(b) of the Regulation shallbe determined based on the amount (in the case of a group insurance,
the amount per insured person) of a single contract (basic policy +special provision s).
C. The insurance contracts prescribed in Article 227-2(7)(i)(a) of theRegulation are considered to include, for example, the case where ahouseholder purchases insurance to cover family members and pays theinsurance premiums and the case where a corporation concludes aninsurance contract with its employees as insured persons and pays theinsurance premiums, etc.
(Note) It should be noted that although it does not expressly require theinsured persons to pay the insurance premiums, there are cases where
it is deemed that, based on the comparison of the ordinary sales priceand market value of goods, etc. and the percentage of the amount of
insurance premiums required for benefit payments to the price ofgoods, etc., there are substantial insurance premiums that the insured
persons pay.
It shall also be noted that if the insured persons’ consent is required
under the Insurance Act, it is necessary to provide the insured persons
with information sufficient for determining whether to give the said
content or not.
D. For insurance products aimed at promoting the sales of main products,
etc., the insured persons’ consent is not required and if the insurance
premiums of the insurance products are deemed to be at the level of a171

giveaway (free gift) when compared to the sales of the said main
products, etc. as they are related to the sales of the said main products,
etc., the insurance products shall fall under the insurance contract listed
in Article 227-2(7)(i)(b) of the Regulation.
(x) Matters Related to the Development of a System Pertaining to the
Obligation to Provide Information
Whether the insurance company and insurance agents, in relation to themeasures prescribed in Article 53(1)(iv), Article 53-7, Article 227-7 of theRegulation, has developed a system such as the following to deliver
documents describing the “contract outlines” and “alerting information” orprovide them by other alternative electronic or magnetic means.
A. Whether the measures to clearly indicating to customers the contact
points at the insurance company to receive complaints/consultation
requests in the said documents (including the electronic or magnetic
records on which the matters to be described in the said documents arerecorded; the same applies hereinafter in II-4-2-2(2)(x)).
B. Whether measures to clearly indicating the trade name or name of thedesignated ADR organization that is the other party of the Basic
Agreements

toImplement

Procedures

(if

the

designated

ADR

organization does not exist, the content of complaint processing
measures and dispute resolution measures) in the documents describing
the “alerting information” have been taken.
C. With regard to the matters to be described in the said documents,
whether measures to ensure that the descriptions are made withconsideration given to the following points. (Refer to “II-4-10 Ensuring ofAppropriate Presentation”)(A) Whether the font sizes and layouts of the matters to be described, etc.
that are easier for customers to understand are used for description.
(Note) For example, using the font size of 8 points or larger, font colors,
laying out the matters to be described in the order of importance fromthe highest to the lowest, and utilizing charts and figures, etc. (it shallbe noted, in particular, the documents to be delivered before
concluding contracts for specified insurance contracts must be
prepared in accordance with the statutory requirements (font size of
8 points or larger, and 12 points or larger for certain matters, etc.).
(B) Whether the simplicity and clarity are ensured for the description texts.

172

(Note) For instance, whether the labels and explanations that areeasier for customers to understand are used for technical terms.
Whether clear labels and explanations that are unlikely to leadcustomers to misunderstand the content of products are used.
(C) With regard to the matters for which specific figures, etc. are required
to be presented to customers (insurance period, amount of insurance
proceeds, insurance premiums, etc.), whether those specific figures
are described.
(Note) In cases where describing the specific figures, etc. is difficult, therepresentative cases, customer selectable ranges, and reference tothe locations in other documents where the said figures, etc. aredescribed, for example, shall be described with due consideration not
to mislead customers,(D) With regard to the volume of information to be described in the said
documents, whether consideration is given not to discouragecustomers’ willingness to understand the contents and the volume isdetermined according to the characteristics and complexity of theinsurance product.
(E) The said documents shall be prepared as separate/independent
documents from the others, or if they are to be prepared as the same
documents with the others, whether the information to be described in
the said documents are clearly distinguished from other informationand clearly described as being important information.
D. In addition to delivering the said documents or providing them by otherappropriate methods (including electronic or magnetic means) tocustomers, whether a system to orally provide at least the following
information and explanation has been developed.
(A) It is important to read the said documents.
(B) It is important to read the part where the information that isparticularly disadvantageous to the customer such as major exceptions,etc. is described.
(C) In the case of rollover (meaning inducing the policyholder or the
insured to apply for a new insurance contract in the termination of theexisting contract, or terminating an already effected insurance contract
by inducing the policyholder or the insured to apply for a new contract,prescribed in Article 300(1)(iv) of the Act), or conversion (meaningarranging an insurance contract to be effected by terminating the173existing contract and allocating the policy reserve, refunds, or any
other amounts reserved for the insured for the existing contract to thepolicy reserve or insurance premiums for a new insurance contract,prescribed in Article 227-2(3)(ix) and Article 234-21-2(1)(vii) of theRegulation), in particular, these may be disadvantageous to thecustomer.
E. In delivering the said documents or providing them by other appropriate
methods (including electronic or magnetic means), whether a system toensure sufficient time for customers to understand the contents of thesaid documents before concluding contracts has been developed.
(Note 1) For the documents describing the “alerting information”, it shallsuffice to explain/deliver them at the time of application for the contract
to more effectively alert customers.
It shall be noted, however, that for specified insurance contracts,
which are products with investment characteristics, sufficient time forcustomers to understand the contents should be ensured by delivering
documents describing “alerting information” at the same opportunity as
document describing the “contract outlines”.
(Note 2) In ensuring sufficient time for customers to understand thecontents, the characteristics and sales method of insurance products
as well as whether the level of understanding and convenience ofcustomers may not be hindered shall be considered.
F. In cases where information and explanation are provided by non-face-toface/non-contact methods (including teleconference system (meaning asystem in which parties involved can recognize each other's state bysending/receiving video

images and voices);the same applies

hereinafter) such as telephone, postal mail, and the Internet, etc.,
whether a system in which information and explanation of the level
equivalent to the details prescribed in A. through E. above are provided
has been developed.
For instance, it is necessary to appropriately provide information andexplanation to customers at least by the following methods.
(A) Telephone
Method to determine the matters to be orally explained to customers,
appropriately explain the contents of the said documents and orally
explain that it is important to read the said documents, and then deliver174

the said documents by the methods such as postal mail, etc. oralternatively provide them by electronic or magnetic means without
delay.
(B) Postal Mail
Method to state that it is important to read the said documents in amanner easier for the customer to understand, and then send the said
documents to the customer or provide them by electronic or magnetic
means.
(C) Internet, etc.
Method to display the said documents according to the content andmethod used to prepare the said documents, and then explain to thecustomer that it is important to read the said documents by electronic or
magnetic means.
(Note 1) The level equivalent to the details prescribed in D. above may
be considered, for example, to replace oral provision of informationand explanation with description in documents in the case of postal
mail and displaying by electronic or magnetic means in the case of
the Internet, etc.
(Note 2) In the case of postal mail, it shall suffice to send the said
documents along with a letter that allows the customer to adequately
recognize that it is important to read the said documents.
(Note 3) In the case of the Internet, etc., a method such as printing or
storing by electronic or magnetic means in place of sending the said
documents by postal mail, etc. may be considered.
G. With regard to group insurance prescribed in Article 227-2(2) of theRegulation, when an organization, which is a policyholder, encourages
the persons to be insured to subscribe to insurance, whether measures
to ensure the appropriate provision of information and explanation on thedetails prescribed in A. through F. above of the level equivalent to thatprovided by the insurance company or insurance agents to customers
have been taken.
H. With regard to the delivery of documents prescribed in Article 2272(3)(vi), (vii), and (ix) and Article 234-21-2(1)(iv) through (vii) of theRegulation (excluding the cases where they are alternatively delivered byelectronicormagneticmeans),

whetherasystemtoprovideeducation/management/guidance to the insurance company’s employees
and insurance agents to ensure to obtain confirmation from the175policyholders that they have received the documents has beendeveloped.
In addition, whether a system to investigate/understand the actual
conditions of the obtaining of the confirmation for reception by thecompany’s employees and insurance agents has been developed.
In cases where the said documents are alternatively delivered byelectronic or magnetic means, whether a system in which they areprovided by an appropriate means after obtaining consent of thepolicyholders has been developed.
I. In cases where the documents or electronic or magnetic records in which
the matters prescribed in Article 227-2(3)(ix)(a) and Article 234-212(1)(vii)(a) of the Regulation are described respectively for the existing
contract and the new contract are delivered or provided by otheralternative electronic or magnetic means for comparison, whether
measures to ensure protection of policyholders by thoroughly explaining
to compare the existing contract and the new contract, etc. when
delivering the documents or providing them by other alternativeelectronic or magnetic means have been taken.
J. Whether a control environment for adequately confirming customers’
understanding on the matters described in the documents to be delivered
before concluding contracts and the documents prescribed in Article 2272(3)(ix) and Article 234-21-2(1)(vii) of the Regulation describing the“contract outlines” and “alerting information” and enabling the verificationof the confirmation status afterward has been established. Even in cases
where these documents are provided by electronic or magnetic means
using non-face-to-face/non-contact methods such as the Internet, etc., inparticular, whether it is appropriately confirmed that the customers
understand the matters described in the documents to the level
equivalent to the cases where the documents are delivered andexplained by face-to-face methods.
(Note) As for the methods used to confirm that the customers understandthe matters described in the documents when they are provided byelectronic or magnetic means using non-face-to-face/non-contact
methods such as the Internet, etc., it may be considered, for example,
to use the video conference system and provide explanation bydisplaying the matters described in the documents as needed and to176confirm their understanding through communication with them.
If

themethods

do

not

allow

confirming

thecustomers’

understanding using video images, it may be considered to confirm thecustomers’ understanding by combining measures such as making
supplementary explanations by telephone, etc. as needed, using amechanism that does not allow moving to the application page without
viewing the entire documents, or establishing a check box asking if thecustomers have read the said documents and understood the content,
etc. according to the characteristics of the customers.
(xi) Matters Related to Control Environment Concerning Names That
Insurance Agents Clearly Communicate to Customers
With regard to the names that insurance agents clearly communicate tocustomers as prescribed Article 294(3) of the Act and Article 227-2(8)(i) of
the Regulation, in cases where maiden names (meaning “maiden names”
prescribed in Article 214(1)(iv) of the Regulation; the same applies
hereinafter) are to be used, the maiden names may be used provided thatthe insurance company has established a control environment for
appropriately managing the names that are registered/notified as those of
insurance agents and the names that are clearly communicated tocustomers.
(3) Matters Related to Article 294-2 of the Act (obligation to ascertain/confirm
intention)
When ascertaining the customer's intention, proposing the conclusion of an
insurance contract, etc. in line with such intention, explaining the contents of
the relevant insurance contract and concluding the insurance contract,whether the insurance company or insurance agents provide the customer
with the opportunity to confirm that the customer's intention is in accord withthe contents of the relevant insurance contract under the provisions of Article294-2 of the Act.
(i) Methods of Ascertaining/Confirming Intention
With regard to the methods of ascertaining/confirming the customer’s
intention, whether the insurance company or insurance agents use inventive
methods that take into account the products handled and forms ofsolicitation to ensure the conclusion of an insurance contract, etc. after
determining whether the customer's own risk and intention is in accord withthe contents of the relevant insurance contract.

177

More concretely, for example, the methods such as the following A.
through D. may be considered.
A. Ascertain the customer's intention when explaining/proposing an
individual plan for the customer concerned, including the amount of
insurance proceeds and insurance premiums. And then propose anindividual plan based on the said intention, and provide explanations,
including how the said intention corresponds to the said plan.
At the stage when the customer's final intention is determined,
compare that intention and the customer’s main intention identified
initially, and if they are different, confirm the difference.
Furthermore, at the stage before concluding the contract, confirm
whether the content of the insurance contract that the customer intends
to apply for matches with the said intention (= confirmation of intention).
(Note 1) When ascertaining the customer’s intention in advance, forexample, ascertaining it through questionnaire surveys may beconsidered.
(Note 2) Ascertaining the customer’s intention include, for example, themethod of estimating the intention based on the customer attributes
such as sex and age and the living environment, etc. In this case, eachtime an individual plan is created or proposal is made, it may beconsidered to explain what the estimated (ascertained) intention wason which the said plan is designed based and how the said intention
corresponds to the said plan by describing relationship between theestimated (ascertained) customer’s intention and the individual plan in
an easy-to-understand manner in a conspicuous part of the document
to be delivered such as the design document, etc.
(Note 3) In the case of ascertaining the intention and providing
explanation/proposal

for

the

customer

whowishestohavecompensation associated with the purchase of automobiles/realproperties, etc., the content of compensation that the customer itself
requires can easily be assumed and thus the intention can be clearly
determined. Therefore, it may be considered to create/propose anindividual plan after ascertaining the main intention/information,
describe the comparison between the main intention and the individual
plan, and have the insurance company or insurance agents explain therelationship between the ascertained customer's intention and the178individual plan in an easy-to-understand manner.
B. With regard to an “insurance contract under which damage arising fromthe business activities of the business operator is to be compensated”
prescribed in Article 227-2(3)(iii)(a) of the Regulation, the customer’s
intention shall be appropriately ascertained and confirmed according to
the level of the customer’s understanding on insurance and thecharacteristics of the product.
C. In cases where the amount of an insurance contract under which
insurance premiums to be paid each year (in the case of an insurance
contract which is for the insurance period of less than one year and isrenewable, the amount converted to the annual amount) is no more than
5,000 yen as prescribed in Article 227-2(3)(iii)(b) of the Regulation, thecustomer’s intention shall be appropriately ascertained according to the
level

of

the

customer’s

understandingon

insurance

and

the

characteristics of the product.
D. With regard to encouraging to subscribe to a group insurance prescribedin Article 227-2(2) of the Regulation, measures prescribed in (Note) of II4-2-2(3)(iv)B. shall be taken.
(ii) Scope of Ascertaining/Confirming Intention
Whether, for example, the following information concerning thecustomer’s intention is ascertained/confirmed.
A. First- and Third-Sector Insurance Products(Note) Including variable insurance, variable pension insurance, andproducts with investment characteristics such as insurance in foreign
currency, etc., but excluding overseas travel accident insurance
products and accident insurance products with the insurance period of
not more than one year (limited to those that do not include facts andmatters relating to the past and present health conditions and othermental and physical conditions of the insured as material facts andmatters to be notified by the policyholder or the insured whenconcluding a contract).
(A) Which areas of coverage the customer wishes to purchase(Survivor benefits in the case of death, health coverage, healthcoverage to prepare for specified diseases such as cancer, coverage toprepare for injury, long-term care coverage, preparation for living
expenses for old age, asset management, etc.)(B) Whether savings element is required

179

(C) If a preference or priority exists with regard to the range of theinsurance period, amount of insurance premiums, and amount of
insurance proceeds, that fact
(Note) For variable insurance, variable pension insurance, andproducts with investment characteristics such as insurance in foreign
currency, etc., information on the intention of investment such as, forexample, whether funds for make for the purpose of gaining profits
are available, whether an intention exists to purchase medium- tolong-term investment products that are different from deposits,
whether the fact that the values of assets fluctuate according to theinvestment performance is acceptable, whether the market risks are
accepted, and whether minimum guarantee is required, etc. shall be
included.
It should be noted that a market risk refers to a risk that losses may
result due to fluctuations in the interest rates, prices of currencies,
market prices of financial instruments, and other indicators.
B. Second-Sector Insurance Products(Note) The insurance products that fall under B. above shall include, in
addition to second-sector insurance products, overseas travel accident
insurance products and accident insurance products with the insurance
period of not more than one year (limited to those that do not include
facts and matters relating to the past and present health conditions andother mental and physical conditions of the insured as material facts
and matters to be notified by the policyholder or the insured whenconcluding a contract).
(A) Which areas of compensation the customer wishes to purchase(Types of insurance such as automobile insurance and fire insurance)(B) Content of major compensation the customer wishes to purchase(Note) When ascertaining the intention, for example, the following
information may be considered.
- For automobile insurance, with or without free from young driver
specialconditions,limiteddrivers

specialconditions,andautomobile physical damage insurance, etc.
- For fire insurance, the purpose of insurance and with or without
earthquake insurance, etc.
- For overseas travel accident insurance, the content/scope ofcompensation, traveler, traveling destination, and traveling period,

180

etc.
- For accident insurance with the insurance period of not more than
one year, the content/scope of areas of compensation, etc.
(C) If a preference or priority exists with regard to the range of thecompensation period, amount of insurance premiums, and amount of
insurance proceeds, that fact(iii) Exemptions on the Obligation to Ascertain/Confirm Intention (Matters
Related to Article 227-6 of the Regulation)
In the case of renewing or partially changing the existing contract, if it
falls under a substantial change, the intention for the changed partconcerned shall be appropriately ascertained/confirmed.
(iv) Matters Related to the Development of a System Pertaining to the
Obligation to Ascertain/Confirm Intention
With regard to the measures prescribed in Article 294-2 of the Act, inorder to ensure the opportunity to confirm that the customer's intention is inaccord with the contents of the insurance products that the customer
intends to apply for a contract so as to enable the customer to appropriately
select/purchase insurance products, etc., whether the insurance company
and insurance agents have established the relevant processes in theinternal

rules,

etc.,

andprovideappropriate

education/management/guidance to the member insurance agents, andhave established a system such as the following.
A. Development of a System for Ascertaining Intention
Whether the insurance company and/or insurance agents have taken
measures to enable confirmation of appropriate execution of operations
for ascertaining the customer’s intention. For instance, whether measures
such as storing the forms used to ascertain the customers’ intention (forexample, questionnaire and design document, etc.) relating to thecustomer’s intention that was compared with the customer's final
intention prescribed in II-4-2-2(3)(i)A. and those relating to the customer’s
final intention by an appropriate method according to the process of
insurance solicitation.
(Note) It should be noted that when collecting and providing informationon the customer’s intention, etc., the Act on the Protection of Personal
Information (clear indication of the purpose of use and consent for athird-party provision) and relevant laws and regulations concerning
measures to prevent adverse effects in over-the-counter sales at banks,181

etc. must be observed.
B. Development of a System for Confirming Intention
With regard to the measures prescribed in Article 53-7(1) and Article
227-7 of the Act, in order to ensure the opportunity to confirm that thecustomer's intention is in accord with the contents of the insurance
products that the customer intends to apply for a contract so as to enable
the customer to appropriately select/purchase insurance products, etc.,
whether the insurance company or insurance agents have taken
measures to enable confirmation of appropriate execution. In cases
where the method referred to in II-4-2-2(3)(i)A. or other equivalentmethods are used, whether the following measures have been taken.
(Note) With regard to group insurance prescribed in Article 227-2(2) of
the Regulation, when an organization, which is a policyholder,encourages the persons to be insured to subscribe to insurance,measures equivalent to system development such as the following (A)through (K) shall be taken to ensure the opportunity to confirm that theinsured persons’ intention is in accord with the contents of theinsurance product.
(A) Preparation/Delivery of Intention Confirmation Documents
In order to ensure the opportunity to finally confirm that thecustomer's intention is in accord with the contents of the insurance
products that the customer intends to apply for a contract before thecustomer concludes the contract, whether the information on thecustomer’s intention is collected and documents for confirming that thecustomer's intention is in accord with the contents of the insurance
products (hereinafter referred to as “intention confirmation documents”)
have been prepared, delivered to the customer, and stored by the
insurance company, etc.
(B) Matters to be Described in Intention Confirmation Documents
Whether the following matters are described in the intention
confirmation documents.
a. Information on the customer’s intentionb. How the content of the insurance contract corresponds to thecustomer’s intention
c Other matters to be particularly described concerning the customer’s
intention
For instance, the information such as the following may be182

described by including the remarks section, etc.
(a) If the content of the insurance contract concerned does not meetall or part of the customer’s intention, that fact(b) If the customer strongly requested an intention or the customer
has an intention of strong individuality in particular, information onthat intention(c) If the minimum necessary information for confirming that thecontent of the insurance contract concerned is in accord with thecustomer’s intention was not provided, that factd. Full name or name of insurance agent
Whether it is described to clearly communicate the person in
charge of preparing the said documents to the customer.
It should be noted that in cases where insurance agents use
maiden names, the insurance company must establish a control
environment for appropriately managing the names that areregistered/notified as those of insurance agents and the names thatare clearly communicated to customers.
(C) Methods to be Described in Intention Confirmation Documents
Whether the intention confirmation documents are described in aneasy-to-understand manner.
It shall be noted that, for example, it is acceptable to list the items
concerning the information on the customer’s intention that is assumed
in advance; in that case, however, the information on the customer’s
intention that is not assumed in advance ((B)c. above) cannot be
described, and therefore, the remarks section shall be included.
(D) Timing of Confirmation/Delivery of Intention Confirmation Documents
PeriodWhether measures to confirm whether or not the content of theinsurance contract that the customer intends to apply for is in accord
with the customer’s intention have been taken using intention
confirmation documents before concluding the insurance contract.
In addition, whether measures to deliver the intention confirmation
documents that the customer confirmed to the customer after theconfirmation without delay have been taken.
It shall be noted that in cases where the customer requests
immediate conclusion of the contract or it is difficult to deliver the said
documents immediately because of solicitation by telephone, etc., in183

consideration of the customer’s convenience, it shall suffice to orally
confirm the content to be described in intention confirmation documents
and then deliver the intention confirmation documents after theconfirmation without delay.
(E)

Confirmation/ModificationofContent

Described

inIntention

Confirmation Documents
Of the content described in the intention confirmation documents, for
the information on the customer’s intention ((B)a. and c. above) in
particular, whether it is confirmed with the customer whether there areany descriptions that are contrary to the facts and if the customer
requests to modify the descriptions of the part concerned, whether it isimmediately dealt with.
(F) Confirmation of Intention Regarding the Content of Insurance
Contract
Of the content of the insurance contract that the customer intends toapply for, whether ingenious efforts are made to encourage thecustomer to reconfirm the matters that are required to be confirmed by
the customer whether they are in accord with his/her intention inparticular (specific content of coverage (compensation), amount of
insurance premiums (including the payment method of insurance
premiums and the payment period of insurance premiums), amount of
insurance

proceeds,

periodofcoverage(compensation),andavailability of dividends, etc. for the basic policy and special provisions) by methods such as including a question for the confirmation in theintention confirmation documents, etc.
(G) Media of Intention Confirmation Documents, etc.
Whether the intention confirmation documents are delivered in paper(including alternative electronic or magnetic means. the same applies
in Ⅱ－4－2－2(3)(iv)B(G))form in principle in consideration of the needfor storage by the customer.
It shall be noted that although they do not necessarily need to be
independent documents (they may be integrated with the applicationform), if they are prepared to be the same documents as the others, thepart that corresponds to the intention confirmation documents needs tobe described in a manner that is clearly distinguishable from the others.
In addition, since the said documents are delivered to be confirmed
by both the insurance company or insurance agents and the customer,

184

whether the documents, etc. are stored by methods that allow theinsurance company or insurance agents to confirm them afterward.
(Note) In cases where they are delivered by electronic or magnetic
means such as e-mail, etc., it is necessary to obtain the consent of
the customer and that they can be stored in a printed form or byelectronic or magnetic means.
(H) Response When the Customer Does Not Wish to Have the Intention
Confirmation Documents to Be Prepared and Delivered
In cases where the customer does not wish to have the said
documents to be prepared and delivered, whether the role of the said
documents (that the documents are for both the insurance company or
insurance agents and the customer to confirm whether or not thecontent of the insurance contract that the customer intends to apply foris in accord with the customer’s intention) is explained to the customers
in writing, etc. and a control environment has been established toenable the verification afterward that the customer did not wish to havethe intention confirmation documents to be prepared and delivered.
(I) Verification of Matters to be Described in Intention Confirmation
Documents, etc.
With regard to the preparation and delivery of the intention
confirmation documents, whether appropriate measures have beentaken such as verifying the information on the customer's intention to
be collected and the collection methods, etc. and then reviewing themas needed according to the characteristics of the insurance products
and changes in the situation of the sales methods and based on thecontent of complaints from and consultations with the customer.
(J) Response When It Is Clear That the Customer Misunderstands theContent of the Insurance Contract, etc.
In cases where it is clear that the customer does not understand or
misunderstands the content of the insurance contract, etc., whether
efforts have been made to provide explanation in an easy-tounderstand manner and resolve the misunderstanding.
(K) Explanation on the Range of Insurance Companies That Can Be
Handled, etc.
Whether the range of insurance companies that the insurance agents
can handle (for example, exclusive or shared agent; in the case of ashared agent, information on the number of insurance companies that185

can be handled, etc.) is explained; and when the customer intends tomake disclosure, whether explanation is provided for the availability of
the right to receive disclosure.
(4) Matters Related to the Development of a System for Encouraging
Subscription to a Group Insurance That Does Not Fall Under Article 227-2(2)of the Regulation
Since a group insurance in which the policyholder is an organization withno certain close relationship between the policyholder and the insured
persons does not exist in light of the closeness between the policyholder andthe insured persons, their interests with respect to the group insurance
concerned, and the requirements to become members of the organization,such as those with a credit card company or financial institution, etc. being
the policyholder and its members or depositors, etc. being the insured
persons, does not fall under the provisions of Article 227-2(2) of theRegulation, in cases where the insurance company or insurance agents(including the organization that handled the group insurance by itself) that
concluded or handled the group insurance concerned provide information
and ascertain/confirm the intention when encouraging subscription, whether asystem such as the following has been established.
(i) When encouraging subscription, whether appropriate measures have beentaken to ensure that it is handled in accordance with the solicitation
regulations such as, for example, preventing prohibited acts prescribed in
Article 300(1) of the Act and not allowing circumvention of the solicitation
regulations.
(ii) For an organization with a credit card company or financial institution, etc.
being the policyholder and its members or depositors, etc. being theinsured persons, etc., in cases where a loss of coverage (compensation)
will result due to a cancellation of credit cards or savings accounts, etc. of
the insured persons of the group insurance concerned, whether it is
responded by developing a system to describe that fact in documents inwhich “alerting information” is described and provide the insured persons
with appropriate explanation.
In addition, when credit cards or savings accounts are canceled, etc., if aloss of coverage (compensation) will result due to that cancellation,
whether it is responded by developing a system to appropriately explainthat fact.

186

(iii) When encouraging subscription to a group insurance in which a bank, etc.
conducting insurance solicitation is a policyholder and its depositors are
the insured persons, whether appropriate measures that take into accountII-4-2-6-2 through II-4-2-6-10 have been taken.
(iv) When encouraging subscription by telephone, whether appropriate
measures that take into account II-4-4-1-1(5) have been taken.
(5) Response for Duplication Compensation Not Based on Customer’s
Intention
Of the duplicate compensation, for those that are not based on thecustomer’s intention, whether the insurance company or insurance agentstake the following measures ensure sufficient and appropriate explanation on
duplicate compensation, etc. is provided to the customer at the time of newcontract or renewal/novation of contract (hereinafter referred to as “newcontract, etc.”) from the point of view of eliminating or preventing it fromoccurring.
(i) Whether the matters necessary for responding to duplicate compensationsuch as the method to ensure provision of explanation on duplicatecompensation are appropriately prescribed in the internal rules, etc.
(ii) Whether appropriate education, management, and guidance on duplicatecompensation are provided to insurance agents.
(iii) Whether, of insurance products (including special provision s) handled by
the own company, a list of combinations of insurance products that would
result in duplicate compensation when they are combined to make acontract has been prepared.
In addition, whether the list is reviewed as needed at the time of starting
the sales of new insurance products.
(iv) When explaining an insurance product at the time of new contract, etc.,
whether it is confirmed with the customer whether the customer alreadysubscribes to insurance which, if combined with the insurance productconcerned to make a contract, would result in duplicate compensation.
In addition, if the customer already subscribed to insurance that
corresponds to duplicate compensation, whether the customer's intention is
confirmed after clearly explaining the relationship between the insurance
premiums and the insurance proceeds, and then the compensation withappropriate content based on that customer’s intent is provided.
(v) Whether a control environment to enable understanding/verification of the187

actual conditions of confirmation with and explanation to the customer on
duplicate compensation.
(6) Matters related to Article 295 of the Act (prohibition of self-contract by nonlife insurance agencies)(i) Self-Contract
Whether the proxy application company (meaning an affiliated insurancecompany applying for a registration as an agent, etc. under Article 284 of
the Act; the same applies hereinafter) understands the status of selfcontract of the non-life insurance agency and appropriately provides
management/guidance, taking into account the following points.
A. Insurance contracts to be excluded from the calculation of self-contract
shall be as follows. It shall be limited, however, to those for which actual
payment of insurance premiums is made by the person with insurable
interest other than the non-life insurance agency.
(A) Insurance contracts concluded by those engaging in entrusted
business such as transportation and storage of third parties’ properties,
etc. for the entrusters on the entrusted cargos(B) Marine cargo insurance contracts for export CIF or C&I sales contract(C) Of marine cargo insurance contracts to hedge risks after loading on
ships in export CIF or C&I sales contract, those for cargos imported
under entrustment by third parties(D) Marine cargo or transport insurance contracts for cargos transported
between domestic locations based on domestics sales contracts
equivalent to (B) or (C) above(E) Automobile-related insurance contracts for automobiles for sale(automobiles manufactured or maintained for the purpose of sale) in
the process of delivery from automobile manufacturers, distributors, orland transport companies to end consumers concluded by the
manufacturers, distributors, or land transport companies of theautomobiles concerned(F) Insurance contracts for the hosted tours concluded by travel agents
under the Travel Agency Act(G) Insurance contracts for properties for sale or lease concluded byinstallment sellers or leasers
B. The calculation of insurance premiums for self-contract shall be handled
as follows.

188

(A) In the case of an insurance contact in which own properties andproperties of others are mixed, and when the insurance premiums that
correspond to self-contract are not clearly separated, the total amountshall be deemed to correspond to the self-contract.
(B) If own properties are changed to properties of others and propertiesof others are changed own properties during the insurance period,
insurance premiums for the self-contract may be calculated based ontime distribution.
(ii) Specified Contracts
Since it is deemed to be a problem in light of the purpose of Article 295 of
the Act that non-life insurance agencies make engaging in solicitation of
insurance contracts in which a person having a close human or capital
relationship with themselves is the policyholder or the insured person(hereinafter referred to as “specified contracts”) to be their primarybusiness purpose (the percentage of the insurance premiums of specified
contracts to the insurance premiums handled is more than 50%), whether
efforts have been made, with consideration given to the following points, tounderstand the status of specified contracts and strictly provide
management/guidance in a same manner as with self-contracts, thereby
ensuring the fairness in insurance solicitation and promoting theindependence of non-life insurance agencies.
A. Whether insurance contracts in which the following persons (hereinafterreferred to as “specified persons” are the policyholder or the insured
person are identified as specified insurance contracts.
(A) A relative (including a relative by affinity) sharing the living expenses
with the non-life insurance agency and a relative within the second
degree of kinship (not including a relative by affinity) not sharing theliving expenses.
(B) A corporation (including an association or foundation that is not a
corporation; the same applies hereinafter in II-4-2-2(6)(ii)A.) in which
the non-life insurance agency, its spouse, or its relative within thesecond degree of kinship (not including a relative by affinity) is a fulltime officer.
(C) A corporation with officers/employees (including part-time, temporarilytransferred, and former officers/employees) having the concurrent
position in a non-life insurance agency that is a corporation. It should
be noted that “former officers/employees” here refers to those for189

whom less than three years have passed since the date of leaving thecorporation concerned.
(D) A person with the investment ratio to the non-life insurance agent thatis a corporation exceeding 30%.
(Note) Method of Calculating the Investment Ratio
a. In the case where the investor is a corporation, if the amountcalculatedbytotalingtheamountsofinvestments

byofficers/employees belonging to the corporation and their relatives(not including relatives by affinity) sharing the living expenses
exceeds 30%, that corporationb. In the case where an investor is an individual person, if the amountcalculated by totaling the amounts of investments by the person andhis/her relatives (not including relatives by affinity) sharing the living
expenses exceeds 30%, that individual person
B. Whether the determination of a non-life insurance agency whose primarybusiness purpose is to engage in insurance solicitation (hereinafterreferred to as a “specified contract handling agency”) is carried out every
fiscal year of the non-life insurance agency. Whether other calculation
methods are handled in the same manner as with self-contracts.
In addition, whether insurance contracts that are not deemed to be
specified contracts are handled in an equivalent manner as self-contracts.
C. When a non-life insurance agency is determined to be a specified
contract handling agency, whether the fact is reported to the local
Finance Bureaus or Fukuoka Local Finance Branch Bureau (including
the Okinawa General Bureau; hereinafter referred to as the “local
Finance Bureaus, etc.”) along with the cause and a corrective action planby the last day of a month following the month which includes the date ofdetermination.
(Note) As a measure for the existing non-life insurance agencies, thefollowing calculation is used for the time being until otherwise provided
for by law for a non-life insurance agency that was registered before
March 31, 1996 and has not changed the category under the non-life
insurance agency system during the period between April 1 of thesame year and March 31, 2001.
(A) The target insurance contracts shall be fire insurance, automobile,and accident insurance contracts (including insurance of medical
expenses and insurance of long-term care expenses).

190

(B) The percentage of specified contracts shall be the highest percentage
among the percentages of specified contracts respectively calculated
for each specified person.
(iii) In cases where the percentage of premium income for self-contracts or
specified contracts exceeds 30%, whether guidance for correction isprovided to the non-life insurance agency.
(7) Matters Related to Article 300(1)(iv) of the Act
Whether the facts that would be disadvantageous to the customer are
informed, such as the existence of cases where the policyholder may berequired to pay a certain amount of money as a so-called surrender charge,
etc., cases where the rights to claim special dividends and other rights toclaim dividends that become available on the condition of continuing thecontract for a certain period may be lost, and cases where a new insurance
contract may not be able to be concluded due to the worsening of healthconditions of the insured person, etc.
In addition, whether it is adequately confirmed that the customer
understands the facts that would be disadvantageous by methods such as
obtaining a confirmation seal of the customer, etc.
(8) Matters Related to Article 300(1)(v) of the Act(i) In cases where the insurance company or insurance agents provide thepolicyholder or the insured person with various services and goods for theconclusion of insurance contracts or insurance solicitation, whether it isensured that it does not fall under “offer of special advantage” withconsideration given to the following points.
A. Whether the economic value and content of the said services, etc. are
not beyond the social appropriateness.
B. Whether it does not practically fall under a discount/rebate of insurance
premiums, in light of the degree of marketability and the range of use of
the said services, etc.
C. Whether the provision of the said services, etc. does not significantly
hinder the fairness among policyholders.
It shall be also checked whether the insurance company commits any
acts that violate the prohibition of other business through the provision of
the said services, etc.
(Note) There are cases where the insurance company or insurance191agents offer points to the policyholder or the insured person for theconclusion of an insurance contract and provide life-related discountservices, etc. according to the said points, etc. It shall be noted,
however, that in doing so, providing cashback according to the points
earned falls under a discount/rebate of insurance premiums and isprohibited, except for the cases where it is done based on the
documents listed in items of Article 4(2) of the Act.
(ii) When solicitating wholesale insurance and collective insurance contracts,group contracts of accident insurance/income indemnity insurance, andautomobile insurance (fleet contracts), whether the following matters arechecked.
A. The target organizations and groups shall meet the requirements
prescribed in the statement of business procedures.
B. The quorums of organizations and groups shall be fulfilled.
C. The policyholders or insurers shall meet the requirements prescribed in
the statement of business procedures.
D. The application of discount rates such as the group discount rate,
discount range according to the loss rate, and superior fleet discount rate,
etc. shall be appropriate.
(iii) whether the following points are considered for Article 234(1)(i) (in thecase of a specified insurance contract, Article 234-27(1)(i)) of theRegulation.
A. Whether the insurance company has taken measures such as providing
guidance and management, etc. to life insurance agents and insurance
brokers (hereinafter referred to as “life insurance agents, etc.” in II-4-22(8)(iii)) not to solicit self-contracts for the purpose of providing a
discount or rebate of insurance premiums, etc.
B. Whether the insurance company has taken measures such as providing
guidance and management, etc. to life insurance agents, etc. which arecorporations not to solicit contracts for the purpose of providing a
discount or rebate of insurance premiums, etc. through the payment offees, etc. if a corporation having a close relationship with the insurancecompany itself or the said life insurance agents, etc. is the policyholder.
C. A corporation having a close relationship shall include the following.
(A) A corporation listed below having a close relationship with the said life
insurance agents, etc. in light of capital relationship.
a. A specified affiliated corporation of the said life insurance agent, etc.

192

b. A corporation with a specified affiliated corporation that is the said life
insurance agents, etc.
c. A specified affiliated corporation of the corporation listed in a.
d. A corporation with a specified affiliated corporation that is thecorporation listed with a. or b.
(B) A specified affiliated corporation prescribed in (A) shall be anyone(limited to a corporation) of those pertaining to a single corporation thatfall under the persons listed in the following a. through f. (in the case of
the person listed in b. through f., including the persons that do not havethe voting rights of the said concerned) when they have 25% or moreof the voting rights of all shareholders, all members, or all investors of
the said corporation in total.
a. A single person having all or part of the voting rights of the said life
insurance agents, etc.
b. A person having over 50% of the voting rights of all shareholders, allmembers, or all investors of the person listed in a.
c. A person having over 50% of the voting rights of all shareholders, allmembers, or all investors of the person listed in b.
d. A corporation of which over 50% of the voting rights of allshareholders, all members, or all investors are held by the person
listed in a.
e. A corporation of which over 50% of the voting rights of allshareholders, all members, or all investors are held by the person
listed in d.
f. A corporation of which over 50% of the voting rights of allshareholders, all members, or all investors are held by the person
listed in b.
(C) A corporation having personnel exchange with the said life insurance
agents, etc. such as concurrent position, temporary transfer, andtransfer, etc. of officers (excluding part-time officers) or employees.
(D) Any other corporation that is deemed to have a close relationship withthe said life insurance agents, etc. based on the background of its
incorporation and transaction relationship.
(E) “Having a close relationship” prescribed in (D) refers to the situation
where a single corporation can significantly affect the financial
conditions or the sales or business policy of the other company.
It shall be noted that whether a corporation falls under the193corporation listed in (D) shall be determined in accordance with theactual conditions, and sufficient consideration shall be given to ensure
not to allow the determination of the following corporations tocircumvent the application of (D).
a. If the majority of officers and employees of a life insurance agent, etc.
are former officers/employees of a specific corporation, that specificcorporation
b. If a specific corporation has mainly involved in the establishment of alife insurance agent, etc., that specific corporation(9) Matters Related to Article 300(1)(vi) of the Act(i) Whether measures to obtain sufficient understanding of the customer on
the presentation (including informing; the same applies hereinafter) of theinsurance contract have been taken. Whether the presentation is madeaccording to the characteristics of the product.
It shall be noted that the presentation shall include those made by thefollowing methods (the same applies hereinafter in II-4-2-2(10)).
A. Documents and drawings used for solicitation such as pamphlets andpolicy leaflets, etc.
B. Advertisements using posters, signboards, and others equivalent thereto
C. Advertisements using newspapers, magazines, other publications,broadcasting, projections, theatrical performances, or electronic signs
D. Advertisements using the Internet, etc.
E. Other media for providing information(ii) With regard to the comparative presentation, the acts that violate Article
300(1)(vi) of the Act are considered to include the following matters.
A. Presenting the matters or figures that are not based on objective facts.
B. Presenting not the whole but only a part of matters necessary for making
correct judgments for the content of the insurance contract.
(Note 1) If comparative presentation using “contract outlines” (a case where
the respective “contract outlines” are presented side-by-side or a casewhere the whole descriptions of “contract outlines” are summarized in atable format, etc.) is made, the whole of the matters necessary formaking correct judgments for the content of the insurance contract are
deemed to have been presented.
(Note 2) When making comparative presentation (including the case where
the descriptions are summarized in a table format for presentation), if all194

of the following requirements are met, the whole of the mattersnecessary for making correct judgments for the content of the insurance
contract are deemed to have been presented.
(A) If the customer who received the comparative presentation wishes toobtain the “contract outlines” for all insurance products subject to thecomparative presentation, measures to enable them to promptly obtainthe “contract outlines” shall be taken.
For instance, the methods such as a. providing “contract outlines” at
the same time as the comparative presentation for all insurance
products that were subject to the comparative presentation or b.
developing a system to enable viewing the “contract outlines” for all
insurance products that were subject to the comparative presentation
on websites over the Internet or, upon request from the customer,
delivering the requested “contract outlines” by postal mail without delay,
and then inform the customer of the system, etc. may be considered.
(B) For the comparative presentation, alerting texts such as the following
shall be described.
a. The comparison table does not include all the contents of theinsurance products, and should be used as only a reference
information.
b. The contents of insurance products described in the comparison
table need to be generally checked with the “contract outlines” andpamphlets.
C. Presenting the content of the insurance contract as if all is in goodstanding by especially emphasizing only the advantages or not indicating
inseparable matters together when indicating the advantages.
D. Presenting the comparison of insurance contracts that are notrecognized to be of the equivalent types of insurance under normal social
or transactional conventions as if they are of the equivalent types of
insurance.
(Note) For instance, when comparing insurance products with different
insurance periods or when comparing insurance with dividends andinsurance without dividends, etc., it is required to describe not to leadthe customer to misunderstand as if they were equivalent insurance
products by clearly describing the difference in the product contents,
etc.
E. Presenting by comparing with the contents of the insurance contracts

195

that are not currently provided.
F. Presenting by unreasonably emphasizing the disadvantages of thecontents of the other insurance contracts for the purpose ofdefaming/slandering the said insurance contracts rather than providing
specific information.
(iii) In cases where making comparative presentation with other insurancecompanies’ products, etc., whether measures have been taken (i) toensure that presentation is made with the following matters included using
document, etc. and (ii) not to make incorrect presentation of thecharacteristics of the other companies’ products.
(Note 1) For (i) above, the said requirements shall be deemed to have been
met if the requirements of (Note 1) or (Note 2) in (ii)B. above are met.
(Note 2) With regard to the content of coverage (compensation) and special
provisions, omitting the matters that are deemed to exist almost
commonly for all products to be compared and the matters that are
deemed to be normally paid for the types of insurance that were subject
to the comparison, omitting them from the description shall not
immediately be deemed to be “misleading”.
(A) Insurance period(B) Content of coverage (compensation) (for the payment of insurance
proceeds, major exceptions, etc.)(C) Underwriting conditions (amount of insurance proceeds, etc.)(D) Availability and content of various special provisions(E) Premium rate/insurance premiums (cases shall be based on the same
conditions to the extent possible and the calculation conditions shall be
described side by side)(F) Insurance premium payment method(G) Relationship between insurance premiums paid and maturity refunds(H) Other matters deemed to be important from the point of view ofprotecting policyholders, etc.
(iv) When making comparative presentation of insurance premiums, whether
consideration is given to ensuring not to overly draw the customer’s
attention to insurance premiums or allow to pass over other importantelements such as coverage (compensation), etc.
In addition, in order to prevent drawing the customer's attention only toinsurance premiums, whether ingenious efforts are made to prevent thecustomer’s misunderstanding with regard to the configuration of the196comparison table and description methods, etc. such as including the texts
alerting that it is necessary to compare/consider by taking into account not
only insurance premiums, but also other elements, including the content ofcoverage (compensation), etc.
(Note 1) Describing the preconditions that affect insurance premiums suchas the outlines of the insurance conditions and content of coverage(compensation), etc. alongside is considered to be the minimum
requirement for appropriate presentation.
(Note 2) In cases where applicable insurance premiums notably vary
according to the preconditions such as the customer’s age and sex, etc.,
it is considered appropriate to describe the texts alongside alerting that itis necessary to select products after inquiring the insurance company
about the insurance premiums actually applied as insurance premiums
may vary depending on differences in the preconditions.
(v) When making a comparative presentation, it is desirable to clearly indicate
to the customer what entity (insurance company or insurance agent)
makes the comparative presentation, whether there is any special interest
that may impair the independence/impartiality of the comparative
information provided (for example, existence of strong capital relationship,etc.) between insurance companies that provide insurance products
compared and insurance agents, what information the comparative
information provided is based on, etc.
(10) Matters Related to Article 300(1)(vii) of the Act(i) Whether measures to eliminate the acts that violate Article 300(1)(vii) of
the Act have been taken.
(ii) Presentation of expected dividends
A. (ii) With regard to the expected dividends, the acts that violate Article
300(1)(vii) of the Act are considered to include the following acts.
(A) Not presenting alongside the expected dividends the fact that theactual amount of dividends vary from the expected dividends
presented and may be zero depending on the fiscal year.
(B) Despite the fact that the expected dividends presented are examples
calculated under certain conditions as rough indications of the amountto be received in the future, not presenting that fact and the content of
the said certain conditions.
(C) Not presenting the mechanism of dividends (the amount of dividends

197

is determined based on the settlement of accounts for the previous
fiscal year of the payment period, etc.), payment method (each methodof dividend accumulation, deduction from premium, addition to
insurance proceeds, and cash payment, etc.), and the preconditions orconditions of the expected dividends.
(D) Not presenting multiple different amounts of expected dividends withdifferent preconditions or conditions for the non-life insurance contract.
(E) Presenting a high amount of expected dividends that clearly exceeds
the range of rational and objective predictions.
(F) When presenting special dividends (mu dividends), presenting themby not distinguishing them from ordinary dividends.
B. For life insurance contracts, when presenting or having insurance agent
present the expected dividends, whether the amount of dividends
calculated based on the assumption that the dividend rate changes
around the actual dividend rate of the most recent settlement of accounts(before it is determined, the immediately preceding actual dividend rateor the rational and objective dividend rate conservatively calculated; thesame applies hereinafter) is presented along with the amount ofdividends calculated based on the assumption that, at least at a rational
point in time, the interest dividend (including lambda dividend) rate (in thecase of accumulating dividends, including the dividend accumulationinterest rate) changes within the range from at most 1% above theinterest dividend rate of the actual dividends of the most recent
settlement of accounts to more percentage below it (however, lower limitof the interest dividend rate falling below the actual dividend rate is 0%).
C. In the case of B., whether documents, etc. that meet the requirements of
A. for the expected dividends are presented to the policyholder, etc.
(iii) Matters to Be Observed in Solicitation of Variable Insurance or Non-FileInsurance Products That Use Special Accounts
When soliciting variable insurance of non-life insurance products thatspecial accounts, considering the characteristics of the mechanisms ofthese insurance products in which maturity refunds and insurance
proceeds vary depending on the asset management results, etc., whether
compliance is ensured from the point of view of preventing unnecessary
troubles with the policyholder and confusion in the order of solicitation withparticular attention to the provisions of Article 300(1)(vii) of the Act(including 233 of the Regulation).

198

(iv) Points of Attention in Solicitation of Insurance in Foreign Currency
When soliciting insurance in foreign currency (of the insurance contracts
prescribed in Article 83(iii) of the Regulation, excluding those in which abusiness operator is the policyholder), whether it is ensured to provide
sufficient explanations on the existence of foreign exchange risks at thetime of solicitation and obtain a written confirmation from confirming thatthe policyholder understood the foreign exchange risks, etc. from the pointof view of protection policyholders, etc. with particular attention to theprovisions of Article 300(1)(vii) of the Act (including 233 of the Regulation).
(11) Matters Related to Article 300(1)(ix) of the Act and Article 234(1)(ii) of theRegulation (in the case of the specified insurance contract, Article 38(viii) of
the Financial Instruments and Exchange Act as Applied Mutatis Mutandis andArticle 234-27(1)(i) of the Regulation)(i) “Unjustly taking advantage of its business position, etc.” refers to, forexample, clearly indicating to provide benefits or disadvantages for the
purpose of restraining the customer’s intention by exercising the influencebased on the hierarchical relationship in business, etc. ; whether such acts
are not committed.
(ii) Whether the non-life insurance companies or non-life insurance agents do
not commit the following acts, etc., taking into account the purpose of theprovisions of Article 234(1)(ii) of the Regulation.
A. Seriously disturbing the customer with intimidating behavior and violent
language, etc.
B. Conducting insurance solicitation in a way that will invite social criticism
such as relentlessly making a visit or phone call during the time periodthat would harm the private life or business of the customer who has
clearly expressed the intention to reject the solicitation, etc.
(12) Matters Related to Article 234(1)(iv) of the Regulation (in the case of a
specified insurance contract, Article 234-27(1)(i) of the Regulation)(i) In case where the insurance company's credit or ability to pay, etc. are to
be presented, whether appropriate measures have been taken.
(ii) With regard to the presentation of the insurance company's credit or ability
to pay, etc., the acts that violate Article 234(1)(iv) of the Regulation are
considered to include the following acts.
A. Presenting the matters concerning the insurance company’s financial

199

resources, credit, or ability to pay using the particulars other than the
figures described in the business report or interim business reportprescribed in Article 110 of the Act, the figures described in the
explanatory documents detailing the status of its business and property
prescribed in Article 111 of the Act, or the rating of credible credit rating
agencies (hereinafter referred to as “objective figures, etc.”).
B. Not presenting the sources of the objective figures, etc. used, relevanttime, and methods used, etc., and not providing sufficient explanation orproviding false explanation about their meanings.
C. Misleading as if the payment for the insurance contract of the insurancecompany concerned is guaranteed because the objective figures, etc.
presented are in good standing.
D. Extracting only part of the figures and presenting as if the whole figures
are in good standing.
E. Presenting the other companies’ credits and abilities to pay by
unreasonably emphasizing their subordinated nature for the purpose ofdefaming/slandering those companies.
F. When presenting the insurance company’s participation in financial
assistance projects, etc. conducted by the Life Insurance Policyholders
Protection Corporation of Japan (hereinafter referred to as the“Protection Corporation”), not presenting the fact that financial assistanceby the Protection Corporation is provided under certain conditions andlimitations and the insurance contract is not necessarily fully guaranteed.
(13) Matters Related to Article 234(1)(v) of the Regulation (in the case of a
specified insurance contract, Article 234-27(1)(i) of the Regulation)
In cases where a single policyholder concludes (including novation andrenewal) a single insurance contract or multiple insurance contracts between
multiple insurance companies at the same time such as coinsurance
contracts and tied sales of insurance products between insurance companies,
etc., whether appropriate measures have been taken for the operations of
insurance solicitation and conclusion of insurance contracts, including
clarifying the contract relationship between parties, namely the respective
insurance companies and the policyholder, not to cause the policyholder’smisunderstanding about the types of insurance and underwriting insurancecompanies.

200

(14) Matters Related to Article 227-9 of the Regulation“Necessary and appropriate measures ” prescribed in Article 227-9 of theRegulation shall mean measures under the provisions of Articles 8, 9, and 10of the guideline for protection of personal information in the finance sector(hereinafter referred to as the “Financial Sector Guidelines”) and I, II, III, andAttachment-2 of the guideline for practical affairs regarding safety control
measures specified in the guideline for protection of personal information in
the finance sector (hereinafter referred to as the “Practical Guideline”).
(15) Matters Related to Article 227-10 of the Regulation“Any other special and undisclosed information” prescribed in Article 22710 of the Regulation refers to the information listed in (i) through (vii) below,
and “any purpose other than the assurance of the proper operation of thebusiness or any other purpose as may be deemed necessary” refers to thecases listed in items of Article 5(1) of the Financial Sector Guidelines.
(i) Information regarding labor union membership(ii) Information regarding ethnicity(iii) Information regarding sex life(iv) Information regarding provisions under Article 2(iv) of the Cabinet Order
to Enforce the Act on the Protection of Personal Information(v) Information regarding provisions under Article 2(v) of the Cabinet Order to
Enforce the Act on the Protection of Personal Information(vi) Information regarding the fact that the related customer has been a victim
of crime(vii) Information regarding social status(16) Matters Related to Article 307(1)(iii) of the Act
Whether measures to eliminate the acts that violate “any other extremely
inappropriate conduct in connection with insurance solicitation” prescribed in
Article 307(1)(iii) of the Act have been taken.
(17) Others(i) Matters to Be Notified/Written Notice
A. Whether the matters to be notified by policyholders, etc. have been
established so as to enable the policyholders, etc. to clearly understandthe specific details to be notified and notify them, taking into account thatthe obligation of notification was changed from the voluntary obligation of201

declaration to the obligation to respond to questions in the Insurance Act.
Whether the specific details of the matters to be notified are not left tothe judgment of policyholders, etc., for example, asking the question “anyother matters that should be notified, including the health conditions andmedical history”.
B. Whether the form of the written notice clearly indicates the required
matters in a way easier for policyholders, etc. to understand.
(ii) Matters Related to Automobile Insurance
Whether the following operations are carried out for automobile
insurance.
A. Whether, in the novation and renewal of personal liability insurance andown company’s contracts, responses and operations are carried out so
as to accept the conclusion of insurance contracts (including novation
and renewal of contracts), except for the cases where the risks are
actually deemed to be particularly high.
Whether responses and operations are carried out so as to accept theconclusion of insurance contracts (including novation and renewal ofcontracts) to the extent possible considering the actual status of each risk
also for property liability insurance.
B. Whether responses and operation are carried out so as not to conclude
only the certain insurance contracts based on the region, age, and sex,etc.
(iii) Others
Whether the following measures have been taken for the conclusion of
insurance contracts (including changing contacts due to change of theownership, etc.) and insurance solicitation.
A. Prevention of inappropriate acts to be committed for the purpose of
improving sales, including the acts that might lead to harmful effects ofexcessive competition such as obtaining prospective customers byproviding excessive support for deposits in financial institutions,solicitation by unlawfully using loans for insurance premium payment,
and excessive provision of convenience to certain insurance agents, etc.
as well as fictitious contracts and over insurance contracts, etc.
B. For first-sector and third-sector insurance contracts and insurance
contracts listed in Article 3(5)(iii) of the Act, the following measures toprevent inappropriate insurance contracts such as fictitious contracts andinsurance contracts intended to fraudulently obtain insurance proceeds,

202etc., from occurring.
(A) Confirmation of the identity or existence of the policyholders(including corporations and sole proprietors) or the presence/absenceof business activities of the corporations by documents that can beused to identify them such as driver’s licenses and passports, etc., by
documents that can be used to confirm the existence of corporations
such as companies (including sole proprietors), by sending insurance
policy certificates by postal mail and using the fact that they were not
returned, from the insurance premium receiving institutions that haveconducted the identity confirmation, by communicating with thepolicyholders with insurance agents visiting them or the insurancecompany using communication and information devices such as
telephone, etc., and by any other appropriate methods(B) Confirmation of the identity of the insured persons at health checkups
when applying for or renewing insurance contracts by doctors
confirming documents that can be used to identify the persons
concerned such as driver’s licenses and passports, etc., by insurance
agents accompanying them, by the insurance company directlyinterviewing them, or by any other appropriate methods(C) Measures for appropriate solicitation activities not to allow solicitation
activities that deviate from the original purpose of insurance, such as
contracts

whose

primary

purposeismoneymanagementbycorporations, etc. and contracts that assume cancellation before
maturity within a short period from the beginning, etc., and to ensure
the use of insurance products that complies with the original purpose
according to the characteristics of the individual insurance products
C. Measures to prevent discriminatory treatment such as limiting regions tosolicit insurance products without reasonable grounds, etc.
D. Measures to obtain the customer’s understanding such as explaining
reasonable grounds to the extent possible if it is decided not to conclude
the insurance contract despite having received an application to do so.

II-4-2-3 Matters Related to Wholesale Insurance Contracts, etc.
The points of attention in performing supervising operations of processes forwholesale insurance contracts and collective insurance contracts, from the203point of view of ensuring the soundness of management of insurancecompanies and protecting policyholders, etc., shall be as follows.
(1) Wholesale Insurance Contracts(i) Objectives/Purposes of Wholesale Insurance Contracts
Whether wholesale insurance contracts prescribed in “IV-1-16 Handlingof Wholesale/Collective Insurance Contracts” are properly handled inaccordance with the objectives/purposes thereof.
(ii) Covered Organizations and Applicable Rates of Wholesale Insurance
Contracts
A. Whether the insurance company has concluded contracts for insurance
premium intermediation or collection services, etc. with the appropriate
representatives of organizations belonging to the policyholder.
B. Whether the applicable rates are properly calculated and applied
according to the rate categories.
C. In cases where the situation of the policyholder or the insured person
has changed, and insurance contract for the said policyholder, etc.
becomes no longer subject to wholesale insurance contracts, whether
the insurance premium rate to be applied to the said insurance contract
are reviewed.
(iii) Collection Fees
Whether the collection fees to be paid to the representatives oforganizations is at an appropriate level that takes into account the ensuringof the soundness of management and the fairness among policyholders aswell as the promotion of fair competitions, etc. and the actual costs.
(2) Collective Insurance Contracts(i) Objectives/Purposes of Collective Insurance Contracts
Whether collective insurance contracts prescribed in “IV-1-16 Handling ofWholesale/Collective Insurance Contracts” are properly handled inaccordance with the objectives/purposes thereof.
(ii) Covered Organizations and Applicable Rates of Collective Insurance
Contracts
A. Whether the insurance company has concluded contracts for insurance
premium intermediation or collection services, etc. with the appropriate
representatives of groups belonging to the policyholder.
B. Whether the applicable rates are appropriately calculated and applied204

according to the rate categories.
C. In cases where the situation of the policyholder or the insured person
has changed, and insurance contract for the said policyholder, etc.
becomes no longer subject to collective insurance contracts, whether the
insurance premium rate to be applied to the said insurance contract are
reviewed.
(iii) Collection Fees
Whether the collection fees to be paid to the representatives of groups is
at an appropriate level that takes into account the ensuring of thesoundness of management and the fairness among policyholders as wellas the promotion of fair competitions, etc. and the actual costs.

II-4-2-4 Life Insurance Contracts for Other Persons
The points of attention in performing supervising operations for concluding
life insurance contracts for other persons (death insurance contracts in which aperson other than the policyholder is the insured person and fixed amount
accident and health insurance contracts in which a person other than thepolicyholder is the insured person and death due to injury or sickness is thegrounds for claim payment (including a change of the beneficiary; in addition,
for fixed amount accident and health insurance contracts, excluding those inwhich the beneficiary is the insured person or the heir thereof and death due toinjury or sickness is not the only grounds for claim payment)), from the point ofview of protecting insured persons, etc. ensuring sound and appropriate
business of the insurance company, shall be as follows.
(1) Objectives/Purposes(i) For insurance contracts in which a corporation (including a sole proprietor;
the same applies hereinafter) is the policyholder and the beneficiary and its
employees, etc. are the insured persons (hereinafter referred to as“business insurance”), whether business operations are conducted inaccordance with the following objectives/purposes A. or B.
A.

Securing

financialresources

for

the

paymentofcondolencemoney/retirement allowance for death, etc. (hereinafter referred to as“condolence money, etc.”) prescribed in the provisions concerning
accident compensation, bereaved family compensation, and support for205injury and disease incurred off duty or any other equivalent provisions
under the company’s rules of employment, collective agreement, and anyother rules to compensate for the life of bereaved families andemployees(hereinafterreferredtoas “accident/bereaved family

compensation provisions, etc.”)
B. Securing financial resources for the costs of employing/training
replacement employees that the company will bear in association withthe death of employees, etc. and funds, etc. to prepare for business
continuation and temporary credit uncertainty(Note) When obtaining consent of the person to be insured, whether
measures to ensure to enable the insured person to recognize thecontent of the contract such as the beneficiary and the amount of
insurance proceeds, etc., for example, by the following methods.
(A) The insurance company to deliver to the insured person a copy of theapplication form for subscription and documents describing the content
of the contract, etc.
(B) The insurance company to confirm with the policyholder how theinsured persons will be able to recognize the content of the insurance
contract. The results of confirmation shall be retained as specificverifiable records.
Furthermore, whether the insurance company has taken measures toenable the insured persons themselves to easily provide information topersons that are considered necessary such as their families by
including texts encouraging the insured person to explain thesubscription to the insurance concerned to their family in the
documents describing the content of the contract to be delivered to theinsured persons, etc.
(ii) For the contract of all subscription-type group term insurance (group term
insurance for organizations in which all employees, etc. subscribe to theinsurance; the same applies hereinafter), whether business operations are
conducted in accordance with the objectives/purposes of the said
insurance contract by clarifying that the objectives/purposes of the said
insurance is to compensate for the life of bereaved families and employees
and categorizing the part that guarantees financial resources for thepayment of condolence money, etc. to be the “basic policy” and the partthat guarantees various costs (economic losses of the company) such as
the costs of employing/training replacement employees that the company

206

will bear in association with the death of employees, etc. to be the “special
provision”, etc.
(Note) When obtaining consent of the person to be insured, measures shallbe taken to ensure to enable the insured person to recognize the content
of the contract such as the beneficiary and the amount of insurance
proceeds, etc., for example, by the following methods.
(A) The life insurance company to deliver to the insured person
documents describing the content of the contract, etc.
(B) The life insurance company to confirm with the policyholder how theinsured persons will be able to recognize the content of the insurance
contract. The results of confirmation shall be retained as specificverifiable records.
(2) Control Environment for Checking the Scope of Organization in Group
Insurance or Group Contract, etc.
(i) Whether a control environment for checking whether the insured persons
are included in the insured organizations has been developed.
(ii) Whether a control environment for checking whether the conditions ofapplication of group term insurance, etc. are appropriately operated bymethods prescribed in the statement of business procedures has beendeveloped.
(3) How to Establish the Amount of Insurance Proceeds(i) Whether the establishment of the amount of insurance proceeds inbusiness insurance is appropriately operated from the point of view of
eliminating moral risks such as underwriting standards, etc. of the amountof insurance proceeds, etc., taking into account the objectives/purposes of
the insurance contract.
In cases where securing financial resources for the costs of
employing/training replacement employees that the company will bear inassociation with the death of employees, etc. and funds, etc. to prepare forbusiness continuation and temporary credit uncertainty are included in theobjectives/purposes of the insurance contract, whether the amount of
insurance proceeds are appropriately operated not to become too large by
establishing the upper limit based on the standards such as annual income,years of employment, position, and annual sales and scale of thecorporation, etc. at the time of concluding the insurance contract.

207

In addition, whether the establishment of the amount of insurance
proceeds for employees is appropriately operated with consideration also
given to the following (ii).
(ii) Whether appropriate measures have been taken for the establishment of
the amount of insurance proceeds of all subscription-type group term
insurancetoensure

its

use

to

be

in

accordance

with

the

objectives/purposes of this insurance ((1) above) by setting the upper limit
to be the amount of payment based on the accident/bereaved family
compensation provisions, etc. for the basic policy part and to be theamount of insurance proceeds of the basic policy for the special provisionpart (however, not more than 20 million yen).
(4) Ensuring Payment of Insurance Proceeds Linked to the Accident/Bereaved
Family Compensation Provisions, etc.
(i) In cases where all or equivalent part of insurance proceeds of businessinsurance are to be arranged for the payment of condolence money, etc.
for employees who is the insured persons under the accident/bereaved
family compensation provisions, etc., whether measures have been taken,
from the point of view of ensuring sound and appropriate business
operations, to confirm that information is provided to the insured persons or
the persons who should be given compensation for bereaved familyprescribed in Article 42 of the Regulation for Enforcement of the Labor
Standards Act, etc. (hereinafter referred to as “beneficiaries”) and that
insurance proceeds are used for welfare in accordance with the purpose of
the insurance contract by A. obtaining a document for confirming that theinsured persons or the beneficiaries understands the content of insurance
claims (whether the details of the insurance contract such as thebeneficiaries and the amount of insurance proceeds, etc. are described in
the document confirming their understanding) or B. obtaining a document
showing that the insured persons or beneficiaries have received the moneyor records of the payment to the insured persons or beneficiaries, etc. frompolicyholders at the time of insurance claims.
(ii) For the payment of insurance proceeds in all subscription-type group term
insurance, whether the whole amount is to be paid to bereaved families of
employees for the basic policy part, and if it is to be temporarily received by
the company and then paid to bereaved families, whether it is done so after
confirming the bereaved families’ understanding.

208Whether the details of the insurance contract such as the beneficiaries
and the amount of insurance proceeds, etc. are described in the document
confirming their understanding.
(iii) Whether the payment of insurance proceeds for the “human value special
provision” part in all subscription-type group term insurance is made after
confirming the understanding of the beneficiaries of condolence money, etc.
Whether the details of the insurance contract such as the beneficiaries
and the amount of insurance proceeds, etc. are described in the document
confirming their understanding.

II-4-2-5 Automobile Liability Insurance
Since

automobile

liability

insuranceislinkedtotheautomobile

registration/inspection system and automobile liability insurance certificatesneed to be issued promptly to the policyholder, whether the non-life insurancecompany grants the authority to issue the certificates to non-life insurance
agencies equipped with financial resources, credit, and ability to performbusiness operations in particular. Whether these non-life insurance agencies
are provided with guidance to perform appropriate business operations,
including ensuring prompt reimbursement of insurance premiums, etc.

II-4-2-6 Entrustment of Insurance Solicitation to Banks, etc.
II-4-2-6-1 Entrustment/Management of Insurance Solicitation to Banks, etc.
(1) When entrusting insurance solicitations to banks, etc., whether the
insurance company takes the following measures from the point of view of
ensuring their sound and appropriate operations and fairness in insurance
solicitations.
(i) Establishing the policy of entrustment to banks, etc. that includes thefollowing matters and establishing the content of the entrustment basedon that policy.
A. Concept of entrustment to banks, etc. and concept of selecting banks,etc. to be entrusted
B. Types of insurance to be entrusted and expected sales volume (note209that the achievement shall not be the condition of the entrustment)
C. Content of operations of sales support (training, etc.) for banks, etc. tobe performed by the insurance company(ii) Establishing appropriate insurance solicitation fees from the standpointof ensuring the soundness of management of the insurance company
and fairness in insurance solicitation.
(2) Whether the insurance company entrusting insurance solicitation to banks,etc. takes the following measures as part of its governance from the pointof view of ensuring their sound and appropriate operation.
(i) Correctly understanding the status of insurance solicitation by banks, etc.
(ii) Establishing a control environment for considering the cause andresponding appropriately as needed if insurance solicitation by banks,etc. significantly increases and exceeds the risk management capacity of
the insurance company or the level of dependence on insurance
solicitation by certain banks, etc. becomes remarkably high compared tothe original entrustment policy.
(3) With regard to the operations required to be performed after theconclusion of insurance contracts(Note), whether the division of operations
has been clearly specified in the entrustment contracts between theinsurance company and banks, etc. and clearly indicated to customers.
(Note) Operations such as, for example, responding to inquiries about thecontent of the contract, responding to complaints/consultation requests
from customers, and providing guidance on various procedures andmethods, including inquiries about the payment procedures of insurance
proceeds, etc.
(4) Whether the insurance company has established a necessary control
environment to ensure sound and appropriate management of theoperations to be performed after the conclusion of insurance contracts
such as, for example, making efforts to secure sufficient personnel for
performing the said operations according to the volume of contracts thatbanks, etc. have acted as an agent or mediated for the conclusion.
(5) Whether banks, etc. have established a necessary control environment toensure sound and appropriate management of the operations to be210performed after the conclusion of insurance contracts such as, for example,
making efforts to secure sufficient personnel for performing the said
operations according to the characteristics and volume of the operations tobe performed by the banks, etc. based on the entrustment contracts, etc.
after the conclusion of insurance contracts, etc.

II-4-2-6-2 Handling of Non-Disclosure Finance/Insurance Information(1) In cases where specified insurance agents or banks, etc. that are
insurance brokers use non-disclosure finance information (meaning nondisclosure finance information prescribed in Article 212(2)(i)(a) of theRegulation; the same applies hereinafter) in insurance solicitation-related
operations, when obtaining consent of customers about the use of the nondisclosure finance information, whether the effective period of the saidconsent and method to revoke it, form of insurance solicitation using nondisclosure finance information (face-to-face or postal mail, etc.), extent of
undisclosed information to be used (maturity date of fixed-term deposits,
information on savings account activities, and other information on the
management of financial assets, etc.) are clearly and specifically indicatedto customers and necessary measures to disallow acting as an agent or
mediating the conclusion of insurance contracts without obtaining
customer’s consent in advance(Note) by appropriate methods such as thefollowing, for example, have been taken.
(Note) For example, developing administrative procedures to disallow
explaining products without obtaining consent in advance when nondisclosure finance information is to be used, and furthermore disallow
applying/concluding contracts without written consent may be considered.
(i) Face-to-Face
Method of explaining the use of non-disclosure finance information ininsurance solicitation-related operations in writing in advance, recording
the fact that consent has been obtained, and obtaining written consent
before applying for contract(ii) Postal Mail
Method of sending a document explaining about the use of nondisclosure finance information in insurance solicitation-related operationsin advance, and receiving the response of consent before soliciting211

insurance such as sending application forms for insurance(iii) Telephone
Method of orally explaining about the use of non-disclosure financeinformation in insurance solicitation-related operations in advance,
recording the fact that consent has been obtained, and then promptly
sending a document explaining about the use of non-disclosure financeinformation (it may be delivered if meeting the customer in face-to-faceafter obtaining consent over the phone), and obtaining written consent
before applying for contract(iv) Internet, etc.
Method of explaining about the use of non-disclosure financeinformation in insurance solicitation-related operations by electronic or
magnetic means in advance, and obtaining consent by electronic or
magnetic means(Note) Information on the attributes of customers (name, address,
telephone number, sex, birth date, and occupation) are not included in
non-disclosure finance /insurance information.
(2) In cases where specified insurance agents or banks, etc. that are
insurance brokers use non-disclosure insurance information (meaning nondisclosure insurance information prescribed in Article 212(2)(i)(b) of theRegulation; the same applies hereinafter) in operations other thaninsurance solicitation-related operations such as loan of funds, whenobtaining consent of customers about the use of the non-disclosure
insurance information, whether the effective period of the said consent andmethod to revoke it, form of operations using non-disclosure

insurance

information (face-to-face or postal mail, etc.), extent of non-disclosure
insurance information to be used (information on family structure, etc.
learned during the insurance solicitation operations) are clearly andspecifically indicated to customers and measures to obtain customer’s
consent in advance by appropriate methods equivalent to those listed in(1)(i) through (iv), for example, have been taken.

II-4-2-6-3 Insurance Solicitation Guidelines of Banks, etc.
Whether the following matters are prescribed in the insurance solicitation

212

guidelines established by banks, etc. to ensure fairness in insurance
solicitation.
In addition, in order to inform customers of the content of the insurance
solicitation guidelines, whether necessary measures such as delivering theinsurance solicitation guidelines in document form, explaining about them,
posting them at branches, or utilizing the Internet websites, etc. have beentaken.
(1) The trade name or name of the underwriting insurance company of theinsurance contract that banks etc. solicit shall be clearly indicated tocustomers, and appropriate explanation shall be provided to customers
about the fact that the insurance contract is underwritten by the insurancecompany, that the insurance proceeds, etc. are paid by the insurancecompany, and any other locations of risks concerning the insurance
contract.
(2) Information to enable customers to select from among multiple insurance
contracts based on their independent judgments shall be provided.
(3) The fact that if banks, etc. violate laws/regulations and cause damage tocustomers, the said banks, etc. are liable for the sale as specified
insurance agents shall be clearly indicated.
(4) The contact points at banks, etc. to receive complaints/consultation
requests and the content of operation to be performed by banks, etc. after
the conclusion of insurance contracts shall be clearly indicated tocustomers, and appropriate customer responses shall also be performed ,as needed, after the conclusion of insurance contracts such as, forexample, appropriately responding to complaints/consultation requests,
including inquiries about the payment procedures of insurance proceeds,
etc., in accordance with the entrustment contracts, etc.
(5) For the provision of explanation to customers at the time of insurance
solicitation and customer responses for complaints/consultation requests,
etc. listed in (1) through (4) above, a system to manage appropriate
execution of customer responses, etc. by recording the content ofinterviews with customers, etc. shall be developed, and the records on the213explanation provided at the time of insurance solicitation, etc. shall be
retained until the termination of the insurance period.

II-4-2-6-4 Confirmation of Parties Restricted from Insurance Solicitation by
Bank, etc.
(1) Whether banks, etc. take the following measures to ensure not to act asagents or intermediaries for the conclusion of insurance contracts(excluding renewal or novation (excluding improvement of the content of
insurance proceeds and any other benefits (excluding the improvement
due to increase in value of the object of insurance contract or any otherfactors similar thereto) or extension of the insurance period, but including
renovation) of those listed in Article 212(1)(i) through (5) or Article 2122(1)(i) through (v)-4 of the Regulation and insurance contracts alreadyconcluded (limited to those that are concluded by the said banks, etc.
acted as agent or mediated in consideration of fees or any other
remunerations)) in which parties restricted from insurance solicitation by abank, etc. (meaning parties restricted from life insurance solicitation by abank, etc. prescribed in the introductory text of Article 212(3)(i) of theRegulation, parties restricted from non-life insurance solicitation by a bank,etc. prescribed in the introductory text of Article 212-2(3)(i) of theRegulation, or parties restricted from insurance solicitation by a bank, etc.
prescribed in the introductory text of Article 212-5(3)(i) of the Regulation;
the same applies hereinafter) are the policyholder or insured person inconsideration of fees or any other remunerations.
(i) Measures to check whether the customers concerned fall under parties
restricted from insurance solicitation by bank, etc. based on thecustomers’ declaration in soliciting insurance after delivering documents
explaining about the operations to check whether the customers
concerned fall under parties restricted from insurance solicitation by bank,etc. or providing them by other alternative electronic or magnetic means
to customers in advance(ii) Measures to confirm that the customers do not fall under parties
restricted from insurance solicitation by bank, etc. by comparing theinformation on the places of work of the customers concerned obtained
from the customers concerned in the course of insurance solicitation with214the information on the borrowers of the banks, etc. concerned by the time
when written applications forms for insurance contracts solicited andother documents are sent to the underwriting insurance company(iii) Development of a control environment for not receiving or returning
afterward insurance solicitation fees or any other remunerations for the
insurance contracts concerned from the affiliated insurance company
when it is confirmed that the customers fall under parties restricted frominsurance solicitation by bank, etc. by the above measures(Note 1) For the measures (i) and (ii), it shall be considered not to force
customers to provide information on their places of work, etc.
It shall be noted that if whether the customers concerned fall underparties restricted from insurance solicitation by bank, etc. cannot be
confirmed by the measures (i) and (ii), they shall be deemed not to fallunder those parties unless there are special circumstances.
(Note 2) With regard to the confirmation by comparing with the informationon the borrowers of the banks, etc. concerned in (ii) above, the methodof comparing with database of the borrowers (needs to be updated atleast once a year; the existing database, if any, may also be utilized), themethod that of the head office, etc. centrally manages loan information
and receives inquiry requests from each branch office, or any othermethods that take into account the scale and characteristics of the banks,etc. may be used.
(Note 3) The act of establishing an organization mainly consisting of
officers or regular employees of corporations, etc. to which the banks, etc.
loan necessary funds for their business and soliciting insurance to themis practically considered to be insurance solicitation to the corporations
concerned unless there are special circumstances.
(2) When banks, etc. receive entrustment of insurance solicitation from theinsurance company, whether the banks, etc. concerned determine theacceptance of the operations concerned with due consideration to, forexample, the business or financial soundness of the insurance company
concerned, the status of development of a control environment for
managing sales for the banks, etc. that are specified insurance agents, andthe content insurance products for which the banks, etc. concerned are to
solicit in order not to obstruct sound and appropriate management of otheroperations of the banks, etc. (including the operations entrusted by other215

insurance companies).

II-4-2-6-5 Matters Related to Article 212-2(3)(i) of the Regulation“Increase in value of the object of insurance or any other factors similar
thereto” prescribed in Article 212-2(3)(i) of the Regulation includes, forexample, the following factors.
(1) Increase in value of the object of insurance (increase in the amount of
insurance proceeds of fire insurance due to extension and reconstructionof buildings, etc.)(2) Replacement of object of insurance (increase in the amount of insurance
proceeds of automobile insurance due to replacement of vehicles, etc.)(3) Expansion of the insured range (expansion of the range of coverage of
automobile insurance due to a change in the age conditions, etc.)(4) Increase in the number of insured persons of group contracts

II-4-2-6-6 Matters Related to Article 234(1)(viii) of the Regulation
It shall be noted that when soliciting housing-related fire insurance,
housing-related debt repayment support insurance, or housing-related credit
life insurance to the customers from whom an application for housing loan
has been received, it is necessary to provide explanation that the conclusionof the insurance contracts concerned is not the condition for the said housing
loan by delivery of documents or other alternative electronic or magnetic
means.

II-4-2-6-7 Matters Related to Article 234(1)(x) of the Regulation (in the caseof a specified insurance contract, Article 234-27(1)(i) of the Regulation)
Not allowing customers to apply for loans for the purpose of soliciting216

insurance to them, despite them seeking funds, shall be deemed to fall under
the case of “knowing that the customer has made an application for monetaryloan”.

II-4-2-6-8 Persons Responsible for Compliance With Laws and Regulations
Concerning Insurance Solicitation, etc.
Whether the banks, etc., in order to reliably implement the operations toensure compliance with laws and regulations concerning insurance
solicitation prescribed in Article 212(2)(iii) of the Regulation, assign humanresources with knowledge on laws and regulations concerning insurance
solicitation and insurance contracts, etc. to be the persons responsible for theoperations to ensure compliance with laws and regulations, etc. prescribed in
the same item (including chief supervisors which supervise the said
responsible persons and control and manage the operations to ensurecompliance with laws and regulations, etc. concerning insurance solicitation).

II-4-2-6-9 Internal Audits on Insurance Solicitation by Banks, etc.
Whether the banks, etc., in order to ensure reliable implementation ofinternal audits on the banks, etc. concerned from the point of view of
ensuring sound and appropriate management of insurance solicitation,
assign human resources with knowledge on laws and regulations concerning
insurance solicitation and insurance contracts, etc. to the sections concerned.

II-4-2-6-10 Matters Related to the Fair Trade Commission Guidelines
Whetherthebanks,

etc.

conductbusiness

operations

with

due

consideration to “Part 2 Section 2.2 Unfair Trading Practices Concerning
Insurance Solicitation Operations by Banks, etc.” in the “Regarding Unfair
Trading Practices Following Loosening of Financial Institutions’ Business
Categories and Expansion of Business Scope” (December 1, 2004; Fair
Trade Commission).

217

II-4-2-7 Re-Entrustment of Insurance Solicitation(1) Control Environment
It is necessary to examine whether the principal insurance solicitation
agent and the affiliated insurance company take “measures necessary forsecuring accurate, fair and efficient implementation of the insurance
solicitation pertaining to the re-entrustment” prescribed in Article 275(5)(ii) of
the Act with attention paid to the following points and check the status ofefforts, etc. even after the authorization is obtained.
(i) Development of Control Environment at the Affiliated Insurance Company
A. In order to ensure adequate, fair, and efficient implementation of
insurance solicitation pertaining to re-entrustment, whether a policy for
appropriate re-entrustment, including the matters listed below, has beenformulated.
- Types of insurance contracts to be handled in insurance solicitation
pertaining to re-entrustment- Qualifications, knowledge, abilities, and experiences, etc. required for
conducting insurance solicitation pertaining to re-entrustment- Flow of implementation procedures for insurance solicitation pertaining
to re-entrustment- Handling of personal information in insurance solicitation pertaining to
re-entrustment- For the operations required to be performed after the conclusion of an
insurance contract,(Note) division of operations between the secondary
insurance agent, the principal insurance solicitation agent and theaffiliated insurance company, and the method of clearly indicating it tocustomers(Note) Operations such as, for example, responding to inquiries about
the content of the contract, responding to complaints/consultation
requests from customers, and providing guidance on various
procedures and methods, including inquiries about the payment
procedures of insurance proceeds, etc.
- Matters to be described in re-entrustment contracts- Other matters necessary to ensure adequate, fair, and efficient
implementation of insurance solicitation pertaining to re-entrustment
B. Whether a control environment to grant permission for re-entrustment in218

accordance with the policy referred to in A. above has been established.
C. Whether a control environment to enable checking whether the
implementation status of insurance solicitation pertaining to reentrustment by the secondary insurance agent and the implementation
status of education, management, and guidance to the secondary
insurance agent by the principal insurance solicitation agent are inaccordance with the policy referred to in A. above, periodically and whenneeded, based on entrustment contracts between the affiliated insurancecompany and the principal insurance solicitation agent and reentrustment contracts between the principal insurance solicitation agent
and the secondary insurance agent, etc. and, when needed, requiring
improvement of the said implementation status has been established.
D. Whether a control environment to enable requesting for a change orcancellation of re-entrustment contracts when the secondary insurance
agent is deemed to be inappropriate as a person that conducts insurance
solicitation pertaining to re-entrustment, based on entrustment contracts
between the affiliated insurance company and the principal insurance
solicitation agent and re-entrustment contracts between the principal
insurance solicitation agent and the secondary insurance agent, etc., hasbeen established.
(ii) Development of Control Environment at the Principal Insurance
Solicitation Agent
A. Whether a control environment for selecting secondary insurance agent
in accordance with the policy referred to in (i)A. above, in addition to II-42-1(3) (Acceptance/Entrustment/Registration/Notification of Insurance
Agents)andII-3-3-1(3)(Acceptance/Entrustment/Registration(Notification) of Small Amount and Short Term Insurance Agents) of the“Comprehensive Guidelines for Supervision for Insurance Companies(Supplement)” (Comprehensive Guidelines for Small Amount and ShortTerm Insurers), has been established.
B. With regard to insurance solicitation pertaining to re-entrustment by thesecondary insurance agent, whether a control environment for
appropriately providing education, management, and guidance inaccordance with the policy referred to in (i)A. above, in addition to II-4-21(4) (Education/Management/Guidance of Specified Insurance Agents,etc.) and II-3-3-1(4) (Education/Management/Guidance of Small Amountand Short Term Insurance Agents) of the “Comprehensive Guidelines for219

Supervision for Insurance Companies (Supplement)” (Comprehensive
Guidelines for Small Amount and Short Term Insurers), has been
established.
(2) Changing Important Matters Pertaining to Re-Entrustment
It should be noted that, in consideration of the purpose of Article 275(3) ofthe Act that includes “the execution of a contract on entrustment which
includes the provisions on the matters relating to re-entrustment” to be
subject to authorization, when important matters pertaining to re-entrustment
have been changed such as, for example, insurance products of types thatare different from those described in the written application for permission,
are to be handled, application for authorization shall be required each time.

II-4-2-8 Direct Payment Service
When presenting that the direct payment service may be used in accordancewith the preference of the person entitled to receive insurance proceeds andmentioning the content/level of goods and services provided by the partneredbusiness operator in conducting insurance solicitation, etc., the insurancecompany or insurance agents shall check, in consideration of the following
points, whether the measures prescribed in Article 53-12-2 of the Regulation
have been taken and whether the provision of information prescribed in Article
227-2(3)(v) and Article 234-21-2(1)(iii) of the Regulation has been implemented.
(1) Whether information on the following matters is provided to the policyholder
or insured person at the time of insurance solicitation.
(i) Fact that insurance proceeds can be received (purchasing goods andservices from the partnered business operator or using the direct payment
service are not required)(ii) Standard for selecting the partnered business operator (if the partneredbusiness operator has been determined, the name of the partneredbusiness operator shall also be presented)(iii) Fact that if the amount of insurance proceeds is less than the values ofgoods and services, the customer needs to pay for the shortfall (if a surplus
is generated, the corresponding amount may be received as insurance
proceeds)(iv) Assumed cases where referring to partnered business operators that can

220

provide the goods and services originally assumed becomes difficult(2) Whether referral fees or any other remunerations are received from thepolicyholders, insured persons, persons entitled to receive insurance
proceeds, or partnered business operators.
(3) Whether the content/level of goods and services to be provided inagreement with the partnered business operators and procedures for thecontact/payment methods to be used when the person entitled to receive
insurance proceeds uses the direct payment service, etc. have been
established.
(4) Whether measures to maintain the conditions enabling the provision of
goods and services of the content and level explained to the policyholder orinsured person at the time of insurance solicitation have been taken, such as
checking the quality of goods and services provided by partnered business
operators and replacing partnered business operators if problems are found,etc.
(5) Whether the fact that purchasing of goods and services from partneredbusiness operators or using the direct payment service are not required(insurance proceeds can be received) is explained again to the persons
entitled to receive insurance proceeds at the occurrence of insured events.

II-4-2-9 Obligation of Insurance Agents to Develop Systems (Matters Related to
Article 294-3 of the Act)
Whether insurance agents have taken measures to ensure sound andappropriate management of insurance solicitation-related operations. In
addition, whether the actual conditions are understood through audits, etc. andwhen it is deemed inappropriate, appropriate measures have been taken andefforts are made to develop a control environment for the improvement.
(Note) With regard to officers or employees of the insurance company andofficers and employees of insurance agencies, in cases where the said
insurance company or insurance agencies have developed system toprovide appropriate training/instructions from the point of view of ensuring

221appropriate solicitation, it shall be considered basically sufficient toparticipate in training in accordance with the said instructions.
(1) Whether appropriate education, management, and guidance are provided
by establishing internal rules, etc. on compliance with laws and regulations,etc. concerning insurance solicitation, knowledge of insurance contracts, anddevelopment of a control environment for managing internal administration(including appropriate management of customer information) and taking
measures to train officers or employees engaging in insurance solicitationand improve their qualifications.
(2) For customer information management (including outsourced contractors),
II-4-5shallbasically apply according

to

the

scale

and

businesscharacteristics of insurance agents.
(3) For the points of attention when the insurance agents have parties
engaging in solicitation-related acts to conduct solicitation-related acts, refer
to II-4-2-1(2).
(4) Whether presentations that mislead about the positions to act as an agent
or mediate the conclusion of insurance contracts for the insurance company
are made.
(Note) It should be noted that simply presenting “fair/independent” maymislead customers to understand it as “being in an independent position
between the insurance company and the customer”.
(5) It shall be checked whether insurance agents having those two or moreaffiliated insurance companies, etc. (meaning insurance agents having those
two or more affiliated insurance companies, etc. prescribed in Article 2272(3)(iv) and Article 234-21-2(1)(ii) of the Regulation; the same applies
hereinafter in II-4-2-9(5)) have taken measures to ensure the provision of
explanation of the reasons for suggesting subscription to insurance contracts
prescribed in Article 227-2(3)(iv) and Article 234-21-2(1)(ii) of the Regulationand other sound and appropriate operations of insurance agents having
those two or more affiliated insurance companies, etc. in consideration of thefollowing points.
(i) Whether, of the products handled by insurance agents having those two or222

more affiliated insurance companies, etc., the outlines of the products thatcan be compared (if products are narrowed down based on thecharacteristics of products such as insurance type and content of coverage(compensation), etc. according to the customers’ intentions identified by
the insurance agents, those narrowed down products) are clearlypresented and the content of products are explained on customers’
requests.
(ii) When presenting/recommending specific products to customers, whether
the reasons for presenting/recommending those products are explained inan easy-to-understand manner. In particular, of the products that arehandled by themselves and match the customers’ intentions, whenpresenting/recommending products after further narrowing down based on
the judgment of insurance agents having those two or more affiliatedinsurance companies, etc., whether objective standards such as thecharacteristics of products and level of insurance premiums and thereasons, etc. are explained.
(Note 1) It shall be considered not to allow practically narrowing down orpresenting/recommending products to direct toward the products forwhich the insurance agencies receive high fees by pretending as if
objectively explaining the reason for recommending the products.
(Note 2) It should be noted that when comparing with other products toindicate the advantages of products that they are recommending, forexample, it is necessary to present the matters necessary for customers
to make correct judgments about the content of insurance contracts bycorrectly presenting the whole aspects and characteristics of the otherproducts concerned and explaining the reasons for the advantages of therecommending products, etc. (refer to Article 300(1)(vi) of the Act and II4-2-2(9)(ii)).
(iii) Notwithstanding (i) and (ii) above, when narrowing down products orpresenting/recommending certain products to customers based not on
objective standards and reasons such as the characteristics of products
and level of insurance premiums, etc., whether the standards and reasons,etc. (including capital relationships with certain insurance companies andother administrative procedural/business policy reasons , etc.) are
explained.
(Note) It should be noted that when indicating the “fairness/independence”
between each insurance company, the conditions such as capital223

relationships with certain insurance companies, level of fees, and otheradministrative procedures/business policy, etc. shall not be consideredasstandards

andreasonsfornarrowing

down

or

presenting/recommending products, etc.
(iv) With regard to measures to appropriately present/recommend products
and presenting the position of insurance agencies, etc. based on (i)through (iii) above, whether a control environment for providing them in theinternal

rules,

etc.

and

then

confirming/verifying

thestatusofimplementation periodically and when needed has been established.
(6) In cases where insurance agents accept the use of their trade names byother persons (including other insurance agents), whether appropriate
measures to prevent customers from misidentifying those other persons andthe insurance agents concerned has been taken such as explaining the factthat both parties are different entities and difference in product lineups if thelineups of insurance products handled by both parties are different fromthose advertised to customers, etc.
(7) Whether insurance agents engaging in insurance agents guidance businesshave taken measures to ensure appropriate execution of insurance agents
guidance business by formulating the implementation policy specifying thebasic matters concerning the guidance on the business of insurance
solicitation with consideration given the following points.
(Note) It should be noted that businesses that does not specify the nature of
the business of insurance solicitation such as consultation, etc. do not fallunder insurance agents guidance business.
(i) With regard to the business of insurance solicitation by insurance agents
subject to guidance, whether the measures prescribed in Article 227-15(1)of the Regulation have been taken such as establishing a control
environment for appropriately providing education/management/instruction
and requiring improvements, etc. when needed, etc.
(Note 1) When implementing insurance agents guidance business, whether
a control environment to provide education/management/instruction has
been established such as, for example, assigning personnel with certain
knowledge/experience, etc.
(Note 2) The insurance company shall not be exempt from theresponsibility to provide education/management/instruction (refer to II-4-224

2-1(4)) even with insurance agents engaging in insurance agents
guidance business providing guidance to insurance agents subject toguidance.
Therefore, it should be noted that the insurance company needs toprovide education/management/instruction provided to insurance agents
subject to guidance by themselves in conjunction with the establishmentof a control environment for appropriately implementation of insurance
solicitation.
(ii) Whether the matters prescribed in Article 227-15(2) of the Regulation are
described in the implementation policy for the guidance of insurance
agents subject to guidance.
(8) In addition to the above, a control environment for managing insurance
solicitation by insurance agents shall be handled equivalently as described inII-4-2-1 through II-4-2-7 according to the scale and business characteristicsof the insurance agents.
(9) When a serious problem is deemed to exist in the control environment of
insurance agents, supervisors shall require the submission of a report under
Article 305 of the Act as necessary, when it is deemed that there is a serious
problem, supervisors shall take an administrative measure under Article 306
or 307(1) of the Act.

II-4-2-10 Books and Documents
Specified insurance agents prescribed in Article 303 of the Act (hereinafterreferred to as “specified insurance agents” in II-4-2-11) shall specifically define
the methods of preparing and storing documents prescribed in Article 237-2(1)of the Regulation in the internal rules, etc.

II-4-2-11 Business Reports
The criteria for items to be included in business reports of specified
insurance agents shall be as follows.

225

It shall be noted that in the case of a foreign corporation, those pertaining to
its business in Japan shall be prepared.
(1) Appended Form No. 25-2
It should be noted that if the business category of a specified insurance
agent falls under either one of life insurance, non-life insurance, or small
amount and short term insurance, other business categories shall also be
subject to reports.
(i) “1. Overviews of the Business”
A. In the “(1) Insurance Agency Registration Date” section, enter the date ofregistration by the Commissioner of the FSA prescribed in Article 276 of
the Act. If not applicable, it shall be left blank.
B. For the “(2) Name of Proxy Application Company (Operator)” section, if
not applicable, it shall be left blank.
C. In the “(4) Status of Officers and Employees” section, enter the status at
the end of the term. If not applicable, it shall be left blank.
D. In the “(5) Status of Business Offices” section, enter the status ofbusiness offices where the insurance agency is located at the end of theterm.
E. In the “(6) Changes in Number of Insurance Companies from which
Entrustment is Received (Most Recent Three Fiscal Years)” section,enter the status at the end of each term.
(ii) “3. Implementation Status of Insurance Agents Guidance Business, etc.”
In the “(1) Status of Changes in Number of Member Shops (Most Recent
Three Fiscal Years)” section, enter the status of the number of shops
conducting insurance solicitation at the end of the term.
(iii) “4. Number of Claims for Insurance Solicitation Occurred (Most Recent
Three Fiscal Years)”Enter the status of the number reported to each insurance company, etc.
at the end of each term based on the definition of claims at the insurancecompany in principle.
(2) Appended Form No. 25-3
It shall be handled equivalently as in (1) above.
(3) Business reports shall be submitted to the Director-General of Local
Finance Bureau having jurisdiction, etc.

226II-4-3 Response to Complaints, etc. (Including Response to the Financial ADR
System)II-4-3-1 Significance(1) Need for Dealing with Inquiries, Complaints, Disputes, etc. (Complaints,
etc.)
Promptly and appropriately responding to inquiries, complaints, anddisputes, etc. (complaints, etc.) from customers and gaining theirunderstanding is an important activity that carries the connotation ofcomplementing the accountability to customers after the fact.
In recent years, from the viewpoint of protecting customers and ensuring
customer confidence in insurance products/services, dealing with complaints,
etc. after the fact has become even more important.
Based on these perspectives, a financial ADR system has been introduced
as a framework for simply and expeditiously processing complaints andresolving disputes related to financial products and services (refer to (Note)
for description of ADR), and insurance companies are required to deal
appropriately with complaints, etc., taking into account this financial ADR
system.
(Note) ADR (Alternative Dispute Resolution)
An alternative method to courts for resolving disputes which are basedon agreement by the parties, such as mediation or arbitration. ADR is
expected to result in prompt, simple and flexible dispute resolution in amanner suited to the nature of the case, the circumstances of the parties
and so on.
(2) Scope
There are various forms of expression that can be made regarding thebusiness operations of an insurance company. Besides inquiries, there arealso expressions of dissatisfaction made by customers, such as complaints
and disputes. It is important for insurance companies to deal with thesevarious forms of expression appropriately, and so they are required todevelop appropriate internal control environments that enable such treatment.
In addition, insurance companies are also required to develop appropriate
control environments respectively for complaints and disputes in the financial

227

ADR system.
It must, however, be added that the distinction between these complaints
and disputes is relative and they are connected with each other. In particular,
in light of the requirement in the financial ADR system for designated ADR
bodies to ensure links between complaint processing procedures anddispute resolution procedures, rather than dealing with individual cases byformally dividing applications made by customers into “complaints” and“disputes,” it is important that insurance companies deal with complaints anddisputes appropriately while taking into consideration their relativity andconnections.

II-4-3-2 Establishment of Internal Control Environment for Dealing with
Complaints, etc.
II-4-3-2-1 SignificanceInsurance companies need to develop internal control environments todeal with complaints, etc. made by customers in a prompt, fair andappropriate manner, including measures and responses required in thefinancial ADR system.

II-4-3-2-2 Main Supervisory Focus
Supervisors shall examine whether the insurance company has, indeveloping an internal control environment for dealing with complaints, etc.,
developed an appropriate and effective control environment in light of thesize and specific characteristics of its business operations. Supervisors shalltake the following points, for example, into consideration, while being mindfulof not applying them in a mechanical and uniform fashion.
(1) Role of Senior Managers
Whether the board of directors has exercised its functions properly withregardto the establishment ofacompany-wide

internal control

environment for the function of dealing with complaints, etc.

228

(2) Internal Rules, etc.
(i) Whether the section in charge of complaints, etc., its responsibility andauthority, and the procedures for dealing with complaints, etc. (including
responses in the event of clerical errors, etc.) have been established in
the internal rules so that complaints can be responded to and dealt within a prompt, fair and appropriate manner. Also, whether procedures
concerning business improvement have been established so that theviews of customers are reflected in the conduct of business operations.
(ii) Whether the insurance company has developed a control environment,
including making sure that internal rules are thoroughly publicized andenforced by means of training and other measures (including the
distribution of manuals and so forth) so that business operations for
dealing with complaints, etc. can be conducted based on internal rules.
Particularly in cases where complaints, etc. are being made frequently
by customers, whether confirmation is first being made of how internal
rules (not only those for dealing with complaints, etc.) are publicized andenforced at branches, and whether the causes and problem areas interms of control environments are being examined.
(3) Control Environment for Dealing with Complaints, etc.
(i) Whether the insurance company has appropriately assigned staff incharge of dealing with complaints, etc.
(ii) Whether the insurance company has developed a control environment
wherein relevant departments cooperate and promptly deal with any
complaints, etc. made by customers. In particular, whether the insurancecompany has developed a control environment wherein the responsible
section or person in charge of dealing with complaints, etc. strives tofully understand the customer complaints, etc. faced by each individual
employee, and reports promptly to the relevant departments.
(iii) In particular, whether the insurance company has established a control
environment wherein whether complaints, etc. concerning non-payment
of insurance proceeds, etc. are not only dealt with by the section in
charge of payment that has determined the said non-payment, but also
eventually appropriately dealt with by other sections such as the section
in charge of compliance.
(iv) Whether the insurance company has developed a control environment229

wherein it promptly settles any outstanding cases and prevents theoccurrence of any long-term outstanding cases by conducting progress
management aimed at the resolution of complaints, etc.
(v) Whether the insurance company has developed a control environment
wherein it improves the response provided at contact points according tothe occurrence of complaints, etc., and wherein it can receive complaints,
etc. extensively, such as by setting access hours and means of access(for example, phone, mail, facsimile, email) which are considerate ofcustomer convenience. Also, whether the insurance company has
developed a control environment wherein it extensively publicizes thesecontact points and ways of making applications, and wherein it makes
them well known to customers in a way that is easy for them tounderstand and which also takes into account their diversity.
(vi) Whether the insurance company has developed a control environment
for ensuring the proper handling of personal information in accordancewith the provisions of the Act on the Protection of Personal Informationand other relevant laws and regulations, Guidelines on the Act on theProtection of Personal Information (Part on General Rules), the same
Guidelines (Part on Provision to a Third Party in a Foreign Country), thesame Guidelines (Part on Obligation to Confirm/Record at the Time ofProviding Information to a Third Party), and the same Guidelines (Parton Anonymously Processed Information) (hereinafter collectively referred
to as the “Protection Act Guidelines”), and the Financial Sector
Guidelines when dealing with complaints, etc. (refer to II-4-5 “Control
Environment for Managing Information on Customers, etc.”).
(vii) With regard to complaints, etc. concerning outsourced business
operations conducted by an external contractor, including insurance
agencies, whether the insurance company has developed a control
environment for dealing with such complaints, etc. promptly andappropriately, such as by establishing a system of direct communication
to the insurance company itself.
In addition, whether the insurance company has developed a control
environment wherein the said complaints, etc. made by customers toexternal contractors are reported to the insurance company withoutomission.
(viii) Whether the insurance company has developed a control environment
wherein it can communicate quickly with relevant departments and,230

where necessary, cooperate appropriately with the police and otherrelevant organizations, in order to distinguish any pressure by anti-social
forces disguised as a complaint, etc. from ordinary complaints, etc. andto take a resolute stance.
(4) Dealing with Customers(i) Whether the insurance company goes beyond perceiving the handling ofcomplaints, etc. as a simple problem of processing procedures, andinstead regards it as a question of a control environment for providing
after-the-fact explanations and aims to resolve a complaint, etc. with theunderstanding and agreement of the customer wherever possible while
suitably interviewing customers on the circumstances according to thenature of the complaint, etc.
(ii) Whether the insurance company has developed a control environment
wherein it provides customers, who have made a complaint, etc., withappropriate explanations, as necessary, according to the progress of theprocedures for dealing with complaints, etc. while also being considerateof the specific characteristics of the customer, from the time thecomplaint is made to after its settlement (for example, an explanation of
the procedures for dealing with complaints, etc., notification to the effectthat the complaint, etc. has been received, an explanation on the
progress, and an explanation of the results).
(iii) With regard to complaints, etc. made by customers, whether the
insurance company has developed a control environment wherein,rather than only dealing with a complaint, etc. itself, it refers customers
to appropriate external organizations according to the nature of thecomplaint, etc. and the wishes of the customer, and it provides
information such as an overview of the standard procedures.
In cases where there are more than one means of processing acomplaint or resolving a dispute (including the financial ADR system),customers should be able to choose freely, and so in referring customers
to external organizations, care should be taken so that a customer’s
choice is not unduly restricted.
(iv) Whether the insurance company has developed a control environment
wherein, even during a period when proceedings for dealing with acomplaint, etc. are pending at an external organization, the insurancecompany takes appropriate action where necessary with respect to the231customer who is the other party to the said proceedings (such as
ordinarily providing the customer with general materials or explanations).
(5) Information Sharing, Business Improvements, etc.
(i) Whether the insurance company has developed a control environment
wherein complaints, etc. and the associated results from dealing withthem are categorized and reported to the internal control section andsales section, and wherein information necessary for the particular caseis shared between those concerned, such as reporting important cases
to the audit section and senior managers.
(ii) Whether the insurance company properly and accurately records andstores information on the contents of complaints, etc., and the results ofdealing with them, including both complaints it deals with itself, andthose dealt with through the mediation of an external organization. Also,
whether the insurance company has developed a control environment
wherein it analyzes the contents of complaints, etc., and the result of
dealing with them, taking into consideration information, etc., provided bya designated ADR body, and applies this on an ongoing basis to theimprovement of control environments for dealing with customers andconducting administrative processes and to the formulation of measuresfor preventing any occurrence or recurrence of complaints, etc.
(iii) Whether the insurance company has developed a control environment
whereintheinternal

checksandbalancesfunction,

such

as

examinations and audits, can function properly to ensure theeffectiveness of how complaints, etc. are dealt with.
(iv) Whether the insurance company has developed a control environment
wherein, when reflecting the treatment of complaints, etc. in the conductof business operations, senior managers supervise over any decisions to
implement measures needed for business improvement or recurrence
prevention, as well as any examination or ongoing review of how thecontrol environment for dealing with complaints, etc. should be.
(6) Relationship with External Organizations(i) Whether the insurance company has developed a control environment
wherein it cooperates appropriately with external organizations inworking toward the prompt resolution of any complaints, etc.
(ii) Whether the insurance company has developed a control environment

232wherein, when filing a petition for dispute resolution procedures itself,
rather than simply filing a petition without fully exhausting its own
procedures, it first responds sufficiently to the submission of thecomplaint, etc. from the customer and goes through an appropriate
internal examination of the need for the petition.

233

II-4-3-3 Response to the Financial ADR System
II-4-3-3-1 In Cases Where There Is a Designated ADR Body
II-4-3-3-1-1 SignificanceIn order to enhance customer protection and to improve customer
confidence in insurance products and services, it is important to ensure
substantial equality between insurance companies and customers, and toresolve any complaints, etc. in a neutral, fair and effective manner.
Therefore, in the financial ADR system, complaint processing and dispute
resolution from a third-person perspective are conducted by designated
ADR bodies with the participation of experts and others.
Under the financial ADR system, responses to complaint processing anddispute resolution are primarily regulated according to Basic Agreements to
Implement Procedures (Article 2(42) of the Act) concluded between
insurance companies and designated ADR bodies.
Insurance companies are required to appropriately address their
obligations and so forth stipulated in their Basic Agreement to Implement
Procedures, while bearing in mind the objective of processing thecomplaint or resolving the dispute at the designated ADR body.

II-4-3-3-1-2 Main Supervisory Focus
Supervisors shall, based on the above significance, examine whether
the insurance company has, in responding to the financial ADR system,
developed an appropriate and effective control environment in light of thesize and specific characteristics of its business operations. Supervisors
shall take the following points, for example, into consideration, while being
mindful of not applying them in a mechanical and uniform fashion.
Supervisors shall also refer to the points of attention contained in “II-4-42 Establishment of Internal Control Environment for Dealing with
Complaints, etc.”.
(1) Outline(i) Basic Agreement to Implement Procedures

234

A. Whether the insurance company has promptly entered into Basic
Agreements to Implement Procedures with designated ADR bodies
which exist for each type of business (life insurance business, nonlife insurance business, foreign life insurance business, foreign nonlife insurance business, etc.).
In addition, for example, even in cases where there is a change,such as a designated ADR body having its designation rescinded ora new ADR body being established, whether the insurance company
selects the best measure from the perspective of customer
convenience, and in addition to promptly implementing any
necessarymeasures

(such

as

implementing

newcomplaint

processing measures or dispute resolution measures, or concludinga Basic Agreement to Implement Procedures), whether it takes
appropriate action, such as making it known to all customers.
B. Whether the insurance company has developed a control
environment wherein it can execute the contents of the Basic
Agreements to Implement Procedures concluded with designated
ADR bodies.
(ii) Publication, Publicity and Response to Customers
A. Whether the insurance company has properly publicized the nameor trade name and the contact address of designated ADR bodies
that are party to any Basic Agreements to Implement Proceduresthat it has concluded.
With regard to methods of publication, whether the insurancecompany has taken measures that are suited to the size and specificcharacteristics of its business operations, for example, presenting
information on its website, putting up posters at its branches,
producing and distributing pamphlets, and conducting publicity
activities through the mass media. Even supposing that theinsurance company has posted information on its website, if it isfeasible that there are customers who cannot view this information,
whether the insurance company gives consideration to these kinds ofcustomers.
In publicizing such information, whether the insurance company ispresenting it in a manner that makes it easy for customers tounderstand. (For example, in the case of publicizing information on a
website, the page should be so designed that customers can easily

235

access the page that provides information on the use of the financial
ADR system).
B. Whether the insurance company has developed a control
environment wherein it publicizes any necessary information tocustomers, such as the flow of standard procedures by thedesignated ADR body and the effects of using a designated ADR
body (such as the effect of interruption of prescription), in light of the
Basic Agreement to Implement Procedures.
C. In cases in which an insurance company sells financial instruments
arranged by financial instruments business operators, where multiple
operators with varied forms of operation are involved, including thefinancial

instruments

business

operators

thatarranged

theinstruments and the insurance company that sold the instruments,
whether the operators involved are responding to customers in a
careful manner; for example, whether the operators understand what
the customers see as the problem and refer them to designated ADR
bodies that are appropriate for the causes of the problems.
(2) Points of Attention Regarding Complaint Processing Procedures and
Dispute Resolution Procedures
In light of the fact that, under Basic Agreements to Implement
Procedures, insurance companies assume various obligations, including
those to comply with procedures, submit materials and respect special
conciliation proposals, supervisors shall take the following points, forexample, into consideration when conducting examinations.
(i) Common Items
A. Whether the insurance company has developed a control
environment wherein, in cases where it receives a request from adesignated ADR body for compliance with procedures, submission ofmaterials or the like, it responds to the request promptly, unlessthere is justifiable reason not to.
B. Whether the insurance company has developed a control
environment wherein, in cases where it refuses a request from adesignated ADR body to comply with procedures, submit materials
or the like, rather than the section that caused the complaint or
dispute simply deciding itself to refuse the request, the insurancecompany conducts a proper examination as an organization. Also,236

whethertheinsurancecompanyhasdevelopedacontrolenvironment wherein, wherever possible, it explains the reasons(justifiable reasons) for that decision.
(ii) Response to Dispute Resolution Procedures
A. Whether the insurance company has developed a control
environment wherein, in cases where it is presented with arecommendation to accept a reconciliation plan or with a special
conciliation proposal from a dispute resolution committee member, it
makes prompt decisions on whether to accept or not.
B. Whether the insurance company has developed a control
environment wherein, in cases where it has accepted a reconciliation
plan or a special conciliation proposal, the section in charge takes
prompt action, and the examination/audit section, etc. conducts afollow-up examination on matters including the progress of its
fulfillment.
C. Whether the insurance company has developed a control
environment wherein, in cases where it rejects acceptance of areconciliation plan or a special conciliation proposal, it promptly
explains its reasoning and takes necessary action, such as instituting
legal proceedings, in light of operational rules (Article 308-7(1) of theAct).

II-4-3-3-2 In Cases Where There Is No Designated ADR Body
II-4-3-3-2-1 SignificanceIn the financial ADR system, even in cases where there is no designated
ADR body, there is a legal requirement for insurance companies to instead
implementcomplaint processing measures and dispute resolution

measures. Insurance companies are required to ensure complete
customer protection and to strive to improve customer confidence ininsurance products and services by implementing these measures properly
and by resolving any complaints or disputes regarding insurance products
and services in a simple and expeditious manner.

237

II-4-3-3-2-2 Main Supervisory Focus
Supervisors shall examine whether the insurance company has
developed a control environment in light of the size and specificcharacteristics of its business operations, wherein, in cases where it
implements complaint processing measures and dispute resolution
measures, it deals properly with any complaints or disputes made bycustomers while bearing in mind the objectives of the financial ADR system.
Supervisors shall take the following points, for example, into consideration,
while being mindful of not applying them in a mechanical and uniform
fashion.
Supervisors shall also refer to the points of attention contained in “II-4-32 Establishment of Internal Control Environment for Dealing with
Complaints, etc.”.
(1) Outline(i). Selection of Complaint Processing Measures and Dispute Resolution
Measures
A. Whether the insurance company, in view of the nature of its
business (life insurance business, non-life insurance business,foreign life insurance business, foreign non-life insurance business,etc.), the occurrence of complaints, etc., its trading area and otherfactors, appropriately selects one or more of the following mattersprescribed by law as its complaint processing measures or dispute
resolution measures. In addition, it is desirable that the insurancecompany, in doing so, should have measures in place that enhance
convenience for the customer in making complaints or disputes,
such as providing an environment that makes it easier for thecustomer to geographically access relevant services.
(A) Complaint Processing Measuresa. The insurance company shall have a consumer counselor or the
like with a certain level of experience provide guidance andadvice to those employees engaged in processing complaints.
b. The insurance company shall develop its own operational
system and internal rules, and shall publicize them.
c. The insurance company shall utilize financial instruments firms
associations and certified investor protection organizations.

238

d. The insurance company shall utilize the National Consumer
Affairs Center of Japan and consumer centers.
e. The insurance company shall utilize the designated ADR bodies
for other business types.
f. The insurance company shall utilize corporations that canconduct complaint processing services in a fair and adequate
manner.
(B) Dispute Resolution Measuresa. The insurance company shall utilize certified dispute resolution
procedures prescribed in the Act on Promotion of Use of
Alternative Dispute Resolution.
b. The insurance company shall utilize financial instruments firms
associations and certified investor protection organizations.
c. The insurance company shall utilize bar associations.
d. The insurance company shall utilize the National Consumer
Affairs Center of Japan and consumer centers.
e. The insurance company shall utilize the designated ADR bodies
for other business types.
f. The insurance company shall utilize corporations that canconduct dispute resolution services in a fair and adequate
manner.
B. Whether the insurance company has developed a control
environment wherein it continuously monitors the processing statusof complaints and disputes, and where necessary, reviews andrevises its complaint processing measures and dispute resolution
measures.
C. In cases where the insurance company utilizes a corporation thatcan conduct complaint processing services or dispute resolution
services in a fair and adequate manner, whether the insurancecompany assesses whether the said corporation is a corporation
adequately staffed and with an adequate accounting basis toconduct complaint processing services and dispute resolution
services in a fair and adequate manner (Article 55-2(1)(v) of theRegulation and (2)(v) of the same Article), in a reasonable mannerbased on considerable materials and other factors.
D. In cases where the insurance company utilizes an externalorganization, although it is not a requirement for the insurance239

company to necessarily enter an outsourcing contract with the said
external organization, it is desirable that they make arrangements inadvance with regard to such matters as the flow of standard
procedures and items regarding the burden of expenses.
E. With regard to cases where expenses arise when the procedures ofan external organization are used, whether the insurance company
has taken measures to prevent the expenses from becoming animpediment to the filing of a petition for complaint processing or
dispute resolution, such as taking measures likely to prevent thecustomer’s share of expenses from becoming excessive.
(ii) Implementation
Whethertheinsurancecompany

implements

measuresinappropriately, such as making the scope of the complaint processing
measures and dispute resolution measures unduly restricted. It should
also be kept in mind whether the insurance company has maintained
appropriate coordination between complaint processing measures anddispute resolution measures (refer to “II-4-3-1(2) Scope”).
(2) Points of Attention Regarding Complaint Processing Measures (cases
where insurance companies develop their own control environments)(i) Cases Where a Control Environment Is Developed Wherein Guidanceand Advice to Employees Is Given by Consumer Counselors, etc.
A. Whether the insurance company has developed a control
environment wherein it improves the skills of those employees
engaged in processing complaints, such as periodically conducting
training run by consumer counselors and the like.
B. Whether the insurance company has developed a control
environment wherein it utilizes the specialized knowledge andexperience of consumer counselors and the like, where necessary,for processing individual cases, such as building network systems
with consumer counselors and the like.
(ii) Cases Where an Insurance Company Develops Its Own Operational
System and Internal Rules
A. Whether the insurance company has properly developed an
operational system and internal rules according to the occurrence ofcomplaints, and whether it has developed a control environment
wherein it processes complaints in a fair and adequate manner240

based on the said system and rules.
B. Whether the insurance company has made customers aware of thecontact point for making complaints in an appropriate manner, andwhether it has properly published the operational system andinternal rules pertaining to complaint processing.
In terms of the content of the publicity and publications, althoughpublishing the full text of the internal rules is not a necessary
requirement, in order for customers to confirm for themselves
whether complaints are being processed in accordance withappropriate procedures, it is important that the contact address forprocessing complaints and the flow of standard operations be clearly
indicated. Therefore, it should be kept in mind whether the insurancecompany has published the sections related to this.
For the methods of publicity and publication, refer to II-4-3-3-12(1)(ii).
(3) Points of Attention Regarding Complaint Processing Measures (whenusing external organizations) and Dispute Resolution Measures(i) Publicity and Publication, etc.
A. In cases where the insurance company is using an externalorganization, from the perspective of protecting customers, it isdesirable that the insurance company publicizes and publishes
information on the external organization, including, for example, thefact that customers are eligible to use the external organization for
raising complaints or disputes, the name of the external organization,
its contact information, instructions on how to use it and so forth, inways that customers can readily understand.
B. Whether the insurance company has developed a control
environment for referring customers to other external organizations if
the petition for complaint processing or dispute resolution is outside
the scope handled by the external organization to which thecustomer was first referred because of geographical reasons, thenature of the complaint or dispute or for some other reason, or if
handling of the complaint or dispute by another external organization
is appropriate (not limited to external organizations used by the
insurance company as complaint processing measures or dispute
resolution measures).

241

C. For cases in which an insurance company sells financial
instruments arranged by financial instruments business operators,
refer to II-4-3-3-1-2(1)(ii)C.
(ii) Response to Procedures
A. Whether the insurance company has developed a control
environment wherein, in cases where it receives a request from anexternal organization for compliance with complaint processing or
dispute resolution procedures, a request for an investigation of thefacts or a request for the submission of relevant materials or the like,it responds to the request promptly in light of the rules, etc. of theexternal organization.
B. Whether the insurance company has developed a control
environment wherein, in cases where it refuses a request forcompliancewith

complaint

processingordisputeresolution

procedures, a request for an investigation of the facts or a request
for the provision of relevant materials or the like, rather than thesection that caused the complaint or dispute simply deciding itself torefuse the request, the business operator conducts a proper
examination as an organization, in view of such matters as thenature of the complaint or dispute, the nature of the facts ormaterials and the rules of external organizations.
Also, whether the insurance company has developed a control
environment wherein it explains the reasons for the refusal wherever
possible in light of the rules, etc. of the external organization.
C. Whether the insurance company has developed a control
environment wherein, in cases where it is presented with a proposedsolution such as a reconciliation plan or mediation plan from anexternal organization that has commenced dispute resolution
procedures (hereinafter referred to as a “proposed solution”), it
makes prompt decisions on whether to accept or not, in light of therules, etc. of the external organization.
D. Whether the insurance company has developed a control
environment wherein, in cases where it has accepted a proposedsolution, the section in charge takes prompt action, and theexamination/audit section, etc. conducts a follow-up examination onmatters including the progress of its fulfillment.
E. Whether the insurance company has developed a control242

environment wherein, in cases where it rejects acceptance of a
proposed solution, it promptly explains its reasoning and takes
necessary action, in light of the rules, etc. of the externalorganization.

II-4-3-4 Statements in Various Documents
Insurance companies are required to state the details of their response to
the financial ADR system in various documents (alerting information, etc.). In
cases where there is no designated ADR body, although insurance companies
are required to state the details of their complaint processing measures anddispute resolution measures in these documents, it should also be kept in mind
that appropriate matters should be stated in the context of actual conditions. If,
for example, the insurance company utilizes an external organization, then thename, contact address and so forth of the said external organization (in cases
where part of the services pertaining to the complaint processing or dispute
resolution are entrusted to another organization, then including that otherorganization) should also be stated.

II-4-3-5 Supervisory Method and Actions
If a serious problem is deemed to exist in response to complaints, etc.,
supervisors shall require the submission of a report under Article 128 of the Act
as necessary, and if it is deemed that there is a serious problem, they shalltake an administrative measure under Article 132 of the Act.
In this point, in cases where there is a designated ADR body, even if theinsurance company is deemed to have a problem such as violation/negligenceof the obligation to comply with procedures, etc., it is a non-fulfillment
pertaining to the Basic Agreement to Implement Procedures between theinsurance company and the designated ADR body and not immediately subject
to an administrative measure. Therefore, the authorities shall make a decisionby continually monitoring the overall response of the insurance company.
It should also be kept in mind that an individual dispute that arises between
a customer and an insurance company is, in general, a problem pertaining to a
private-law contract, and as such, is a matter to be resolved between the243parties, including basically the place of ADR and the judicature.

244II-4-4 Customer Protection, etc.
II-4-4-1 Accountability to Customers and Principle of Suitability
In order to protect customers, insurance companies are required to ensure
appropriate execution and other sound and appropriate management of theirbusiness operations.
For this reason, they are required to appropriately implement the following
measures, etc. and verify their appropriateness, etc. afterward through audits
by the internal audit section or audits of insurance agencies, etc. to improvethem as required.

II-4-4-1-1 Points of Attention in Protecting Customers(1) Whether fair administrative processes are implemented for customers.
(2) When conducting transactions with policyholders, whether appropriate
and adequate explanations are provided on the content of transactions, etc.
(3) When selling products for which policyholders bear risks such as variableinsurance and insurance in foreign currency, etc., whether appropriate andadequate explanations are provided to policyholders and measures toensure obtaining confirmation from policyholders that they are provided
with explanations.
(4) Considering that the provision of appropriate and adequate explanations
is important in insurance solicitation to the elderly, whether the definition of
the elderly and the insurance solicitation methods, including precise efforts
and efforts to contribute to the prevention and early detection of problems,
have been specifically specified in the internal rules, etc. and made, taking
into account the characteristics of products and the elderly, etc.
With regard to such efforts, whether appropriate efforts such as taking
the following measures, etc. are made.
(i) Method to request the presence of relatives, etc. at the time of insurance
solicitation.
(ii) Method of soliciting insurance by multiple insurance agents at the time245

of insurance solicitation.
(iii) Method of providing multiple opportunities of insurance solicitation toensure allowing sufficient time to consider an application for an insurance
contract.
(iv) Method of confirming that the content of products is in accord with theelderly's intentions, etc. by making a phone call to the elderly by persons
other than those who have conducted insurance solicitation after
receiving the application for an insurance contract.
In addition, whether appropriate efforts such as recording (voicerecording, recording on reports, etc.) and storing the content of insurance
solicitation and following up on the content of the contract after concluding
the contract, taking into account the characteristics of products and theelderly, etc.
Whether the appropriateness, etc. of these efforts for insurance
solicitation to the elderly are examined, etc.
(5) Considering that since new insurance solicitation, etc. by telephone by the
insurance company or insurance agents (including conversion, acts ofencouraging subscription to an insurance contract for group insurance
which has been concluded or solicited by themselves, and any other acts
for encouraging subscription to the relevant insurance contract) is nonface-to-face and conducted at a timing unexpected for customers, etc.,
complaints, etc. are likely to occur in particular, whether the insurancecompany or insurance agents that repeatedly and continuously carrying out
the said acts specifically define and make efforts to contribute to theprevention and early detection of problems and provide appropriate
education, management, and guidance to insurance agents.
In addition, whether these efforts are examined for their appropriateness,
etc. and reviewed, as necessary.
With regard to such efforts, whether appropriate efforts that include thefollowing measures are made.
(i) Talk scripts that define the details to be explained, etc. shall be
developed and their use shall be ensured.
(ii) If the customer has indicated its intention to refuse subsequent phone
calls, it shall be ensured not subsequent phone calls are made.
(iii) The content of phone calls shall be recorded and retained.
(iv) It shall be ensured that the causes of complaints, etc. are analyzed and246measures to prevent recurrence are formulated and publicized.
(v) The content of phone calls shall be checked by persons other thanthose who have conducted insurance solicitation, etc. (including thosethat did not result in conclusion of a contract) and actions shall be taken
based on the results.
(6) Whether customer information is disclosed to third parties except when it
is legally allowed or when consent is obtained from the customers
concerned.
(7) Whether information on individual companies such as financial
information if the borrowers are also handled strictly and carefully.

II-4-4-1-2 Measures Concerning Business Operations Prescribed in Article
100-2 of the Act, etc.
(1) Whether measures prescribed in Articles 53 through 53-10 of theRegulation, etc. are properly implemented.
(2) With regard to measures prescribed in Articles 53, 53-4, 53-6, and 53-8
through 53-10 of the Regulation, whether a system to provide
education/management/guidance to the insurance company’s employees
and insurance agents have been developed.
(3)

With

regards

to

the

said

measures,whetherasystemtoinvestigate/understand the status of implementation by the company’s
employees and specified insurance agents have been developed.
(4) When preparing operational reports, the following points shall beconsidered.
(i) Investment reports on insurance contracts listed in Article 74(i) of theRegulation
A. The following items (including those that fall under them) shall fallunder the “external audit with respect to the insurance company's
finance or business (limited to those pertaining to Performance-linked
Insurance Contract)” prescribed in Article 54-4(1)(v) of the Regulation.

247

(A) Financial statement audit and internal control audit(B) Accounting audit by a financial auditor under the Companies Act(C) Assurance engagements on internal controls(D) Examination of whether the performance disclosure information ofasset management companies conforms to the Global Investment
Performance Standards (GIPS)
B. With regard to the “capital relationship between the insurancecompany and the person concerned with the fund” prescribed in Article54-4(2)(iii) of the same Regulation, if the person concerned with thefund falls under a person in which an insurance company holds the
majority of all shareholders' voting rights, any other person that is listed
in items of Article 13-8(1) of the Order as being closely related to therelevant insurance company, or a subsidiary company, etc., that fact
shall be stated.
C. With regard to the “personal relationship” between the relevant
insurance company and the person concerned with the fund prescribedin Article 54-4(2)(iii), the conditions of concurrent holding of positions
by officers or employees at a specific time which is deemed to bereasonable shall be stated.
(ii) Investment status reports on insurance contracts listed in Article 74(iii) of
the Regulation
Whether the following matters are described in the Investment status
reports.
A. Changes in the performance of investment in the current term
(Note) Measures to clearly indicate the performance of investment after
deducting costs, etc. for each relevant customer, such as delivering
documents in which the performance of management that reflects thematters concerning various costs in the current term, shall be taken.
B. Analysis of the investment policy and whether investment activities arecarried out in accordance with the investment policy
C. Future investment policy(5) When preparing documents listed in Article 53(1)(ii) of the Regulation,
whether the following matters are considered.
(i) With regard to “changes in the indicators showing the Actual Incidence
Rate against the Assumed Incidence Rate provided in the Criteria for
Exercise of Right to Modification of Base Rates” listed in (b) of the same248

item, it shall be able to be described based on appropriate categorizationthat allows general understanding of the level of the indicators concerned.
(ii) With regard to “other matters which would serve as reference
information for determining whether or not the case meets the criteria to
exercise the rights to change basic insurance rates” listed in (c) of thesame item, the reason for not exercising the rights to change basic
insurance rates (reasons for the business judgment) even if the criteria to
exercise the rights to change basic insurance rates are met and anyother matters for reference shall be described.
(6) Whether a control environment that takes into consideration the following
points has been developed for underwriting of insurance contracts in whicha surviving employee's pension fund (meaning a surviving employee's
pension fund prescribed in Article 3(xi) (Definitions) of the Supplementary
Provisions of the Act on Partial Revision of the Employees' Pension
Insurance Act, etc. for Securing the Soundness and Reliability of Public
Pension Insurance Systems (Act No. 63 of 2013)) is the policyholder.
(i) If it is still likely to violate the provisions of Article 39-15(1) of the Cabinet
Order for Employees' Pension Fund (Cabinet Order No. 324 of 1966)
prior to repeal under Article 1 (Repeal of Cabinet Order for Employees'
Pension Fund) of the Cabinet Order on Revision, etc. of Related Cabinet
Orders Accompanying the Enforcement of the Act on Partial Revision of
the Employees' Pension Insurance Act, etc. for Securing the Soundness
and Reliability of Public Pension Insurance Systems (Cabinet Order No.
73 of 2014), which is to remain in force pursuant to the provisions ofArticle 3(2) (Replacement of Terms Concerning Surviving Employees'
Pension Fund) of the Cabinet Order on Transitional Measures
Accompanying the Enforcement of the Act on Partial Revision of the
Employees' Pension Insurance Act, etc. for Securing the Soundness andReliability of Public Pension Insurance Systems (Cabinet Order No. 74 of2014) even with the insurance company having made a notificationprescribed in Article 53(1)(vi)(a) of the Regulation, whether consultation
with the policyholder is held, for example, to request for considering tochange the management guidelines, etc. Furthermore, if it is still likely toviolate the provisions of the same paragraph even though the said
consultation,

whether

measuresnecessary

toensurethatthepolicyholder concerned comply with the provisions of the same249

paragraph have been taken, such as considering eventually urging thepolicyholder concerned to cancel the insurance contract, etc.
(ii) When the status of the policyholder’s knowledge, experience and assets
and the purpose of concluding the insurance contract, etc. areunderstood and the investment policies are presented, if it is deemednecessary in light of these circumstances, whether an appropriate control
environment has been developed for providing the policyholder
concerned with explanations on possible risks that can occur wheninvestment is carried out based on the said investment policies.
(iii) When conducting due diligence and continuous monitoring on thoseengaging in important operations pertaining to fund assets prescribed in
Article 54-4(2)(ii) of the Regulation and other investment, whether theinternal rules, etc. in which specific standards and methods are specified
have been established and an appropriate control environment in which
the compliance section or the risk management section examines thestatus of implementation of the said due diligence and monitoring, etc.
has been developed as necessary.
(7) With regard to measures prescribed in Article 53 of the Regulation, whenpresenting the matters to be described or explained in the said documents,
etc. and the texts regarding the confirmation of the reception of the said
documents in written application for an insurance contract, etc., whether
the simplicity and clarity are ensured with consideration given to the fontsize, etc.
(8) From the point of view of ensuring appropriate insurance solicitation, thedescriptions of the following content need to be included in documents
listed in Article 53-4 of the Regulation.
(i) Fact that the insurance company concerned and a financial institutionthat falls under a person in specified relationship with the insurancecompany concerned are different corporations.
(ii) Fact that the insurance underwritten by the insurance company
concerned is not a deposit underwritten by the financial institution
concerned and not subject to the deposit insurance system.
(iii) Fact that officers and employees of the financial institution concerned
cannot assist the conclusion of contracts between the insurancecompany and the policyholder by expressing their evaluations or250

opinions, etc. on insurance products or services provided by the
insurance company concerned or emphasizing those insurance products
or the advantages, etc. as it may violate the provisions of Article 275 of
the Act.
(iv) Fact that an act to cause a policyholder to make an application for an
insurance contract, knowing that any of the persons in specified
relationship (meaning a person in specified relationship under Article
100-3 of the Act and a person in special relationship under Article 194 of
the Act) with the insurance company has extended or has undertaken toextend credit to the policyholder or insured person thereunder on thecondition that such policyholder or insured person shall conclude theinsurance contract with the insurance company concerned is prohibitedby Article 300 of the Act.
(v) Fact that the insurance company concerned is required to takemeasures to ensure that the undisclosed information on customers of thefinancial institution concerned is not used in insurance solicitation for
insurance that is underwritten by the insurance company concerned(excluding the cases where a written consent of the customers
concerned are obtained in advance for the use of the said disclose
information in insurance solicitation).
(9) With regard to contracts of the first-sector insurance (excluding pension
insurance and pure endowment insurance) and insurance listed in Article
3(4)(ii) of the Act (excluding insurance contracts providing that damage will
be compensated) in relation to the measures prescribed in Article 53-7(1)of the Regulation(i) In cases where the insurance contract underwriting standards are
specified in the internal rules, etc. and the amount of insurance proceeds,
including other life insurance contracts or non-life insurance contracts(hereinafter referred to as “other insurance contracts” in II-4-4-1-2(9))
that the company learned, is excessively large compared to the said
underwriting

standards,

where

an

adequatesystemforeliminating/suppressing moral risks by making more careful judgments
on underwriting has been developed.
(ii) Whether an adequate system has been developed in which the internal
rules,

etc.

that

includes themethodofjudging/confirming

theappropriateness (not being excessively large) of the amount of insurance251

proceeds by comparing the amount calculated based on the figures suchas income, assets, and forgone profits, etc. of the policyholder or insured
person with the amount of insurance proceeds (including the amount of
insurance proceeds of other insurance contracts learned by thecompany), etc. have been established and operations are managed
based on them.
(Note) When establishing the internal rules, etc., whether the following
points are considered:
A. Whether it is provided that when inspecting underwriting of
insurance contracts in which a certain amount specified by thecompany (hereinafter referred to as the “maximum amount of
insurance proceeds”) is exceeded, appropriate inspection shall be
conducted by checking income, assets, and forgone profits, etc. of
the policyholder or insured person by objective and rational methods,
etc.
In addition, whether it is provided that if they cannot be checked by
objective and rationale methods, more careful action is required fromthe point of view of eliminating/suppressing moral risks.
B. With regard to underwriting of death insurance (meaning death
insurance prescribed in Article 53-7(2) of the Regulation)(A) Whether the maximum amount of insurance proceeds for death
insurance has been specifically defined in order to protect insured
persons by preventing unlawful use of insurance and it has been
provided that insurance with the amount of insurance proceeds
exceeding this amount shall not be underwritten. In addition,
whether it is provided that this maximum amount shall be added up
to the amount of insurance proceeds for other death insurance forthe same insured person based on the results of inquiries to the“policy data registration system/policy data inquiry system” of The
Life Insurance Association of Japan or the “policy data registration
system” of The General Insurance Association of Japan, etc.
(hereinafter collectively referred to as the “policy data registration
system, etc.”).
(B) Whether it is provided otherwise that in order to protect insured
persons by preventing unlawful use of insurance, appropriate
underwriting inspection shall be conducted through confirming thecustomer needs, etc.

252

(Note) “Insurance that is deemed unlikely to be used unlawfully”
prescribed in Article 53-7(2) of the Regulation refers to those,including for example, (i) single premium whole life policy, single
premium endowment insurance, other personal pension insurance
in which the amount calculated by adding investment earnings, etc.
to the amount equivalent to insurance premiums already paid ispaid when the insured person dies, and educational insurance and
(ii)

group

insuranceforpayingcondolence

money

when

unspecified visitors to amusement parks, etc. die by accidents, etc.,
for which it can be rationally explained that their unlawful use isunlikely to occur.
(iii) In cases where the maximum amount of insurance proceeds has been
specified in the internal rules, etc., whether a system to examine whether
insurance is underwritten within the said maximum amount has been
established. In addition, in order to protect insured persons by preventing
unlawful use of insurance, whether a system to examine to ensure
appropriate underwriting examination has been established.
(iv) Whether a system to provide insurance agents with appropriate
education,

management,

andguidanceonthemethods

todetermine/confirm the appropriateness of the amount of insurance
proceeds (including the amount of insurance proceeds of other insurance
contracts learned by the insurance company), etc. has been developed.
(v) Whether a system to adopt effective methods to eliminate/suppress
moral risks when determining the amount of insurance proceeds, such as
using the policy data registration system, etc., has been developed andwhether the results that take into account the amount of insurance
proceeds of other insurance contracts learned by using the said systemor other methods are appropriately recorded.
(10) With regard to the measures prescribed in Article 53-7(1) of theRegulation, whether an adequate system has been developed for life
insurance and non-life insurance contracts in which the internal rules, etc.,
including the method to ensure masures to request the policyholder or the
insured person himself/herself to record his/her consent to the contents ofthe contract, have been appropriately defined and operations are managed
based on them.
In cases where a person other than the policyholder or insured person

253himself/herself is to record the consent, whether the limited cases wheresuch other person can record the consent as well as how these cases areto be handled have been defined in the internal rules, etc.
(11) With regard to the measures prescribed in Article 53-7(1) of theRegulation, whether a system has been developed in which the customer
is requested to confirm the content of the contract and, for example, a copyof the written application and documents describing the content of theapplication, etc. are delivered to the customer, etc. when accepting theapplication for an insurance contract.
(Note) When accepting the application for an insurance contract by nonface-to-face methods, the following points shall be considered.
(i) Requesting the customer to confirm the content of the contract, forexample, orally when using telephone, by stating it in a document
when using postal mail, and by presenting it by electronic or magnetic
means when using the Internet, etc.
(ii) Sending a copy of the written application and documents describing
the content of the application, etc., by postal mail, etc. without delay
after the application if it is difficult to deliver them.
(12) With regard to the measures prescribed in Article 53-7(1) of theRegulation, whether a system has been developed for tontine-type
products in which the insurance company or insurance agents provide thecustomer with adequate explanations on the characteristics of those
products.
(Note) Tontine refers to the percentage of the cases where more benefits
are provided to survivors as the shares of those who died are transferredto survivors.
(13) With regard to the information on customers that are individual persons,whether the following measures have been taken for the management of
its safety and, if supervision of employees and handling of the said
information are entrusted, supervision of the contractors under Article 53-8of the Regulation as necessary and appropriate measures to prevent theleakage, loss, or damage of the said information.
(i) Measures under the provisions of Articles 8, 9, and 10 of the Financial
Sector Guidelines254

(ii) Measures under the provisions of I, II, III, and Attachment-2 of thePractical Guideline(Note) In cases where insurance agents use the personal information ininsurance solicitation for other companies or operating activities, etc. ofside-line sections, due consideration needs to be given to ensure that it
is not used other than for intended purposes by appropriately handling it
under relevant laws and regulations, etc.
(14) Whether measures to ensure that any information on customers that are
individual persons concerning their race, creed, family origin, registereddomicile, health and medical care, or criminal records, and any otherspecial non-disclosure information(Note) is not used under the provisions ofArticle 53-10 of the Regulation, except in cases listed in items of Article
5(1) of the Financial Sector Guidelines, have been taken.
(Note) Other special non-disclosure information refers to the following
information.
(i) Information regarding labor union membership(ii) Information regarding ethnicity(iii) Information regarding sexual orientation(iv) Information regarding provisions under Article 2(iv) of the Cabinet
Order to Enforce the Act on the Protection of Personal Information(v) Information regarding provisions under Article 2(v) of the Cabinet
Order to Enforce the Act on the Protection of Personal Information(vi) Information regarding the fact that the related customer has been a
victim of crime(vii) Information regarding social status(15) Explanation on rights and obligations of members of mutual companies
Whether the insurance company that is a mutual company has taken
measures to have insurance agents provide policyholders with correct
explanation on the mechanism of the Member Representatives Meetingsystem and rights and obligations of members such as the rights of a small
number of members when soliciting insurance.

II-4-4-1-3 Principle of Suitability in Specified Insurance Contract255

In accordance with the provisions of Article 40(i) of the Financial
Instruments and Exchange Act as Applied Mutatis Mutandis and Article 23427(1)(iii) of the Regulation, the insurance company and insurance agents
must ensure that sales and solicitation of specified insurance contracts are
conducted in an appropriate manner suited to their customer’s attributes, etc.
after correctly understanding the customer’s knowledge, experience, asset
status, and purpose for concluding specified insurance contracts.
To this end, the insurance company and insurance agents must establish asystem to appropriately understand the content of specified insurance
contracts as a prerequisite for selling/soliciting specified insurance contracts.
In addition, it is important to establish a system for customer managementthat enables correct understanding of the customer's attributes, etc.
Furthermore, it is also necessary to consider/evaluate whether there are
rational grounds for confirming that the content of specified insurance
contracts suits the customer’s attribute, etc. Attention must then be paid not
to allow sales/solicitations that lack such rational grounds and inappropriate
sales/solicitation to customers.
Based on these, for example, examinations shall be conducted withconsideration given to the following points. It must also be noted that, as forthe sales/solicitation methods, various methods such as solicitation tocustomers visiting business offices, solicitation to customers by phone, andsolicitation using the Internet, etc. may be used, and it is necessary toconsider appropriate sales/solicitation methods according to the individual
characteristics.
(Note 1) Sales/solicitations of group insurance or group contract and asset
formation insurance to an organization that is the policyholder shall not be
subject to this item. It shall be noted, however, sales/solicitations to thesaid organization must be conducted in accordance with the provisions ofArticle 40(i) of the Financial Instruments and Exchange Act as Applied
Mutatis Mutandis.
(Note 2) Since understanding/confirming the customer’s intention is also
important for observing the principle of suitability, reference shall be madeto II-4-2-2(3) “Matters Related to Article 294-2 of the Act (obligation toascertain/confirm intention)” as required.
(1) Appropriate Understanding of Content of Specified Insurance Contracts
With regard to individual-specified insurance contracts sold/solicited by256the insurance company and insurance agents, whether the informationnecessary for customers to conclude specified insurance contracts suchas their risks, returns, and costs, etc. are adequately analyzed andidentified. Whether a system that enables insurance agents involved insales/solicitation

correctly

understand

the

said

information

andappropriately explain it to customers through conducting training andpreparing explanatory documents, etc. according to the characteristics ofthe said specified insurance contracts has been developed.
(2) Accurate Understanding, Effective Utilization, and Strict Management of
Customers’ Attributes, etc.
(i) Whether the insurance company and insurance agents collect, forexample, the following information when selling/soliciting specified
insurance contracts. In addition, in case where it is found that the said
information (excluding A.) has been changed when selling/soliciting new
specified insurance contracts to the existing policyholders, whether the
insurance company and insurance agents appropriately manage
customer information by changing the registered information, etc. after
confirming with the customers.
A. Date of birth (limited to the case where the customer is a natural
person)B. Occupation (limited to the case where the customer is a natural
person)C. Property status such as assets and income, etc.
D. Financial instruments transaction contracts (meaning “financial
instruments transaction contract” prescribed in Article 34 of the
Financial Instruments and Exchange Act) concluded in the past,whether or not the customer has experience in purchasing otherinvestment-type financial instruments and the type thereof
E. In the case where the maturity refunds or cancellation returns of
already concluded financial instruments are allocated to insurance
premiums of specified insurance contracts, the type of the said
financial instruments
F. Information on the motive/purpose of concluding specified insurance
contracts and other customer needs(ii) Whether the insurance company and insurance agents, whenselling/soliciting specified insurance contracts, conduct appropriate
solicitation in accordance with the content of the information described in257

(i) collected from customers, not leading to insufficient protection of thecustomers concerned.
(iii) With regard to delivery of documents to be delivered before concluding
contracts(contract outlines and alerting information) referred to in Article37-3 of the Financial Instruments and Exchange Act as Applied Mutatis
Mutandis, whether the insurance company and insurance agents provide
customers with explanation in advance by methods and to the extent
necessary for the customers to understand the content of the documents
in light of the content of the information described in (i).
(iv) Whether the insurance company has developed a system such as thefollowing for the information described in (i) collected from customers toenable the insurance company or insurance agents to verify theappropriateness of the sales/solicitations afterward.
A. System to appropriately store the information described in (i) collectedfrom customers by the insurance company or insurance agents
B. System to enable utilization of the information described in A. forinsurance agents to verify the appropriateness of sales/solicitations
afterward(v) Whether the insurance company, when determining to underwrite ofspecified insurance contracts, effectively utilize the information describedin (i) collected from customer and, when needed, the said information
already stored as described in (iv).
(3) Consideration/evaluation of rational grounds when selling/soliciting
specified insurance contracts(i) Whether the insurance company and insurance agents, before
selling/soliciting

specifiedinsurance

contracts

tocustomers,

examine/evaluate whether there are rational grounds for confirming thatthe content of individual target specified insurance contracts and thefrequency/amount of a series transactions with the customers concerned
suit the identified customers’ attributes, etc.
(ii) From the point of view of ensuring such examination/evaluation,
whether the methods have been established by the insurance andinsurance agents to determine which elements for consideration andprocedures are to be used in advance according to the characteristics ofspecified insurance contracts, etc.

258

(4) As an inappropriate act of sales/solicitation to customers, whether
sales/solicitation of specified insurance contracts such as, for example, thefollowing are not conducted.
(i) Act of selling/soliciting products with risk of loss to principal to customers
who place importance on the safety of principal by the insurancecompany or insurance agents(ii) Act of requesting to change the purpose of transaction to one that suits
the said specified insurance contracts, in the act such as those describedin (i), without having the customer correctly understand the meaning or
reason of that change by the insurance company or insurance agents(5) Whether the internal audit section, etc. of the insurance company andinsurance agents appropriately monitor and then examine the status ofcompliance with this item, etc. In addition, whether efforts have been
made to establish a system to ensure the effectiveness by reviewing thesystem, as required, taking into account the results of the examination.
II-4-4-2 Control Environment for Managing the Payment of Insurance Proceeds,etc.
(1) SignificanceIn recent years, with structural changes in the society and diversification of
economic activities, etc. in Japan, more diverse insurance products aredemanded to meet the policyholders’ needs. Under such circumstances,
there have been cases where problems such as inappropriate non-payment
of insurance proceeds/benefits in life insurance companies and failures to
pay incidental insurance proceeds in non-life insurance companies occurred
and the trusts of policyholders and users in overall insurance business weresignificant damaged.
Making the payment of insurance proceeds, etc. in a timely andappropriate manner is the essential, basic, and most important function for
insurancecompanies

in

conducting

insurancebusiness,

and

the

establishment of a control environment for managing appropriate payment
based on the voluntary guidelines, such as the following, under the exercise
of appropriate governance functions based on principle of self-responsibility
is demanded.

259

In reviewing the main supervisory focus for the control environment for
managing the payment of insurance proceeds, etc., taking into accountanalysis of the causes of serious problems, such as inappropriate nonpayment of insurance proceeds/benefits and failure to pay incidental
insurance proceeds, for the establishment of a control environment for
managing timely and appropriate payment, the matters in which particularimportance is placed for the overall payment of insurance proceeds are as
follows.
(i) “Guidelines for Handling of Appropriate Payment of Insurance Proceeds,
etc.”(January 27, 2006: The Life Insurance Association of Japan)(ii) “Guidelines for Handling of Reception of Correct Notification”(June 30, 2005: The Life Insurance Association of Japan)(iii) “Points of Attention in Applying Voidance Due to Fraud to Violation of
Notification Obligation”(June 30, 2005: The Life Insurance Association of Japan)(2) Main Supervisory Focus(i) Recognition of Directors, etc. and Roles of Board of Directors, etc.
Pertaining to Payment of Insurance Proceeds, etc.
A. Whether the board of directors has clearly defined the policy for theestablishment of a control environment for managing appropriate
payment of insurance proceeds, etc.
B. Whether the directors fully recognize that timely and appropriate
payment of insurance proceeds, etc. seriously affects the ensuring ofsound and appropriate business operations.
C. Whether the board of directors has developed a system to enable
management of insurance proceeds, etc. in an integrated manner by
establishing a section o manage overall operations for the payment of
insurance proceeds, etc. (hereinafter referred to as the “payment
management section”). In addition, in the above system, whether, forinstance, the function of mutual checking between each section related
to the management of payment of insurance proceeds, etc. is fully
performed.
Whether the organizational structure is reviewed as needed andimprovements are made according to changes to the policy for260

establishingacontrolenvironmentformanaging

payment

anddevelopment of the payment management methods.
D. Whether the board of directors sufficiently considers the matters thathave significant impacts on the protection of policyholders, etc. such asrevision/abolition of standards for assessing the payment of insurance
proceeds, etc.
In addition, whether other standards for managing payment have also
been reported to the board of directors, etc. and developed.
E.

Whether

the

board

of

directors,

etc.

appropriately

utilizes

inspections/internal audits, etc., periodically receives reports on thestatus (including amounts and contents, etc.) of payment and nonpayment of insurance proceeds, etc., including the matters that havesignificant impacts on the interests of policyholders, etc. such as
information on complaints about payment and lawsuits, and utilizes theidentified payment-related information in the development of a control
environment for managing and executing operations, etc. such as
making necessary decisions and giving instructions based on the resultsof cause analysis.
In addition, whether the board of directors or the directors, etc. who are
granted with authorities from the board of directors have identified theactual conditions of handling of payment-related complaints from
customers by receiving reports in a timely and appropriate manner, rather
than leaving it to the payment management section, and taken measuresby making necessary decisions and giving instructions.
F. Whether the board of directors or the directors, etc. who are granted withauthorities from the board of directors has, in order to establish a control
environment for managing appropriate payment of insurance proceeds,
etc., clearly established a company-wide policy on personnel affairs andhuman resource development for securing human resources with a goodknowledge of operations in required sections, etc., establishment of asystem, and development of procedures/forms for payment operations
such as the rules, manuals, business forms, etc.
In particular, whether it is adequately recognized that human resource
development of personnel who will engage in payment assessment
requires a long-term perspective.
G. Whether the board of directors, etc. appropriately allocates management
resources to enable appropriate business operations for the payment of261

insurance proceeds, etc. In addition, whether the board of directors, etc.
checks whether the payment of insurance proceeds, etc. is appropriately
managed.
(ii) Recognition and Roles of Managers Involved in Management of Payment
of Insurance Proceeds, etc.
A. Whether the head of the payment management section and the directors,
etc. responsible for payment management (hereinafter referred to as the“payment managers for insurance proceeds, etc.”) understand andrecognize the importance of establishing a control environment for
managing appropriate payment.
In addition, whether the payment managers for insurance proceeds,
etc. takes appropriate measures to have the section’s persons in charge
understand and recognize the importance of establishing a control
environment for managing appropriate payment.
B. Whether the payment management section provides relevant sections
such as the product development section, solicitation section, andcomputer system section (hereinafter referred to as “relevant sections”)
and business sites, etc. with management and guidance necessary forestablishing a control environment for managing appropriate payment.
C. Whether the payment managers for insurance proceeds, etc. takeappropriate measures to review and improve the rules, manuals, andbusiness forms for payment management and the procedures and forms
for payment operations such as payment assessment standards, taking
into account, for example, the issues identified through the content of
products,

resultsofinternal

audits,deplorable

events,complaints/inquiries, trends in precedents, and changes in medical
conditions, etc.
D. Whether the payment managers for insurance proceeds, etc.
appropriately assign personnel by considering their expertise to ensurethat organizations carrying out the payment management can effectively
perform their functions. In addition, as for the assignment of personnel,
whether human resources with expertise such as those with practicalexperience are assigned.
E. Whether the payment managers for insurance proceeds, etc. ensure
personnel rotation so as not to have employees engage in the same
operation within the same section for a long period of time. In cases
where employees engage in the same operation within the same section262

for a long period of time due to unavoidable reasons, whether otherappropriate measures have been taken to prevent accidents.
F. In cases where a problem relating to the payment of insurance proceeds,
etc. is identified, whether the payment management section has taken
improvement measures in cooperation with relevant sections based on
sufficient analysis of the causes. In addition, whether the status isreported to the board of directors, etc.
(iii) Human Resource Development of Persons in Charge of Payment
Assessment and Maintenance/Improvement of Assessment Capacity
A. Whether the payment managers for insurance proceeds, etc. haveformulated human resource development measures to secure persons incharge of payment assessment with expertise based on a long-term
perspective.
B. Whether the payment managers for insurance proceeds, etc. haveestablished a method/system to maintain/improve payment assessment
capacity.
In particular, whether measures to obligate certain training and effectmeasurement, etc. and other measures have been taken to enable
persons in charge of payment assessment to conduct appropriate
payment assessment, for example, ensuring continued efforts inacquiring medical knowledge and improving the understanding of theterms and conditions, special provisions, and precedents.
In addition, whether the contents of education and training arereviewed in a timely and appropriate manner according to medical
progress and changes in medical care, etc.
(iv) Cooperation With Relevant Sections
A. Whether a control environment has been established in which thepayment management section and relevant sections closely cooperate
not only at the time of payment, but also in sales/solicitation of insurance
products and appropriately handling complaints/dispute settlements.
B. In developing/revising insurance products, whether the productdevelopment section and other relevant sections adequately confirm thematters to be considered and then consider them using check sheets forpreventing omissions, etc. under appropriate schedule management withthepayment

management

section.

In

particular,

whethertheinterpretation of the terms and conditions is adequately considered in the
product development section, payment management section, and section263

in charge of compliance, etc. In addition, whether the results areappropriatelyreflected

tothepayment

assessment

standards,

assessment manuals, and pamphlets, etc.
Whether the content of consideration, etc. is directly reported to theboard of directors, etc. and the payment managers for insurance
proceeds, etc. as needed.
C. Whether the payment management section has developed a control
environment in which compliance-related problems identified in thecourse of payment assessment are reported to the section in charge ofcompliance.
In addition, whether the payment management section has developed
a control environment wherein the information on the status of
explanations provided at the time of solicitation is obtained from thesection in charge of compliance and other relevant sections, asnecessary.
D. For cases that do not meet the grounds for payment prescribed in theterms and conditions, for example, complaints concerning claims for asurgery that is not subject to the payment or a single hospitalization
exceeding the maximum number of days for the payment, etc., whether
the payment management section and relevant sections mutually
cooperate to analyze the causes of the complaints and then consider
measures to prevent them.
E. In establishing a system for the payment of insurance proceeds, etc.,
whether a control environment that takes into account the following
points has been developed.
(A) Whether the payment management section and relevant sections,
including the computer system section, cooperate in building a system
toward the establishment of a control environment for managing
appropriate payment of insurance proceeds, etc. based on a companywide policy established by the board of directors, etc.
(B) Whether the payment management section and relevant sections
mutually cooperate, at the time of developing/revising insurance
products, to conduct system design, program design, and tests forenabling appropriate payment. In addition, after the development of thesystem, whether a control environment has been established to check
whether the said system functions without any problems.

264

In addition to the above, for checking at the time of developing
systemsforinsurance

product

development,

etc.

and

checking/management after the system development, also refer to “II3-13-2 Control Environment for Information Technology Risks”.
F. Whether the payment management section and relevant sections,
including the product development section, report all the information
concerning the payment management that seriously affects business
management to the board of directors, etc. and the payment managers
for insurance proceeds, etc. accurately without omission in an easy-tounderstand manner.
(v) Development of Control Environment in the Payment Management
SectionA. Whether a control environment has been developed wherein employeesof the payment management section understand and recognize that thepayment of insurance proceeds, etc. is the core business of theinsurance company and make continued efforts toward building andestablishing a control environment for managing appropriate payment of
insurance proceeds, etc.
In addition, whether they keep in mind that not only payment
operations, but also measures that take into account all customer andconsumer responses, including, for example, selling/soliciting insurance
products, accepting notification of accidents, procedures for claims, andresponding to complaints and inquiries afterward, are required.
B. Whether the payment management section reflects the opinions ofexternal experts as necessary when examining the appropriateness of
final judgments of payment assessments and assessment results
afterward. Also, whether they make use of complaints from customers inbuilding and establishing a control environment for managing appropriate
payment by analyzing them from the viewpoint of customers.
C. Whether the roles and authorities of employees of the payment
management section have been clearly defined. For instance, whether
the settled amount of insurance proceeds, etc. and rational difference
between payment and non-payment have been defined in the provisions
concerning settlement authority.
D. Whether a control environment has been established wherein if grounds
for payment of insurance proceeds, etc. occur, user protection, prompt
and appropriate provision of explanation on procedures for claiming

265insurance proceeds, etc. from the point of view of user convenience,delivery of documents for claims of insurance proceeds, etc., loss
investigation, affirmation of fact, and customer response, etc. will be
carried out.
In particular, whether a control environment has been developed
wherein loss investigation is carried out in a way not to unreasonably
damage the honors, credits, and privacy, etc. of relevant parties and third
parties.
E. Whether unreasonable claims, etc. from anti-social forces, etc. aresteadily and thoroughly dealt with.
In addition, whether efforts have been made to enhance control
environments for contract examination and payment examination byappropriate shared use of the “policy data registration system”, “policy
data inquiry system”, “inquiry system for payment assessment”, and“unlawful claim prevention system”, etc.
F. Whether specific handling standards for the management of customer
information to be used in handling claims and payment of insurance
proceeds, etc. have been established and thoroughly informed to
officers/employees, taking into account that sensitive information will behandled.
With regard to the management of information on customers who areindividual persons, in particular, whether appropriate handling under theprovisions of the rules, Act on the Protection of Personal Information,
Protection Act Guidelines, Financial Sector Guidelines, and Practical
Guideline is ensured.
G. Whether a control environment to be used when selling/soliciting
insurance products, accepting notification of accidents, and responding
to claims that take into account the following points has been developed.
(A) Whether the payment management section in cooperation with
relevant sections has taken measures to provide explanation on
procedures for insurance claiming insurance proceeds, etc. in an
adequate and easy-to-understand manner and to prevent omission ofclaims from occurring each time when responding to customers inselling/soliciting insurance products and accepting notification of
accidents, etc. Whether efforts have been made to provide informationby, for example, in addition to including it in “policy leaflets” and posting
it on web pages, preparing explanatory materials on the payment of266

insurance proceeds, etc. and delivering them to consumers andpolicyholders, etc.
It shall be noted that the content described in the said explanatory
materials need to clearly indicate at least the contact points for handlinginquiries from customers and that the inclusion of specific caseexamples of payment and non-payment is desirable.
(B) Whether the types of insurance proceeds, etc. to be paid topolicyholders, etc. are presented in documents to be sent, etc. in aneasy-to-understandmanner.

In

addition,whether

appropriate

notification on maturity refunds, expiration returns, and cancellation
returns, etc. is made to policyholders, etc.
(C) Whether business forms such as written claims are reviewed in atimely and appropriate manner, taking into account the fact that
insurance products are being diversified, so as to prevent omission ofclaims from occurring and make the content easier to understand. For
instance, whether inspections are conducted on the business forms forwhich complaints, etc. have been made and analysis is conducted fromthe point of view of customers., etc.
(D) Whether procedures to allow agents, etc. of beneficiaries to makeclaims if the beneficiaries are unable to make claims for insurance
proceeds, etc. have been developed.
H. With regard to the handling of the so-called partial payment, meaning
the payment of part of insurance proceeds before the total amount ofdamage is determined, by the insurance company, whether a control
environment has been developed wherein the insurance company
appropriately handle the case with consideration given not only to theneeds of the insured persons, but also to the needs of the victims, fromthe point of view of ensuring fairness between the insured persons andthe victims, by establishing procedures for partial payment in the
manuals and rules, etc. and presenting examples of cases where partial
payment is made, etc.
I. Whether a control environment to be used when conducting payment
assessment that takes into account the following points has beendeveloped.
(A) Whether a control environment has been established whereinadequate investigation/confirmation of the facts is conducted when
judging whether insurance proceeds, etc. can be paid, regardless of267

whether the insurance company or the claimant has the burden of
proof.
(B) Whether a control environment has been established wherein thepayments requiring advanced legal judgments or medical judgments
are judged not only by the payment management section’s persons incharge, but also based on opinions heard from the legal section anddoctors, etc. Furthermore, whether a control environment has been
established wherein external experts are asked for their opinions, asnecessary.
In addition, it is desirable to establish a mechanism to externallycheck the appropriateness of payment assessment with members
including external legal experts and academic experts, etc.
(C) Whether a control environment has been established wherein
appropriate

payment

assessment

isconducted

based

on

manuals/rules, etc. in which payment assessment standards andprocedures for payment operations, etc. are prescribed.
(D) Whether a control environment has been established wherein when
conducting settlement negotiation services, attention is paid not only tothe protection of policyholders, but also to the protection of victims, andwhen the negotiating partner is an individual person in particular,
negotiations are carried out with due consideration by carefully hearing
the other party's claims and providing explanations in a careful andeasy-to-understand manner, etc.
(E) Whether a control environment has been established wherein whendifferent employees are in charge of the payment operations for thesame insured event, mutual cooperation between the employees is
promoted.
(F) Whether a control environment has been established wherein thetrends in precedents, etc. that can affect the judgments on whether
insurance proceeds, etc. can be paid are identified without omission.
(G) Whether the content of payment assessment manuals is systematicand comprehensive.
(H) Whether an adequate control environment has been established forsecondary checking by managers, etc.
(I) Whether sufficient measures regarding computer systems tocheck/prevent payment failures, etc. and urge payment have been
implemented.

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(J) From the point of view of protecting policyholders, etc., whether
management of deadlines such as, for example, commencement date,ending date, and expiration date of delayed interest, etc. isappropriately carried out.
(K) Whether the payment management section appropriately carries out
progress management to ensure prompt payment of insurance
proceeds, etc. without failure. In addition, whether measures to shorten
the number of days required from the acceptance of claims from
customers to the payment (in the case of non-payment, the notificationof the fact) have been taken, such as appropriately conducting
examinations on the matters requiring confirmation without delay inpayment assessment, etc.
(L) Whether the payment management section has taken measures,
when a certain amount of time is required until the payment (in thecase of non-payment, the notification of the fact), such as explaining to
the customer who claims insurance proceeds, etc. the reason why acertain amount of time is required and the prospect of payment, etc. inan easy-to-understand manner.
J. Whether a control environment to be used after conducting payment
assessment that takes into account the following points has beendeveloped.
(A) Whether measures to ensure appropriate response by specialized
staff at contact points have been taken from the point of view of
responding to inquiries for payment and complaints about non-payment
in a prompt and accurate manner.
In addition, whether a control environment has been establishedwherein if insurance proceeds are to be paid not to the insured persons
or claimants of compensation for losses or damages, etc., but directly
to the business operators who have repaired the property damages ormedical institutions that have provided treatments for injuries, etc.,
inquiries or complaints from these persons are appropriately dealt with.
(B) Whether a control environment has been established wherein if
customers make complaints on the results of payment assessments,
the facts constituting the grounds for the decisions of payment or nonpayment, etc. are confirmed again.
(C) Whether the grounds for the calculation of insurance proceeds, etc.
are explained in a careful and easy-to-understand manner in response269

to inquiries from customers, for example, by providing explanations on
the details of payment assessment standards in cases where
insurance proceeds, etc. are calculated based on payment assessment
standards. In addition, whether the grounds for calculation are clearly
defined.
(D) In the case of non-payment, whether explanations on the reason for
the non-payment, including the descriptions of the provisions of theterms and conditions constituting the grounds, are provided to thecustomer in a careful and easy-to-understand manner.
(E) In cases where insurance proceeds are to be paid not to the insured
persons or claimants of compensation for losses or damages, etc., but
directly to the repair business operators or medical institutions, etc., but
a difference exists between the amount of payment assessed by the
insurance company and the amount claimed by the said repair
business operators or medical institutions, etc., whether that fact is
explained to the insured persons or claimants of compensation forlosses or damages, etc. when it is necessary to protect the insured
persons or claimants of compensation for losses or damages, etc.
(F) Whether the dispute settlement rules prescribing simple and prompt
procedures for accepting and resolving complaints, etc. have beendeveloped.
(G) It is desirable from the point of view of further strengthening thecontrol environment for managing payment that, in addition to disputesettlement functions of each of life insurance and non-life insurance
associations, each insurance company has developed, for example, amechanism, etc. for reassessment.
K. Whether the payment management section has developed a control
environment for checking afterward such as the following.
(A) Whether the matters for which authorities are delegated from thepayment managers for insurance proceeds, etc. are appropriately
managed by periodically conducting inspections/audits to see whether
appropriate exercise of authority is carried out, etc.
(B) Whether a control environment has been established wherein thepayment of insurance proceeds, etc. that involves multiple payment
sections is periodically checked, from the point of view of preventing
payment failures, by, for example, developing a mechanism in which

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after identifying possible cases of payment failures, each payment
section mutually check them, etc.
(C) Whether a control environment has been established wherein thecases for which claims for insurance proceeds, etc. to be paid are
dropped upon customers’ requests can be examined afterward to see
whether truly appropriate administrative processes are implemented.
(D) Whether a control environment has been established wherein model
documents to be used for explaining to customers about the reason for
non-payment are reviewed/improved from the point of view ofcustomers,

takingintoaccount

theissuesidentified

throughcomplaints/inquiries, etc. Whether, in conducting reviews or making
improvements, experts with knowledge on consumer issues, etc., forexample, are utilized.
In addition, whether a control environment has been establishedwherein the notifications of non-payment actually sent to customers are
examined to see whether their contents were appropriate.
(E) Whether the contents of the cases of non-payment are analyzed andthe analysis results are used in developing measures and a control
environment for appropriate payment of insurance proceeds, etc.
(F) Whether a control environment has been established wherein
whether complaints concerning non-payment are not only dealt with by
the section in charge of payment that has determined the said nonpayment, but also eventually appropriately dealt with by other sections
such as the section in charge of compliance.
(G) It is desirable from the point of view of further strengthening thecontrol environment for managing payment that, for example, amechanism to examine the appropriateness of payment assessments
by external experts afterward, etc. has been developed.
L. Whether outsourcing of operations of payment of insurance proceeds,
etc. such as revising/abolishing payment assessment standards andconducting payment assessments, etc. are handled under the provisionsof Article 98 of the Act and Article 51 of the Regulation as they areoperations incidental to those prescribed in Article 97 of the Act.
In addition, whether the content of “II-5-1 Outsourcing of Administrative
Processes of Insurance Companies” is considered when outsourcing
operations incidental to the operations of payment of insurance proceeds,
etc. (for example, sending/receiving bills and checking contracts, etc.).

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M. In order to enable policyholders and other users to appropriately
determine the status of operations of the insurance company, it isdesirable that efforts are made to actively disclose information such as
the number and details of cases of non-payment of insurance proceeds,
etc. and information on complaints, etc.
N. Whether the payment management section or relevant sections havedeveloped a control environment wherein when cancelling contracts due
to a serious reason prescribed in the terms and conditions, notifications
are made to the policyholders within a reasonable period of time after thesaid serious reason is known or may have been known.
(vi) Internal Audits
A. Whether the representative director or the board of directors fullyrecognize that internal audits seriously affect the establishment of acontrol environment for managing appropriate payment of insurance
proceeds, etc.
B. Whether the internal audit section has been established as anindependent organization so as to fully check the actions of sections
subject to audit, including the payment management section.
In addition, whether the internal audit section conducts audits without
being unreasonably restricted by sections subject to audit.
C. Whether the board of directors, etc. assign appropriately number ofhuman resources with a good knowledge of payment operations to theinternal audit section to enable internal audits on the control environment
for managing payment to function effectively.
In addition, whether the internal audit section has been granted with
sufficient authorities to examine the control environment for managing
payment.
D. Whether officers and employees of the payment management section
fully recognize that internal audits have important roles in establishing acontrol environment for managing appropriate payment.
E. Whether the internal audit section has prepared the internal audit
implementation guidelines, etc. for examining the control environment for
managing appropriate payment and obtained approval of the board of
directors, etc. In addition, whether the head of the internal audit section
has confirmed the appropriateness/effectiveness of the implementation
guidelines, etc.

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F. Whether the internal audit section has formulated efficient and effective
audit plans, taking into account the frequency and depth, to examine thecontrol environment for managing appropriate payment.
G. Whether the internal audit section periodically conducts audits of all
operations of the payment management section and relevant sections
based on the internal audit implementation guidelines, etc.
H. Whether the internal audit section reports the results of internal audits
on the control environment for managing payment and other importantmatters to the board of directors in a timely and appropriate manner. In
particular, whether problems that seriously affect business management
are immediately reported.
I. Whether the internal audit section analyzes the results of examinationand correctly notifies them to sections subject to audit, including thepayment management section, etc. without delay. Furthermore, whether
the internal audit section appropriately manages the status of
improvement in the payment management section and reflects it tosubsequent internal audits.
In addition, whether the payment managers for insurance proceeds,
etc. make use of the results of internal audits, etc. in the establishment of
a control environment for managing appropriate payment of insurance
proceeds, etc.
(vii) Auditor’s Audits
A. Whether auditor’s audits on the payment of insurance proceeds, etc. areconducted from the point of view of auditing the appropriateness of thebusiness execution system. Whether audits are conducted in acomprehensive manner, for example, by relating the problems from theperspectives of solicitation management, etc. with problems of customer
services shown by the status of complaints from customers, etc.
B. Whether the audit committee has established a systematic audit method
for the practical operations of payment of insurance proceeds, etc.
C. Whether auditors conduct audits directly on the operations of payment of
insurance proceeds, etc. by hearing the payment managers for insurance
proceeds, etc. and conducting visiting audits on the payment
management section, etc.
D. Whether auditors report the results of internal audits on the payment of
insurance proceeds, etc. and other important matters to the board of
directors and board of auditors in a timely and appropriate manner.

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(3) Supervisory Method and Actions
If a problem is deemed to exist in the control environment for managing thepayment of insurance proceeds, etc., supervisors shall require thesubmission of a report under Article 128 of the Act as necessary, and if it isdeemed that there is a serious problem, they shall take an administrative
measure under Article 132 or 133 of the Act.

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II-4-5 Control Environment for the Management of Information Related to
Customers, etc.
II-4-5-1 SignificanceIt is extremely important to ensure the appropriate management of customer
information, as such information constitutes the basis of insurance contract
transactions.
In particular, information on customers that are individual persons needs tobe handled in an appropriate manner in accordance with the rules, Act on theProtection of Personal Information, Protection Act Guidelines, Financial Sector
Guidelines, and Practical Guideline.
Since any leaking of personal information, including credit card information(card numbers, expiry dates, etc.; hereinafter referred to as “credit card
information, etc.”) is likely to result in secondary damage, such as unauthorizedpurchases using a stolen identity, strict management is required.
Furthermore, because insurance companies are in a position where they canaccess corporate-related information (Article 1(4)(xiv) of the Cabinet Office
Order on Financial Instruments Business, etc.), they are required to control that
information strictly and to prevent insider trading and any other unfair acts.
In consideration of the above, it is important for insurance companies toestablish a control environment wherein they can properly manage information
related to customers and information related to corporations (hereinafterreferred to as “information related to customers, etc.”).

II-4-5-2 Main Supervisory Focus(1) Control Environments for the Management of Information Related to
Customers, etc.
(i) Whether senior managers recognize the necessity and importance ofensuring the appropriateness of managing information related tocustomers, etc., and whether they have developed an internal control
environment, such as establishing an organizational structure (including
establishing appropriate checks between sections) and formulating internal
rules for ensuring the appropriateness.
(ii) Whether the insurance company has formulated a specific standard for275the handling of information related to customers, etc. and communicated it
to all officers and employees through the provision of training and othermeans. In particular, whether the insurance company has formulated astandard for the provision of information related to customers, etc. to third
parties, based on careful deliberations from the point of view of compliance(confidentiality obligation and accountability to customers) and reputation.
(iii) Whether the insurance company has established systems to examine
whether information related to customers, etc. is managed appropriately,
including thorough management of access to information related tocustomers, etc. (such as preventing access rights assigned to certain
people

from

being

used

by

others),measurestoprevent

themisappropriation of information related to customers, etc. by insiders, anda robust information management system that prevents illegal access fromthe outside.
Also, whether the insurance company has attempted to implement
appropriate measures for preventing illegal acts utilizing information related
to customers, etc., such as the dispersal of authority concentrated upon
specific personnel and the enhancement of the controls and checks overpersonnel who have broad powers.
(iv) In cases where the insurance company entrusts(Note) the handling of
information related to customers, etc., whether it has implemented thefollowing measures.
(Note) The term “entrust” includes all contracts in which an insurancecompany allows all or part of the handling of information related tocustomers, etc. to be conducted by another person, including insurance
agencies, regardless of the form or type of contract (the same applies
hereinafter in II-4-5-2).
A. With regard to the management of outsourced contractors, including
insurance agencies, whether the insurance company has clarified the
responsible divisions and confirms that outsourced contractors areproperly managing the information related to customers, etc., such as bymonitoring on a periodic or as-needed basis how business operations
are being conducted at outsourced contractors.
B. Whether the insurance company has confirmed that the outsourced
contractors, including insurance agencies, have systems in place to takeappropriate actions and to promptly report to outsourcers in the eventthat information is leaked.

276

C. Whether the insurance company restricts the rights of outsourced
contractors, including insurance agencies, to access information related
to customers, etc. to the extent necessary according to the nature of theoutsourced business.
On that basis, whether the insurance company checks that the workers
at outsourced contractors, including insurance agencies, to whom accessrights are given and the scope thereof have been defined.
Furthermore, whether the insurance company checks that access to
information is being managed thoroughly at outsourced contractors,
including insurance agencies, on a periodic or as-needed basis, such as
by confirming how the access rights are being used (including matchingauthorized persons against actual users) in order to prevent access rights
assigned to certain people from being used by others.
D. In cases where information is being successively entrusted more thanonce, whether the insurance company checks whether the outsourced
contractor, including insurance agencies, is adequately supervising thesubcontractors and other such business operators. Also, whether directsupervision of the subcontractor and other such business operators is
being conducted in-house, as necessary.
(v) Whether the insurance company has established arrangements andprocedures for appropriately reporting to responsible divisions, notifying
customers and the public, and reporting to the authorities in a prompt andappropriate manner when information related to customers, etc. has been
leaked, so that secondary damage can be prevented.
Also, whether the insurance company analyzes the causes of information
leaks and has implemented measures designed to prevent a recurrence.
Furthermore, in light of incidents of information being leaked at othercompanies, whether the insurance company examines measures needed
to prevent a similar incident from recurring.
(vi) Whether audits covering the broad range of business operations
pertaining to management of information related to customers, etc. arebeing conducted by an independent internal audit section on a periodic or
as-needed basis.
Also, whether the insurance company has implemented appropriate
measures, such as training programs, in order to increase thespecialization of the staff engaged in audits pertaining to the managementof information related to customers, etc.

277

(2) Management of Personal Information(i) With regard to the information on customers that are individual persons,whether the following measures are taken for the security control,
supervision of employees, and, if handling of the said information is
entrusted, supervision of the contractors under Article 53-8 of theRegulation as necessary and appropriate measures to prevent the leakage,loss, or damage of the said information.
A. Measures under the provisions of Articles 8, 9, and 10 of the Financial
Sector Guidelines
B. Measures under the provisions of I, II, III, and Attachment-2 of thePractical Guideline(Note) In cases where insurance agents use the personal information ininsurance solicitation for other companies or operating activities, etc. ofside-line sections, due consideration needs to be given to ensure that it
is not used other than for intended purposes by appropriately handling it
under relevant laws and regulations, etc.
(ii) Whether measures to ensure that any information on customers that are
individual persons concerning their race, creed, family origin, registereddomicile, health and medical care, or criminal record, and any other special
undisclosed information(Note) is not used under the provisions of Article 5310 of the Regulation, except in cases listed in the items of Article 5(1) of
the Financial Sector Guidelines, are taken.
(Note) Other special undisclosed information refers to the following
information.
A. Information regarding labor union membership
B. Information regarding ethnicity
C. Information regarding sexual orientation
D. Information regarding provisions under Article 2(iv) of the Cabinet
Order to Enforce the Act on the Protection of Personal Information
E. Information regarding provisions under Article 2(v) of the Cabinet
Order to Enforce the Act on the Protection of Personal Information
F. Information regarding the fact that the related customer has been a
victim of crime
G. Information regarding social status(iii) With regard to credit card information, etc., whether the insurancecompany has implemented the following measures.

278

A. Whether the insurance company has set an appropriate period of time
for keeping credit card information, etc., which takes into account the
purpose of use and other circumstances, and whether it limits thelocations where such information is kept, and disposes the information ina prompt and appropriate manner after the retention period has lapsed.
B. Whether the insurance company has implemented appropriate
measures when displaying credit card information, etc. on computer
monitors, such as not displaying whole credit card numbers, unlessneeded for business operations.
C. In cases where the handling of credit card information, etc. is outsourced
to a third-party entity, whether the insurance company conducts off-siteand on-site inspections on a periodic or as-needed basis on whether therules and systems for protecting credit card information, etc. arefunctioning effectively in the outsourced contractor, including insurance
agencies.
D. In cases where credit card information, etc. is being successively
entrusted more than once, whether the insurance company conducts
direct supervision of the subcontractor and other business operators, etc.
in-house, such as conducting off-site and on-site inspections on aperiodic or as-needed basis, except when outsourced contractors,
including insurance agencies, are deemed to have been conducting
adequate supervision of subcontractor and other business operators, etc.
(iv) Whether the insurance company has implemented measures to ensurethat the provision of personal data to a third party complies with Article 11of the Financial Sector Guidelines, etc. In particular, whether the insurancecompany makes efforts to appropriately obtain consent from customers
that are individual persons according to the characteristics and methods ofthose operations with consideration also given to the following points.
A. Based on Article 3 of the Financial Sector Guidelines, in cases whereconsent to provide information to a third party is to be obtained from
customers that are individual persons by non-face-to-face methods suchas PCs and smartphones, etc., whether the insurance company has
established specifications in which ingenious efforts are made for the
texts of consent, font sizes, screen specifications, and other methods for
obtaining consent to be used to enable customers that are individual
persons to clearly recognize the third party to which information is to beprovided, the content of information to be provided to that third party, and279

purpose of use of the information by that third party.
B. Even in cases where consent to provide information to a third party has
previously been obtained from customers that are individual persons,whether the insurance company obtains consent of the customers thatare individual persons again if the third party to which information is to beprovided or the content of information to be provide is different or if
information is to be provided to an extent more than necessary toachieve the predetermined purpose of use at the third party.
C. In cases where information is to be provided to multiple third parties or
the purpose of use of information varies depending on the third party towhich information is provided, whether the insurance company
appropriately considers the extent to which information is to be provided
to the third parties and the method and timing of obtaining consent, etc.
to enable customers that are individual persons to recognize the fact that
personal data is to be provided to multiple third parties and/or the
purpose of use at each third party.
D. Whether the insurance company gives due consideration in obtaining
consent to provide information to a third party to eliminate the risk ofharmful effects such as abuse of superior position or conflict of interest
with the customers that are individual persons, etc. For instance, whether
customers that are individual persons are not forced to give consent toan excessive extent with regard to the third parties to which information
is to be provided, the purpose of use by the third parties, and content of
information to be provided.

(3) Prevention of Insider Trading and Other Unfair Acts Using CorporateRelated Information(i) Whether the insurance company has established an appropriate internal
control environment, such as by developing internal rules pertaining to thesale, purchase and other transactions of securities by officers andemployees, and the revision thereof as necessary.
(ii) Whether the insurance company has made efforts for strengthening thesense of compliance, such as enhancing professional ethics and ensuring
a full understanding of relevant laws and regulations and internal rules,
aimed at preventing insider trading and other unfair trading by officers or
employees.

280

(iii) Whether the insurance company has implemented appropriate measures
to prevent unfair trading, such as requiring reports when officers or
employees who are in a position to access corporate-related information
have sold, purchased, or carried out other transactions of securities related
to the said corporation.

II-4-5-3 Supervisory Method and Actions
If a problem is deemed to exist in the control environment for managing
information related to customers, etc., supervisors shall require the submissionof a report under Article 128 of the Act as necessary, and if it is deemed that
there is a serious problem, they shall take an administrative measure under
Article 132 or 133 of the Act.

281

II-4-6 Development of a System to Protect Customers’ Interests
II-4-6-1 Significance
Conflict of interest is a problem that can occur both among sections of
insurance companies and among parent companies, subsidiary companies,
sister companies, and affiliated companies within the same financial group(hereinafter referred to as “insurance companies, etc.” in II-4-6-1). In addition,
insurance companies, etc. are permitted to exchange non-disclosure
information with their parent corporations, etc. or subsidiary corporations, etc.
under certain conditions such as the establishment of an information
management system. In line with this, it is necessary that insurance companies,
etc. recognize the importance of managing conflict of interest more than everand establish a control environment for appropriate business management.
Therefore, financial groups that operate a broad range of businesses needto carry out internal control by the imposition of discipline based on theprinciple of self-responsibility to prevent the harmful effects of conflict ofinterest within the group It should be noted that the rules for managing conflictof interest, etc. function effectively by establishing a control environment for
managing appropriate business management and a control environment for
ensuring compliance through voluntary efforts of financial institutions.
In addition, in establishing a control environment for managing conflict ofinterest, the content, scale and characteristics of businesses operated bycompanies within the financial group, etc. as well as the point of view ofreputational risks in insurance companies or within the same financial groups
need to be considered.
On the other hand, considering that some member companies within thegroups of insurance companies, etc. may engage in businesses irrelevant tothe customers of the insurance companies, etc., there is no necessity torequire all insurance companies, etc. to conduct conflict of interest
management at the same level or to the same extent. Thus, it should be notedthat when insurance companies, etc. conduct conflict of interest management
at different levels or to different extents within their groups, they are required togive sufficient explanation on such different treatment to external parties.

II-4-6-2 Main Supervisory Focus

282

(1) Identification of Transactions With the Risk of Conflict of Interest, etc.
(i) Whether a control environment has been developed wherein transactions
with the risk of conflict of interest are identified and categorized in advanceand are continually evaluated.
(ii) Whether the contents, scale, and characteristics of business activities of
the insurance company and companies within the financial group, etc. arereflected to the process of identifying conflict of interest.
In addition, whether new business activities and changes to laws,
regulations, and business practices, etc. can be appropriately dealt with inthat process.
(2) Methods of Conflict of Interest Management
Whether a system has been developed in which management method(s)such as the following, for example, can be chosen and combined according
to the characteristics of conflict of interest and the management method(s)is/are periodically examined.
(i) Separation of Sections (limiting sections to share information)
When limiting the sections to share information, whether measures havebeen taken to strictly block the transfer of information between sections forwhich a conflict of interest may be caused, such as access control andphysical blocking, etc., taking into account the content of business and its
actual status.
(ii) Changing the Conditions or Method of Transaction or Cancelling
Transactions of the Other Section
When changing the conditions or method of transaction or cancellingtransactions

of

the

other

section,whethertheauthorities

andresponsibilities for the decision of the said change or cancellation are
clearly defined, including the case where officers, etc. of parent financial
institutions, etc. or subsidiary financial institutions, etc. are involved in thatdecision.
(iii) Disclosure of the Fact of Conflict of Interest to Customers
Whether a control environment has been established wherein fairtreatment of customers is ensured when disclosing the fact of conflict ofinterest to customers by obtaining the consent of customers after
disclosing the content of the conflict of interest and the reason for selecting
the method to be disclosed (including the reason for not selecting other283

methods), etc. in a clear and fair manner by methods such as in writing, etc.
In addition, whether the level of the disclosed content sufficiently suits thecharacteristics of the customers concerned.
(3) Control Environment for Managing Conflict of Interest(i) Whether a control environment has been established wherein conflict ofinterest is centrally managed by assigning a person to manage/supervise
conflict of interest (hereinafter referred to as the “conflict of interest
manager”), etc.
(ii) Whether a control environment has been established wherein
independence of the conflict of interest manager, etc. from sales sections
is ensured to enable sufficient checking. In addition, whether the conflict ofinterest manager, etc. plays the roles of making efforts to establish acontrol environment for managing conflict of interest and raisingawareness of officers/employees, etc. and periodically examines thecontrol environment for managing conflict of interest.
(iii) Whether the conflict of interest manager, etc. has established a control
environment wherein it gathers information necessary for managing
conflict of interest, including transactions of parent financial institutions, etc.
or subsidiary financial institutions, etc., and appropriately manages conflictof interest.
(iv) Whether the internal rules clearly defining the operational procedures
based on the conflict of interest management policy have been established.
In addition, whether a control environment has been ensured wherein
officers, employees, and subsidiary financial institutions, etc. are informedof conflict of interest management through education and training, etc.
(4) Formulation of the Conflict of Interest Management Policy and Disclosure of
Its Outline(i) Whether the method of identifying conflict of interest, types, management
structure (including responsibilities and roles, etc. of officers andemployees), management methods (if conflict of interest management isconducted at different levels and to different extents, the content of andreasons for such difference are included), and scope of management, etc.
are clearly defined in the conflict of interest management policy. In addition,
whether the contents and scales of business activities conducted bycompanies within the financial group, etc. are adequately reflected in the284

conflict of interest management policy.
(ii) Whether the purposes of the conflict of interest management policy areclearly expressed when disclosing the outline of the conflict of interest
management policy. In addition, whether adequate disclosure methods thatenable the outline to be adequately conveyed to customers, etc. are used,such as putting up posters at branches and posting it on websites, etc.

II-4-6-3 Supervisory Method and Actions
If a problem is deemed to exist in the control environment for managing
conflict of interest, supervisors shall require the submission of a report under
Article 128 of the Act as necessary, and if it is deemed that there is a serious
problem, they shall take an administrative measure under Article 132 or 133 of
the Act.

285

II-4-7 Prevention of Customers' Misrecognition, etc.
II-4-7-1 Significance
There are cases where the insurance company concerned establishes its
business office in a building that is also occupied by a business office ofanother company from the point of view of improving customer convenienceand rationalizing operations. In such cases, it is important that measures toprevent customers from misrecognizing are taken.

II-4-7-2 Main Supervisory Focus
In cases where the insurance company has established its business officeon the same floor of the same building in which a head office/branch, etc. ofanother company is located, whether appropriate measures are taken from thepoint of view of preventing customers from misrecognizing, protecting
customer information, and security. In addition, in cases where computerequipment is shared, whether the insurance company has established acontrol environment wherein the insurance company itself can comply with theinformation management regulations.

286

II-4-8 Measures such as Verification at the Time of Transaction
II-4-8-1 SignificanceIt is important that insurance companies, which have a public nature and play
an important economic role, are never exploited in terrorism financing or money
laundering.
In order to prevent insurance companies from being exploited by crimeorganizations and contributing to expanding profits gained from criminal
activities, it is necessary to establish an advanced and robust company-wide
control environment for legal compliance. In particular, insurance companies
are required to establish an internal control environment for measures such asverification at the time of transaction, preservation of transaction records, etc.
and reporting of suspicious transactions (hereinafter referred to as the“verification at the time of transaction, etc.”) based on the Act on Prevention ofTransfer of Criminal Proceeds (hereinafter referred to as the “Anti-Criminal
Proceeds Act”). In addition, in order to make measures against international
terrorism financing or money laundering based on the FATF Recommendations
effective, it is required to establish a control environment for appropriately
handling these measures for not only businesses conducted at domestic
business offices, but also businesses conducted at overseas business offices.

II-4-8-2 Main Supervisory Focus
When examining a financial institution’s control environment for properly
implementing verification at the time of transaction, etc. based on the AntiCriminal Proceeds Act and measures stipulated in the “Guidelines for AntiMoney Laundering and Combating the Financing of Terrorism” (hereinafterreferred to as the “AML/CFT Guideline”), including a risk-based approach,supervisors shall pay attention to the following points.
(Note 1) In properly conducting verification at the time of transaction, etc.,
reference must be made to the “Points to Keep in Mind Concerning the Act
on Prevention of Transfer of Criminal Proceeds” (Financial Services Agency,
October 2012).
(Note 2) A risk-based approach means that financial institutions, etc. are
expected to identify and assess money laundering and financing of terrorism287

risks to which they are exposed and take measures based on those risks tomitigate them effectively.
(1) With regard to businesses of the insurance company, whether verification at
the time of transaction and creation/preservation of transaction records, etc.
under the Anti-Criminal Proceeds Act are properly carried out according to risksof each transaction.
(i) When implementing verification at the time of transaction, whether the
insurance company verifies the credibility and validity of the identity not only
by identifying customer attributes properly, but also by requiring thesubmission of customer identification documents, for example. Whether it
properly responds to and manages a problem, etc. identified in relation to acustomer.
(ii) When conducting transactions with corporate customers, whether the
insurance company checks the corporate customers’ identification matters,
purposes of conducting the transactions, and the content of theirbusinesses as well as the identification matters of the substantial
controllers.
(iii) When conducting transactions for which there is especially a strong
necessity for conducting rigid customer management as mentioned below,
based on the first sentence of Article 4(2) of the Anti-Criminal Proceeds Act
and each paragraph of Article 12 of the Anti-Criminal Proceeds Act
Enforcement Order, whether (re-)verification at the time of transaction ismade in a proper manner (for example, a customer’s identification matters
are confirmed not only in a normal way but also in a more rigid way inwhich customer identification documents or supplementary documents are
additionally received. In addition, when confirmation of the conditions ofassets and revenues is obligated, whether such confirmation is made in aproper manner.
A. A transaction in the case that a counterparty to the transaction issuspected of impersonating a customer, etc., or representative, etc., forwhom related verification at the time of the transaction is conducted.
B. A transaction with customer, etc., who is suspected of having falsified
matters subject to related verification at the time of transaction whensuch verification has been made.
C. A specified transaction, etc., with a customer, etc., who resides or is
located in a country or region in which the establishment of a system to288

prevent the transfer of criminal proceeds (as specified under Article 12(2)of the Anti-Criminal Proceeds Act Enforcement Order) is not consideredsufficient.
D. A specified transaction with a customer, etc. who is a foreign PEP(Note).
(Note) Meaning the head of a foreign country or a person in an important
position of foreign governments, etc. (Politically Exposed Person) as set
forth in items of Article 12(3) of the Anti-Criminal Proceeds Act
Enforcement Order and items of Article 15 of the Ordinance for
Enforcement of the Act concerning Prevention of Transfer of Criminal
Proceeds (hereinafter referred to as the “Anti-Criminal Proceeds Act
Enforcement Ordinance”).
(iv) Whether the insurance company takes measures that take account of thespecific characteristics of transactions (e.g., transactions conducted overthe Internet without any face-to-face contact) when implementing
verification at the time of transaction for customers.
(2) Whether the insurance company properly implements the suspicioustransaction reporting based on the Anti-Criminal Proceeds Act.
(i) Whether the insurance company ensures that the supervisory department
reports to the authorities promptly when a certain transaction is judged toconstitute a suspicious transaction.
(ii) In judging whether a certain transaction constitutes a case requiring thereporting of suspicious transactions, whether the insurance company
comprehensively takes account of the various specific information that it
has acquired and holds, such as the data of verification at the time oftransaction, customer attributes, specific characteristics of the transaction,and the circumstances at the time of the transaction, as well as the
National Risk Assessment of Money Laundering and Terrorist Financingthat is prepared and published by the National Public Safety Commission
under Article 3(3) of the Anti-Criminal Proceeds Act (hereinafter referred toas the “ National Risk Assessment”), and conducts appropriate
examinations based on Article 8(2) of the Anti-Criminal Proceeds Act andArticles 26 and 27 of the Anti-Criminal Proceeds Act Enforcement
Ordinance. In addition, whether the insurance company properly responds
to and manages any problem identified in relation to the relevanttransaction.
(Note) Among customer attributes and specific characteristics of the289

transaction that should be considered are the customer’s nationality(whether the customer’s home country falls within FATF’s list of noncooperative countries and territories), whether the customer is a foreign
PEP, the nature of business in which the customer is engaging, the value
and number of transactions, and whether it is a foreign or domestictransaction.
(iii) Whether the insurance company detects, monitors, and analyzes
suspicious customers and transactions through systems and manuals
according to the nature and contents of its own business.
(Note) For examples that may constitute cases requiring suspicioustransaction reporting and examples of past cases in which insurancecompanies actually reported to the authorities, refer to the “List ofReferred Cases of Suspicious Transactions” (refer to the FSA website).
(3) In order to properly implement measures such as verification at the time oftransaction under the Anti-Criminal Proceeds Act, whether the following
measures (i) through (vii) are taken. Furthermore, whether the insurancecompany has established an internal control environment, etc. for judging
whethertoimplementthesuspicioustransaction

reporting,bycomprehensively taking account of basic customer information obtained
through appropriate implementation of verification at the time of transaction,
the specific characteristics of transactions, and other matters based on thefull recognition of the co-relation between verification at the time oftransaction and the reporting of suspicious transactions.
(i) Regarding the data of verification at the time of transaction obtained from acustomer, whether the insurance company constantly strives to keep trackof

up-to-datecustomer

attributes

throughongoing

monitoringoftransactions with the customer, for example.
(ii) Whether the insurance company has established internal rules, etc. thatspecify internal arrangements and procedures for implementing measures
such as verification at the time of transaction. In addition, whether it has
fully communicated the rules to all officers and employees and ensured
their full understanding thereof.
(iii) Whether the insurance company provides employees with training andeducation concerning measures such as verification at the time oftransaction on a periodic and ongoing basis. In addition, whether it
evaluates the level of the understanding of the employees receiving

290training and takes follow-up measures, when necessary, in light of theirimplementation of measures in daily business processes.
(iv) Whether the insurance company has appointed/assigned an appropriate
person as a supervising manager (meaning supervising manager
prescribed in Article 11(iii) of the Anti-Criminal Proceeds Act; the same
applies hereinafter), such as a management-level compliance manager foranti-terrorism financing and anti-money laundering measures.
(v) Whether the insurance company studies and analyzes the risk of being
exploited in cases of terrorism financing and money laundering, andproperly conducts measures that take account of the results thereof, basedon the Anti-Criminal Proceeds Act.
A. Whether the insurance company appropriately studies and analyzes therisk of its transactions being exploited in cases of terrorism financing andmoney laundering from the viewpoint of the nature of the transaction or
product and the form of the transaction, the country or region related tothe transaction, and the customer attributes, by taking account of thecontent of the National Risk Assessment, and prepares a document, etc.
that describes the results of the analysis (hereinafter referred to as the“document, etc. prepared by specified business operators”) and conducts
a periodic review thereof.
B. Whether the insurance company takes account of the content of the
document, etc. prepared by specified business operators, and collects
and analyzes the necessary information, as well as continuously
investigating in detail the confirmation records and transaction records it
has preserved.
C. When carrying out transactions for which there is especially a strong
necessity for conducting rigid customer management set forth in the first
sentence of Article 4(2) of the Anti-Criminal Proceeds Act, transactions
that require special attention in customer management set forth in Article
5 of the Anti-Criminal Proceeds Act Enforcement Ordinance, and othertransactions that are deemed to have a high danger potential of terrorism
financing and money laundering in consideration of the content of the
National Risk Assessment (hereinafter referred to as “high risk
transactions”),

whetherthesupervising

manager

approves

thetransaction, and whether the insurance company prepares a document,
etc. that describes the results of the collection and analysis of information,and preserves it along with the conformation record or transaction record.

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(vi) When hiring employees, whether the insurance company screenscandidates from the viewpoint of properly implementing anti-terrorism
financing and anti-money laundering measures.
(vii) Whether the insurance company ensures the effectiveness of verification
at the time of transaction by identifying and examining the implementation
status of the identification through periodic internal reviews and internal
audits, and by revising and reviewing the implementation method, forexample.
(4) Whether overseas offices (branches, subsidiaries, etc.) have a control
environment for properly implementing countermeasures against terrorism
financing and money laundering.
(i) Whether overseas offices properly implement countermeasures against
terrorism financing and money laundering at the same level as in Japanto the extent permitted by applicable local laws and regulations, etc.
(Note) In particular, it should be noted that overseas offices located incountries or regions where the FATF Recommendations are notapplied or not fully applied are required to take countermeasures at thesame level as in Japan.
(ii) If the local obligation to implement countermeasures against terrorism
financing and money laundering is stricter than in Japan, whether overseas
offices implement such stricter local countermeasures.
(iii) If overseas offices cannot implement appropriate countermeasuresagainst terrorism financing and money laundering at the same level as inJapan because such countermeasures are prohibited by local applicablelaws and regulations, etc., whether overseas offices immediately provide
information on the following to the FSA or the local Finance Bureau thathas jurisdiction over the region where the head office is located:- The country or region concerned-

Specificreasonsfortheinability

toimplement

appropriate

countermeasures against terrorism financing or money laundering; and- If alternative measures are taken to prevent being exploited in cases ofterrorism financing or money laundering, the particulars thereof.

II-4-8-3 Supervisory Method and Actions

292

If, based on the inspection results and reports on deplorable events, etc., aproblem is deemed to exist in the steady execution of measures, such asverification at the time of transaction and in the internal control environment for
appropriately implementing measures described in the AML/CFT Guideline,
supervisors shall require the submission of a report under Article 128 of the Act
as necessary, and if it is deemed that there is a serious problem, they shallconsider issuing a business improvement order under Article 132 of the Act. In
doing so, if it is deemed that the internal control environment is extremely
vulnerable and a risk of being exploited in cases of terrorism financing or
money laundering, etc. exists, supervisors shall issue an order to suspend partof business for a certain period of time necessary for business improvement
under Article 132 of the Act.
In addition, in the case of a serious/malicious violation of laws andregulations or act that harms the public interest, etc., supervisors shall consider
stricter measures under Article 133 of the Act.

293

II-4-9 Prevention of Damage that May be Inflicted by Anti-Social Forces
II-4-9-1 Significance
Eliminating anti-social forces from society is a task critical to ensuring theorder and safety of society, so it is necessary and important for corporations topromote efforts to ban any relations with anti-social forces from the viewpointof fulfilling their social responsibility. In particular, as insurance companies havea public nature and play an important economic role, they need to exclude antisocial forces from financial transactions in order to prevent damage from being
inflicted not only on insurance companies themselves and their officers andemployees but also on their customers and other stakeholders.
Needless to say, if insurance companies are to retain public confidence andmaintain the soundness and appropriateness of their business operations, it isessential that they deal with anti-social forces in accordance with laws andregulations without bowing to pressure from them. Therefore, insurancecompanies must strive, on a daily basis, to develop a control environment forbanning any relations with anti-social forces in accordance with the purpose of
the “Guideline for How Companies Prevent Damage from Anti-Social Forces”(agreed upon at a meeting on June 19, 2007 of cabinet ministers responsible
for anti-crime measures).
In particular, anti-social forces have become increasingly sophisticated intheir efforts to obtain funds, disguising their dealings as legitimate economictransactions through the use of affiliated companies in order to develop
business relations with ordinary companies. In some cases, the relations thus
developed eventually lead to problems. In such cases, senior managers of
insurance companies need to take a resolute stance and implement specificcountermeasures.
It should be noted that if an insurance company delays specific actions toresolve a problem involving anti-social forces on the grounds that unexpected
situations, such as the safety of officers and employees being threatened,
could otherwise arise, the delay could increase the extent of the damage that
may be ultimately inflicted on the insurance company itself and its officers andemployees.
(Reference) “Guideline for How Companies Prevent Damage from AntiSocial Forces” (agreed upon at a meeting on June 19, 2007 of cabinet

294

ministers responsible for anti-crime measures)(1) Basic Principles on Prevention of Damage That May be Inflicted by AntiSocial Forces- Institutional response- Cooperation with external expert organizations- Ban on any relations, including transactions, with anti-social forces- Legal responses, both civil and criminal, in the event of an emergency- Prohibition of engagement in secret transactions with and provision offunds to anti-social forces(2) Identification of Anti-Social Forces
In judging whether specific groups or individuals constitute “anti-social
forces,” which are defined as groups or individuals that pursue economic
profits through the use of violence, threats and fraud, it is necessary not only
to pay attention to whether they fit the definition in terms of their affiliation,such as whether they constitute or belong to “boryokudan” crime syndicates,“boryokudan” affiliated companies, “sokaiya” racketeer groups, groups
engaging in criminal activities under the pretext of conducting social
campaigns or political activities and crime groups specialized in intellectual
crimes, but also to whether they fit the definition in terms of the nature of
their conduct, such as whether they are making violent demands or
unreasonable demands that go beyond the limits of legal liability (refer to the“Key Points of Measures against Organized Crime,” a directive issued in thename of the Deputy Commissioner-General of the National Police Agency on
December 22, 2011).

II-4-9-2 Main Supervisory Focus
The insurance company should not have any relations with anti-social forces
and, in cases where it has established a relationship with an anti-social force
unwittingly, supervisors, while also giving consideration to the characteristics ofspecific transactions, including the point of view of relieving victims, shall pay
attention to such as the following points in order to examine its control
environment for banning any relations with anti-social forces as soon as
possible after the counterparty has been found to be an anti-social force and its

295control environment for dealing with unreasonable demands by anti-social
forces appropriately.
(1) Institutional Response
In light of the need and importance of an action to ban any relationshipwith anti-social forces organically, whether the responsibility of responding to
the situation is not left solely to the relevant individuals or divisions but senior
managers including directors are appropriately involved, and there is a policy
for the entire organization to respond. In addition, whether there is a policy
calling for the corporate group as a whole, not just the involved insurancecompany alone, to take on an effort to prevent any relationship with antisocial forces. Furthermore, whether the insurance company also makes
efforts to eliminate anti-social forces when conducting transactions such asproviding financial services in collaboration with other companies outside thegroup (consumer credit companies, etc.).
(2) Developing of a Centralized Control Environment Through Anti-Social
Forces Response Section
Whether the insurance company has established a section in charge ofsupervising responses to ban any relationship with anti-social forces(hereinafter referred to as the “anti-social forces response section”) so as todevelop a centralized control environment for preventing anti-social forcesfrom inflicting damage, and whether this section is properly functioning.
In particular, whether the insurance company pays sufficient attention to
the following points in developing the centralized control environment.
(i) Whether the anti-social forces response section is actively collecting andanalyzing information on anti-social forces and has developed a databaseto manage such information in a centralized manner and has a system toappropriately update it (i.e., addition, deletion or change of information in
the database). In addition, whether the section is making efforts to share
information within the group in the process of collecting and analyzing
such information, while making appropriate use of information provided by
self-regulatory organizations, etc. Furthermore, whether the anti-social
forces response section has a system to take advantage of information on
anti-social forces for screening counterparties of transactions andevaluating the attributes of shareholders of the insurance company.
(ii) Whether the insurance company makes sure to maintain the296effectiveness of measures to ban any relations with anti-social forces by,for example, having the anti-social forces response section develop amanual for dealing with anti-social forces, provide on-going training, foster
cooperative relationships with external expert organizations such as thepolice, the Center for the Removal of Criminal Organization and lawyers
on an ongoing basis. In particular, whether the insurance company isprepared to report to the police immediately when it faces the imminent
prospect of being threatened or becoming the target of an act of violence,by maintaining close communications with the police on a daily basis so as
to develop a systematic reporting system and build a relationship thatfacilitates cooperation in the event of a problem.
(iii) Whether the insurance company has a structure in which relevant
information is swiftly and appropriately conveyed to the anti-social forces
response section for consultation when transactions with anti-social forces
are found or such forces have made unreasonable demands, etc.. Inaddition, whether the anti-social forces response section has a structure toswiftly and appropriately report relevant information to the management.
Furthermore, whether the anti-social forces response section has astructure to ensure the safety of individuals encountering anti-social forcesin person and to support sections involved in dealing with them.
(3) Execution of Appropriate Prior Screening
Whether the insurance company bans allowing anti-social forces tobecome a counterparty to a transaction by conducting appropriate advancescreening using information on such forces in order to prevent transactions
with anti-social forces, and makes sure provisions regarding the exclusion of“boryokudan” crime syndicates are introduced in all contracts and terms oftransactions.
With regard to affiliated loans (four-party type),(Note) whether the insurancecompany has established a control environment wherein it develops asystem to conduct prior screening by itself after thoroughly introducing theexclusion of “boryokudan” crime syndicates and examines the status of
introducing the exclusion of “boryokudan” crime syndicates and the status ofdevelopment of a database on anti-social forces at partner consumer credit
companies.
(Note) “Affiliated loan (four-party type)” refers to a loan in which a consumer
credit company receives, examines, approves an application from a297

customer through a member shop, and then a financial institution loans
funds to the customer based on a guarantee by the consumer credit
company.
(4) Execution of Appropriate Follow-up Review
Whether, for the purpose of making sure any relationships with anti-social
forces are eliminated, there is a structure to conduct an appropriate follow-up
review on existing credits and contracts.
(5) Implementation of Examination of Payment of Insurance Proceeds, etc.
Whether the insurance company has developed a control environment for
the appropriate implementation of examination of payment of insurance
proceeds, etc. from the point of view of preventing unreasonably claims, etc.
from anti-social forces.
(6) Measures to Terminate Transactions with Anti-Social Forces(i) Whether the insurance company has a system under which information
confirming the existence of a transaction with anti-social forces is swiftly
and appropriately reported to senior managers, including directors, etc.,
via the anti-social forces response section, and responds to the situation
under appropriate directions and involvement by senior managers.
(ii) Whether the insurance company regularly communicates with external
expert organizations, including the police, the National Center for the
Removal of Criminal Organization, lawyers and so forth, and promotes
efforts to eliminate any transactions with anti-social forces by utilizing theservicer functions of the Resolution and Collection Corporation, etc.
(iii) Whether the insurance company, when it has learned through a follow-up
review after initiating a transaction that the counterparty is a member of ananti-social force, takes measures to prevent the provision of benefits toanti-social forces, such as terminating relationships with such forces to theextent possible.
(iv) Whether the insurance company has a control environment to prevent
providing funds or engaging in inappropriate or unusual transactions forwhatever reason if the counterparty has been found to be an anti-social
force.
(7) Dealing with Unreasonable Demands by Anti-Social Forces

298

(i) Whether the insurance company has a system under which informationthat anti-social forces have made unreasonable demands is swiftly andappropriately reported to senior managers, including directors, etc., via theanti-social forces response section, and responds to the situation underappropriate directions and involvement by senior managers.
(ii) Whether the insurance company actively consults external expert
organizations, such as the police, the Center for the Removal of Criminal
Organizations, and lawyers, when anti-social forces make unreasonable
demands, and responds to such unreasonable demands based on
guidelines set by the Center for the Removal of Criminal Organizations
and other organizations. In particular, whether the insurance company has
a structure to report to the police immediately when there is an imminent
prospect of a threat being made or an act of violence being committed.
(iii) Whether the insurance company, in response to unreasonable demandsby anti-social forces, has a policy to take every possible civil legal action
and to avoid hesitating to seek the initiation of criminal legal action by proactively reporting damage to the authorities.
(iv) Whether the insurance company ensures that the section in charge ofhandling

problematic

conduct

promptly

conductsafact-finding

investigation upon request from the anti-social forces response section, incases where unreasonable demands from anti-social forces are based on
problematic conduct related to business activity or involving an officer or
employee.
(8) Management of Shareholder Information
Whether the insurance company manages shareholder information
properly, through means such as checking the transaction status of its own
shares and examining information regarding the attributes of its shareholders.

II-4-9-3 Supervisory Method and Actions
If, based on the inspection results and reports on cases of deplorable events,
etc., a problem is deemed to exist in the control environment to ban any
relationship with anti-social forces, supervisors shall require the submission ofa report under Article 128 of the Act as necessary, and, as a result of
examining the said report, if it is deemed that there is a serious problem from299

the point of view of soundness/appropriateness of business operation, theyshall consider issuing a business improvement order under Article 132 of theAct. In doing so, if it is deemed that the internal control environment isextremely vulnerable and it is necessary to have the insurance company focus
on the improvement of the internal control environment, etc., as shown by, forexample, a failure to take appropriate steps toward dissolving relations with
anti-social forces despite recognizing the provision of funds thereto and thepresence of inappropriate business relations therewith, supervisors shall issue
an order to suspend part of business for a certain period of time necessary forbusiness improvement under Article 132 of the Act.
In addition, in the case of a serious/malicious violation of laws andregulations or act that harms the public interest, etc., such as organicallyrepeating/continuing to provide funds or have inappropriate business relations
despite recognizing the counterparty to be an anti-social force, supervisors
shall consider stricter measures under Article 133 of the Act.
(Note) For the response to anti-social forces, the matters described in II-1-21(1)(vi) (representative director), II-1-2-1(2)(iv) (directors and board of
directors), II-1-2-2(1)(vii) (directors and board of directors), II -1-2-2(3)(vii)(executive officers), II -1-2-3(1)(vi) (representative director), II -1-2-3(2)(iv)(directors and board of directors), II-4-2-2(16)(iii)B. (points of attention insolicitationof

insurance

contracts),

andII-4-4-2(2)(v)E.

(controlenvironment for managing the payment of insurance proceeds, etc.) shallalso need to be considered.

300

II-4-10 Ensuring of Appropriate Presentation(1) Whether the insurance company has established a system in which
information is appropriately disclosed with due consideration to the purpose of
information disclosure.
(2) Whether the insurance company has taken measures to ensure appropriate
presentation of materials for solicitation (including advertisement), etc.
according to the media used for presentation and characteristics of products.
(3) Whether the insurance company has appropriately formulated the internal
rules, etc. to ensure appropriate presentation.
(Note) Whether the insurance company has appropriately formulated theinternal rules, etc. to ensure appropriate presentation of the insurance period,
content of coverage, underwriting conditions, premium rate, and insurance
premiums, etc. based on the following matters, etc.
(i) When presenting the qualities of the coverage of insurance products,
whether they are presented to mislead the policyholders, etc. as if they are in
extremely good standing by not indicating inseparable matters in an easy-tounderstand manner, etc.
It must be noted that, for instance, in cases where even if certain limitations
on content of coverage of insurance products such as the following exist, thelimitations are not presented or presented in such a way that the policyholder,etc. is likely to overlook, such as presenting them in small fonts, in an
extremely short period of time, or in a location away from where the content
of coverage is emphasized with no clear indication of reference to thatlocation, etc., the presentation may mislead the policyholder to believe thatthe content of the insurance product is much better than it actually is.
A. A certain uninsured period after the conclusion of the contract exists for allor part of the grounds for benefit claim
B. The amount of insurance proceeds (benefits), etc. is reduced or
extinguished based on the conditions such as the age of the insured
person, number of years after the conclusion of the contract, number ofdays of hospitalization, and disease covered, etc.
C. There are cases not covered by insurance benefits if the grounds forbenefit claim is medical treatment based on advanced medical care,depending on the medical practice, medical institution, and indication, etc.

301

In addition, it must be noted that if the information that is not directly
related to the quality of the content of coverage of insurance products ispresented as if it is in good standing, it may mislead that the products are
significantly better than the actual ones.
(ii) When presenting the advantages of trading conditions of insurance products,
whether they are presented to mislead the policyholders, etc. as they are
extremely advantageous by not indicating the limitations, etc. in an easy-tounderstand manner, etc.
It must be noted that, for example, if insurance premiums are presented
using the insurance premiums of young people, etc. that are not considered
to be the main policyholder group as an example and the conditions such as
the applicable age, etc. are presented in extremely small fonts that are likely
to be overlooked by policyholders, etc., it may mislead the policyholders tobelieve that the said insurance premiums are applied to policyholders, etc.
other than young people and that the products are significantly cheaper thanthey actually are.
In addition, it must be noted that if the information that is not directly
related to the advantages of the trading conditions of insurance products ispresented as if it is advantageous, it may mislead that the products are
significantly more advantageous than the actual ones.
(iii) Whether insurance products/services, etc. are presented based on
objective facts.
In cases where the terms that directly mean the best in the industry orother ranking, terms that directly mean uniqueness, or terms that mean
relative advantage are used, for example, whether the contents of thearguments have been objectively verified.
In addition, when displaying objective facts, whether a part is not presented
or is emphasized so as to lead policyholders, etc. to misunderstand the facts,
as described in the following examples.
A. Whether the amount of copayment of medical fees that do not reflect thebenefits based on the High-Cost Medical Expense Benefit is not presented
so that it may be misrecognized as being too large.
B. Whether, in TV commercials, etc., important matters are not presented in
the screen as notes without ensuring sufficient visibility.
(iv) In cases where the terms that directly mean the best in the industry orother ranking, terms that directly mean uniqueness, or terms that mean
relative advantage are used when presenting insurance products/services,302etc., whether the grounds for the contents of the arguments are also clearlypresented.
For instance, when using the terms such as “best”, “worst”, “best in Japan”,“number one”, “the only company”, “first in the industry”, “not available inother companies”, “wide”, “lowest level”, and “comparatively cheap”, etc., thesurvey methods, references, or preconditions that constitute the grounds forthese terms need to be presented.
(v) When presenting insurance products sold at banks, etc. (including thepresentations made by banks, etc.), whether the fact that the products
concerned are the insurance company’s products is appropriately presented
so as not to lead to a misunderstanding as if the products concerned are theproducts of the banks, etc. such as time deposits.
(4) Whether the insurance company has taken measures to make presentation to
draw attention to the importance of reading documents describing the “contract
outlines” and “alerting information” according to the presentation media andcontent to be presented.
(5) Whether the insurance company has developed an adequate examination
system to ensure appropriate presentation, including legal checks by thesection in charge of compliance, etc.
Whether the examination is carried out with consideration given to thefollowing points.
(i) Whether the content of the materials, etc. used for solicitation to bepresented is examined without omission by the methods such as centrally
managing them at the head office.
(ii) Whether the terms and conditions, “contract outlines”, “alerting information”,
pamphlets, and policy leaflets, etc. are checked to ensure the consistency of
the individual contents to be presented.
(iii) Whether the presentation of the interest reserve rate in the materials, etc.
used for solicitation is checked from the point of view of improving the public
nature and objectivity, etc.
(iv) In cases where problems, etc. in the presentation have been pointed out inthe complaints from policyholders, etc., whether the content pointed out isanalyzed, and if a problem is found to exist, whether appropriate measures
for improvement are taken.

303(6) With regard to Article 300(1)(vi) and (vii) of the Act concerning the
explanations of the nature of products, the following points shall be considered.
(i) The presentation of insurance contracts shall be handled equivalently as
described in “II-4-2-2(9)”.
(ii) The presentation of the expected dividends shall be handled equivalently as
described in “II-4-2-2(10)”.
(7) For specified insurance contracts, the regulations on advertisement, etc. set
forth in Article 37 of the Financial Instruments and Exchange Act as Applied
Mutatis Mutandis shall be observed with consideration given to each of theabove items.

II-4-11 Response to Persons with Disabilities
II-4-11-1 SignificanceThe Act for Eliminating Discrimination against Persons with Disabilities
imposes prohibition of

unfair discriminatory treatment

andbest-effort

obligations for reasonable accommodation of disabled persons on business
operators, and insurance companies are subject to the imposition.
II-4-11-2 Main Supervisory Focus
Whether, in responding to persons with disabilities, the insurance company
makes appropriate responses in accordance with the respective provisions of
the “Guidelines for the Promotion of Elimination of Discrimination on the
Grounds of Disabilities in Business Fields Under the Jurisdiction of the
Financial Services Agency” (Notice No. 3 of 2016).
In addition, whether the insurance company has developed a necessaryinternal control environment such as understanding and examining the status of
the responses and reviewing response methods, etc..

II-4-11-3 Supervisory Method and Actions
When supervisors have recognized an issue of supervisory concern
regarding responses to disabled persons by insurance companies, throughdaily supervising operations or complaints from persons with disabilities,etc.,
they shall check the status of the development of an internal control

304

environment by holding in-depth hearings with the insurance company.
When there is doubt about the development status of the internal control
environment at an insurance company, supervisors shall request reporting(including reports based on the provisions of Article 128 of the Act) andexamine the situation as needed. If said development status is deemed
problematic, the supervisor shall urge improvement.

305

II-5 Others
II-5-1 Outsourcing of Administrative Processes of Insurance Companies
II-5-1-1 Significance
Making business management more efficient has been an issue in each
insurance company, and outsourcing of a broad range of business operations is
expected to take place more than ever. When each insurance company
outsources its business operations, whether it is adequately handled, from thepoint of view of protecting customers and ensuring the soundness of business
management, according to the content of business operations to be outsourced,
etc.
(Note 1) “Outsourcing of business operations” above refers to entrusting by aninsurance company of a part or all of the business operations necessary forits business to a company other than that insurance company (refers to thosethat do not fall under life insurance agencies, non-life insurance agencies,
and insurance brokers).
(Note 2) With regard to outsourcing of business operations necessary for
conducting businesses specific to insurance companies, in particular,consideration shall be given to ensuring carrying out examinations by
periodically understanding the situation through hearings, etc.
(Note 3) For cases where the said outsourcing is conducted between an
insurance company and its subsidiary companies, etc., also refer to “III -2-2
Subsidiary Companies, etc.” of the Guidelines.

II-5-1-2 Main Supervisory Focus(1) Whether the insurance company makes efforts, from the points of view ofprotecting customers, to develop a control environment (including requesting
the outsourced contractor to develop a control environment in theoutsourcing contract, etc.) such as the following.
(i) Whether the insurance company has made it clear that the outsourcing ofbusiness operations does not cause any change in the contractual rights
and obligations involving it and its customers, who continue to have thesame rights as if the business operations were conducted by the insurance306

company itself.
(ii) Whether the insurance company has developed a control environmentthat ensures the prevention of inconveniences that may be caused tocustomers should they not be provided the services guaranteed under theircontracts related to outsourced business operations.
(iii) Whether the insurance company has developed a control environment toenable appropriate loss investigation from the point of view of protecting
users and ensuring user convenience at the outsourced contractor if loss
investigation is outsourced.
In particular, whether a control environment has been developed wherein
loss investigation is carried out in a way not to unreasonably damage thehonors, credits, and rights such as privacy, etc. of relevant parties and third
parties.
(iv) Whether the insurance company has developed a system to manage
information related to customers, etc. including prohibition of its use otherthan for intended purposes at the outsourced contractor, and imposed a
confidentiality obligation on the outsourced contractor.
(v) For the outsourcing of handling of information related to customers, etc.,
refer to “II-4-5 Control Environment for the Management of Information
Related to Customers, etc.” of the Guidelines.
(vi) Whether the insurance company has established a control environment
for properly handling complaints, etc. by, for example, opening a contact
point through which customers can directly consult the insurance company.
(2) Whether the insurance company makes efforts to conduct comprehensive
examinations on the following points, etc. from the points of view of ensuring
the soundness of its business management and develop a necessary control
environment (including requesting the outsourced contractor to develop acontrol environment in the outsourcing contract, etc.).
(i) Risk Management
Whether the insurance company comprehensively examines the risks
related to outsourcing such as impacts on its businesses when services are
not provided in accordance with the outsourcing contract and considers
measures to be taken when such risks are actualized.
(ii) Selecting Business Operators to be Outsourced
Whether the insurance company selects the business operators to beoutsourced from the point of view of whether they can provide services of307

an adequate level in the context of the rationality of the insurancecompany's

businessmanagement,

whethertheirfinancial/business

management conditions are adequate to ensure the provision of services
and liability for damages, etc. in accordance with the contract, and whether
there is not any problem in the context of the insurance company’s
reputation, etc.
(iii) Content of Contracts
Whether the content of contracts is in accordance with the content ofoutsourced business operations, etc. and adequate as, for example, thefollowing points are clearly indicated.
A. Content, level, and cancellation procedures, etc. of services to beprovided.
B. Responsibilities of the outsourced contractor if the services are notprovided in accordance with the outsourcing contract. Matters related toliability for damages that may occur in relation to the outsourcing(including responses to ensure execution of liability for damages such asproviding security as necessary, etc.)
C. Content of report the insurance company receives from the outsourced
contractor on the status of the outsourced business operations and thatof the outsourced contractor’s business management related to those
operations.
D. Agreements when responding in accordance with inspections andsupervisory requests to the insurance company by the financial
authorities.
(iv) Statutory Obligations, etc. Imposed on the Insurance Company
Whether the insurance company has not outsourced business operations
in such a way that hinders the execution of statutory obligations, etc.
imposed on the insurance company when the said outsourced business
operations are carried out by the insurance company itself.
(v) Control Environment on the Insurance Company Side
Whether the insurance company has developed an internal control
environment such as that for assigning managers for, monitoring, andexamining the outsourced business operations (including measures suchas including the provisions that allow the insurance company to examine
the outsourced contractor on the appropriateness of its business operation
processes in the outsourcing contract, etc.).
(vi) Information Provision308

Whether the insurance company has established an internal control
environment wherein appropriate information can be promptly obtained asnecessary, in addition to periodical reports on the status of execution of theoutsource business operations from the outsourced contractor to theinsurance company.
(vii) Audits
Whether the outsourced business operations are subject to audit at theinsurance company.
(viii) Responses in Emergency Situations, etc.
Whether the insurance company considers responses to prevent
significant damage to businesses of the insurance company from occurring
even in cases where the services are not provided in accordance with theoutsourcing contract. In addition, whether the insurance company has
developed a control environment wherein it can provide the services tocustomers in place of the outsourced contractor, etc.
(ix) Outsourcing to Group Companies
In cases where outsourcing contracts are concluded between theinsurance company and its group companies, whether the content of thecontracts does not practically provide support to the outsource contractors,
thereby violating the arm's-length rule.

309

II-5-2 Information Disclosure Regarding Corporate Social Responsibility (CSR),
etc.
II-5-2-1 Significance(1) CSR is a concept generally interpreted to include the economic,
environmental and social responsibilities a company recognizes in relation toits diverse range of stakeholders, and activities conducted on the basis of
those responsibilities. CSR is significant in that the company can enhance its
sustainability by fulfilling those responsibilities.
(2) It should be left to individual insurance companies which are privatecompanies to decide, based on the principle of self-responsibility, not only
whether to engage in CSR activity but also whether to make information
disclosure regarding such activity. Evaluation of an insurance company’s
CSR activity should be made by a diverse range of stakeholders, including
users, under the principle of market discipline.
(3) However, if easy-to-understand information disclosure regarding CSR
activity is made in a timely and appropriate manner, users are expected tomore easily obtain information useful for judging the sustainability of
insurance companies and their insurance products and services when
deciding which insurance companies to make transactions with. From thisviewpoint, by clarifying supervisory viewpoints regarding CSR-related
information disclosure by insurance companies as a minimum standard,supervisors shall promote information disclosure that is appropriate anduseful for users.

II-5-2-2 Main Supervisory Focus
Whether the insurance company makes information disclosure appropriate
from the viewpoints of the following matters in order to enable a diverse rangeof stakeholders, including users, to properly evaluate its CSR and to contributeto the improvement of the convenience for users.
(1) Suitability with Objective

310

Whether the insurance company’s CSR report comprehensively covers thefields of economy, environment and society and whether its contents suit theobjective of adequately meeting the needs of a diverse range of stakeholders,
including users, by using comprehensive descriptions and reflecting social
backgrounds. In addition, whether disclosure is made in a timely and effective
manner.
(2) Reliability
Whether the insurance company compiles its CSR report through atransparent process and uses precise, objective and verifiable data andinformation, thereby ensuring that the report is highly reliable and widely
acceptable for many stakeholders.
(3) Readability
Whether the insurance company strives to make its CSR report as easy-tounderstand as possible so that a diverse range of stakeholders, including
users, can understand it. In addition, whether the insurance company pays
sufficient attention to the need to enable comparison between recent andpast reports by, for example, maintaining consistency.

II-5-2-3 Supervisory Method and Actions
An insurance company’s CSR-oriented efforts and information disclosure arevoluntary activities based on business decisions in line with the principle of selfresponsibility. Therefore, even if the insurance company’s CSR report fails totake account of the above supervisory viewpoints, supervisors do not need totake supervisory measures.
However, in cases where information disclosure is imprecise or inappropriate
so that it may cause misunderstanding by users, the disclosure practice shallbe examined from the viewpoint of the appropriateness of business operations.

311

II-5-3 Compensation StructureII-5-3-1 SignificanceIt is possible for an internationally operating financial institution to design andoperate its compensation structure by giving consideration to overseas
employment and compensation practices. On the other hand, depending onthat design and operation, it could result in increased incentives for officers andemployees to take risks, and if this tendency becomes excessive, it could leadto serious problems, such as for risk management of insurance companies orinsurance holding companies with overseas branch offices or invested foreign
corporations(Note 1) (hereinafter referred to as “insurance companies withoverseas bases, etc.” in II-5-3).
Internationally as well, at the Financial Stability Board and other forums,
discussion has been advanced on the design and operation of thecompensation structures of financial institutions. The upshot is that insurancecompanies with overseas bases, etc. need to ensure that compensation
structures do not lead to officers and employees taking excessive risks while
also giving consideration to these international trends. In light of this, thesupervisory authorities shall supervise the compensation structures of
insurance companies with overseas bases, etc. with due consideration of II-53-2 “Main Supervisory Focus” while also taking into account, inter alia,
international guidelines published by the Financial Stability Board(Note 2). In
performing actual supervision, supervisors shall also take into account the sizeof the insurance company with overseas bases, etc., the content of its
business operations, and its establishment of overseas bases, and shall be
mindful of not applying these guidelines in a mechanical and uniform fashion.
In addition to the risk of officers and employees being provoked into taking
excessive risks with regard to the compensation structure, supervisors shallalso take due care with regard to whether any similar risks are noticeable withregard to employment practices, personnel evaluation systems and the like.
Also, in light of the fact that senior managers are charged with governance andother important responsibilities and that they receive compensation for this, it
should be kept in mind that they are duly required to conduct appropriate
management.
(Note 1) “Invested foreign corporations” refers to “invested foreign
corporations” described in III-2-2-4(2) that conduct insurance business or312asset management business. It should be noted that it is desirable that
insurance companies and holding companies without overseas branches
and invested foreign corporations are also handled equivalently as
described in II-5-3-2 “Main Supervisory Focus”.
(Note 2) - “FSF Principles for Sound Compensation Practices,” Financial
Stability Forum (April 2009)- “FSB Principles for Sound Compensation Practices. Implementation
Standards,” Financial Stability Board (September 2009)(Note 3) The design/operation of the compensation structure of foreign
insurers should primarily be supervised by the authorities of their homecountries on a group basis in an appropriate manner so as to prevent
incentives for officers and employees to take risks from being excessively
strong.
On the other hand, from the point of view of appropriately cooperating insupervision by the home countries’ authorities, etc., the status ofdesign/operation of compensation structures of insurance companies(insurance companies, foreign insurance companies, etc., or specified
corporations prescribed in the Insurance Business Act) based in Japan
shall also be monitored. In particular, in cases where the risk of officers
and employees of companies based in Japan being provoked into taking
excessive risks, etc. is deemed to exist, more in-depth examination shallbe conducted on the problems in risk management and take necessary
measures such as actively presenting problems to the home countries’
authorities, etc.

II-5-3-2 Main Supervisory Focus(1) Role of the Compensation Committee, etc.
(i) With regard to the compensation structure for officers and employees of
the insurance company with overseas bases, etc. (including its subsidiarycompanies, etc. and their invested foreign corporations, as necessary; thesame applies hereinafter), whether a committee to monitor the condition ofthat and an appropriate control environment by which the necessary
checks of the management team can be exercised to ensure theappropriate

designandoperationofthecompensation

structure(hereinafter referred to as the “compensation committee, etc.”) has been313

established. Also, whether the necessary authority, systems and so forth
have been secured so that the compensation committee, etc. can exercise
the monitoring and checking function independently from the operational
divisions (including officers in charge of sales).
(Note 1) “Subsidiary companies, etc.” refers to “subsidiary companies, etc.”
described in III-2-2 that conduct insurance business or asset
management business.
(Note 2) For insurance companies with overseas bases, etc. that have notestablished the compensation committee, etc., the following points shallbe considered.
- Whether specific compensations are determined by the board of
directors, etc. based on the internal rules, etc. within the range ofmaximum amount of compensation for officers determined at theMember Representatives Meeting or general meeting of shareholders
and the appropriateness, etc. of the level of overall compensation
amounts is deliberated by the board of auditors, etc..
- Whether the policy and internal rules, etc. for compensations for
employees are determined by the board of directors including outside
directors, etc. and the appropriateness, etc. of the level of overall
compensation amounts is deliberated by the board of auditors, etc.
(ii) Whether the compensation committee, etc. has confirmed that the overalllevel of compensation will not have a material impact on the futureadequacy of the financial soundness standards, taking into account thepresent state and future forecasts of financial soundness of the insurancecompany with overseas bases, etc.
(iii) Whether the compensation committee, etc. pays sufficient attention to theperspectives of risk management, such as whether it cooperates closelywith the risk management section regarding the evaluation of theappropriateness of the design and operation of the compensation structure.
(iv) Whether the compensation committee, etc., through monitoring how thecompensation structure is operated, checks whether any problems havenot arisen, such as compensation being excessively linked to short-term
earnings or being overly reflective of performance.
(2) Consistency between Compensation Structure and Risk Management, etc.
(i) Whether the compensation of employees in the risk management sections
and compliance sections is determined independently from other business314sections, and whether such compensation appropriately reflects theimportance of their responsibilities. Also, whether, in addition to the degree
to which risk management and legal compliance goals are achieved,compensation-related performance for these employees is measured in a
way that primarily reflects the degree of their contribution to theestablishment of a control environment for risk management and a control
environment for legal compliance.
(ii) Whether the productivity-linked portion of compensation for officers andemployees (as for employees, those employees who have a significant
influence on the overall risk-taking of the insurance company withoverseas bases, etc.; the same applies hereinafter) is appropriate given
their responsibilities and the actual scope of their work, and in light of thepolicies concerning the financial soundness of the entire insurancecompany with overseas bases, etc. and the degree of risk that theinsurance company with overseas bases, etc. can face.
(iii) In cases where a considerable portion of the compensation for officers
and employees is linked to productivity, whether the design takes into
account the response to financial risks that could arise before thecompensation is finalized (measures to ensure financial soundness
standards).
(iv) Whether the productivity-linked portion of compensation for officers andemployees has been designed to decrease to a significant degree in theevent of poor business results.
(v) Whether methods of paying compensation which emphasize the creationof more long-term corporate value (for example, payments in stock or the
granting of stock options) and methods of paying compensation which also
take into account the period of time up until risks are actualized (forexample, setting fixed-period transfer restrictions in cases where payments
are made in stock, setting exercise periods if stock options are granted, orredemptions in the event compensation payments are carried over ifbusiness results are poor) have been adopted according to the
responsibilities of officers and employees and the actual scope of theirwork.
(vi) With regard to a compensation structure that could adversely affect risk
management (such as guaranteed minimum bonuses paid across two or
more years, or a system of large retirement allowances), whether
appropriate

improvement

measures

315

have

been

examinedandimplemented.
(vii) Even in cases where a compensation structure has been designed
which is consistent with risk management, whether a control environmenthas been developed for properly monitoring and checking the risk of acts
been conducted by officers or employees which could compromise theintent of that design (such as transactions which are likely to reduce risks
superficially, etc.).
(3) Disclosure of the Design/Operation of the Compensation Structure
It is desirable that useful information on the consistency between thecompensation structure of the insurance company with overseas bases, etc.
and risk management such as, for example, the following items are actively
disclosed, taking into account international best practices.
(i) Information on the compensation committee, etc.
(ii) Important information on the design of the compensation structure (for the
productivity-linked portion, in particular, outlines of the method of
measuring performance, method of reflecting performance in the amountof compensation, and method of payment, etc.)(iii) Important information on the operation of the compensation structure (inparticular, matters concerning the amount of total compensations forofficers and employees, percentage of the productivity-linked portion inthat total, and actual payment method, etc.)

II-5-3-3 Supervisory Method and Actions(1) With regard to compensation structures of insurance companies withoverseas bases, etc., supervisors shall conduct hearings on a periodic andongoing basis on their response to identified issues in light of international
trends and other factors. In addition, supervisors shall actively utilize
frameworks of cooperation with overseas authorities, and shall conduct indepth hearings regarding any issues related to overseas bases that areconsequently identified.
(2) In cases where off-site monitoring, inspection results, or the like mentionedin (1) above reveal a problem in the business operation or internal control
environment of the insurance company with overseas bases, etc.,316supervisors shall require the submission of a report based on Article 128 of
the Act, as necessary.
In addition, in light of the reports submitted, in cases where it is deemednecessary for improvement, supervisors shall also take such action as
issuing a business improvement order based on Article 132 of the Act.

II-5-4 Ensuring Smooth Execution of Orderly Resolution
II-5-4-1 Measures to Ensure the Effectiveness of Stay Decision in Contracts
Governed by Foreign Laws
II-5-4-1-1 SignificanceThe amendment of the Deposit Insurance Act in June 2013 has provided thePrime Minister with the power to make a decision that a “clause on specified
cancellation, etc.” in a contract, meaning a clause which provides specified
cancellation, etc. (specified cancellation, etc. prescribed in Article 137-3(2) of
the same Act) that is to be triggered by an application of related measures, etc.
prescribed in Article 137-3(1) of the same Act, is null and void for a period
prescribed in Article 137-3(1) of the same Act (such a decision is hereinafterreferred to as a “stay decision”). In the above conjunction, the provisions in
Article 131 of the same Act with respect to special provisions for procedures ofcreditor protection concerning business transfer, etc. were revised. In order toavoid severe disruption to Japan’s financial system, financial institutions, etc. towhich specified confirmation prescribed in Article 126-2(1) of the same Act isapplicable are required to develop an appropriate control environment toensure that the effectiveness of stay decisions and special provisions forprocedures of creditor protection prescribed in Article 131 of the same Act(hereinafter collectively referred to as the “effectiveness of stay decision, etc.”)
extend to contracts governed by laws other than Japanese law.
II-5-4-1-2 Main Supervisory Focus
In light of the development at the global level aimed at ensuring theeffectiveness of temporary stay on early termination rights in contracts
governed by foreign laws, supervisors shall set the following items as their317supervisory focus in examining the companies’ controls on contracts governedby laws other than Japanese law(Note), taking into account the circumstances ofindividual transactions.
(Note) The necessary measures must be taken at the insurance group level.
(1) Supervisory Focus With Respect to Conclusion of a Contract, etc.
Whether an insurance company, etc. has taken necessary actions toensure, regardless of the counterparties’ jurisdictions, that the effectivenessof stay decision applies to a contract governed by laws other than Japaneselaw, where the insurance company, etc. concludes or materially amends thecontract or enters into a transaction based on the existing contract, provided
that the new or the existing contract, as the case may be, contains a clauseon specified cancellation; is agreed with any counterparty other than central
counterparties; and is with respect to subject transactions which refers to,among the transactions prescribed in Article 35-18 of the Regulation for
Enforcement of the Deposit Insurance Act as “transactions pertaining togoods with a quotation on an exchange or any other market quotation, ortransactions equivalent thereto”, over-the-counter derivative transactions,financial and other derivative transactions, the sale or purchase of securities
on condition of repurchase or resale, the lending and borrowing of securities,
the trading of bonds with options, forward foreign exchange transactions,over-the-counter commodity derivative transactions, and similar transactions,
including transactions entered into for the purpose of collateralizing thesetransactions.
(Note) Actions to comply with the requirements above include:(i) Adhering to an internationally common protocol aimed at ensuring theeffectiveness of stay decision on contracts governed by laws otherthan Japanese law and confirming that the counterparty has adhered
to such a protocol; and(ii) Indicating clearly in the contract that the effectiveness of stay decisionapplies to the subject transactions.
(2) Supervisory Focus With Respect to Existing Contracts
It is desirable that companies that are required to take the actions set outin (1) also take those actions, as necessary, with respect to existing contractsof subject transactions which include a clause on specified cancellation andare governed by laws other than Japanese law (excluding the cases where318the firm enters into a new transaction based on the existing contract), taking
into account the significance of the potential systemic impact that may becaused by the non-enforceability of the effectiveness of stay decision to thecontract.
II-5-4-1-3 Supervisory Method and Actions
Based on the supervisory focus above, supervisors shall conduct in-depth
hearings on the control environment of the insurance company group. Where
necessary, supervisors shall also require the insurance company group to submit
a report to the FSA, pursuant to Article 128 or 271-27 of the Act and Article 136of the Deposit Insurance Act.
If any material impediment to ensuring smooth execution of orderly
resolution is identified as a result of requiring the submission of a report,
supervisors shall consider issuing a business improvement order pursuant to
Article 132 or 271-29 of the Act and an order pursuant to Article 137-4 of the
Deposit Insurance Act.

319

III. Points of Attention in the Conduct of Administrative Processes Regarding
Inspection/Supervision of Insurance
III-1 Basic Concept for Inspection and Supervising Operations of Insurance
In order to achieve the above-mentioned purpose of inspection and supervision of
insurance (I-1(1)), the FSA also needs to continuously take actions against
insurance companies according to the scale and characteristics of individual
insurance companies.
For this reason, it is essential, when examining/supervising insurance companies,that supervisors first understand the policy of each company on how to address thechallenges such as establishing a business model, protecting policyholders, etc.
ensuring financial soundness, and establishing a control environment for managing
compliance risks, and then correctly understand under what governance system
the policy is to be implemented, what potential risks and issues are involved, andhow each company intends to recognize and respond to these risks, etc.
In order to respond to important issues with a viewpoint of overall business
management and lead it to sound development of the national economy, it isnecessary for each insurance company to reform its management system to make
improvements toward best practices on its initiative without being pointed out by
the authorities. The FSA shall, in the course of continued monitoring throughunderstanding the actual situations and dialogue, etc., encourage each company’sefforts to pursue better practices.
In doing so, if a serious problem is found from the point of view of the soundness
and appropriateness of business operations or if it is deemed that business
operations cannot be improved with insurance companies’ voluntary efforts alone,supervisors shall consider taking administrative measures (III-4), including
business improvement order under Article 132 of the Act, etc.
Furthermore,wheninspecting/supervising

insurancecompanies,

due

consideration shall also be given to the following points.
(1) Ensuring Sufficient Communication With Insurance Companies
When

conducting

inspection/supervision,itisimportanttocorrectly

understand/analyze the information on business management of insurancecompanies and, as necessary, appropriately respond to it on time. In order to doso, in addition to reports from insurance companies,the FSA needs to regularly320promote sufficient communication and actively collect information under a soundand constructive tense relationship with insurance companies. and to Moreconcretely, it is necessary to make efforts to understand not only financial
information, but also various information on business management by ensuring
daily communications with insurance companies through interviews andexchange of opinions, etc. with a broad range of their officers and employees,
including senior managers, outside directors, and persons in charge of internal
audits, periodically and on time.
(2) Respecting Voluntary Efforts of Insurance Companies
The FSA is in the position to examine, pursuant to laws and regulations, themanagement decisions of insurance companies which are private companies inline with the principle of self-responsibility, etc. and encourage the improvementof problems. When conducting inspection/supervision, supervisors shall, fully
taking into account this position, give sufficient consideration to respecting
voluntary efforts of insurance companies regarding their business operations.
(3) Ensuring Efficient and Effective Inspection/Supervising Operations
From the point of view of effectively utilizing limited resources of the FSA andinsurance companies, inspection/supervision needs to be conducted efficiently
and effectively by fully taking into account the scales and characteristics of
insurance companies. Therefore, when requesting insurance companies tosubmit reports and materials, etc., supervisors shall consider limiting them to theextent actually necessary for inspection/supervising operations and make efforts
to improve the efficiency and effectiveness by always checking the necessity andmethods,etc.

ofcurrent

inspection/supervising

operations

and

make

improvements when necessary, etc.
Considering the point of view of reducing the burden of operations of insurancecompanies, etc., reports and materials already submitted shall be periodicallychecked once a year. In doing so, consideration shall be given to sufficiently
hearing insurance companies’ opinions.
Besides, when requesting insurance companies and insurance agents tosubmit reports and materials, etc. regarding small-scale business offices, etc. of
the insurance companies and insurance agents (meaning “insurance agents”
prescribed in Article 2(23) of the Act but excluding “small amount and short term
insurance agents”; the same applies hereinafter), supervisors shall consider not
to hinder smooth execution business operations by fully taking into account the321characteristics of the business offices concerned concerning services andproducts handled, etc.
(4) Ensuring International Level of Supervision
The supervisory authorities shall, considering that some insurance groups
subject to the Guidelines for Supervision operate businesses internationally,
make efforts to reflect the “Common Framework for the Supervision ofInternationally Active Insurance Groups” (ComFrame) adopted by IAIS in
November 2019, etc. in conducting inspection/supervision and designate
Internationally Active Insurance Groups (IAIG) in Japan that operate businesses
internationally under the provisions of the ComFrame.
In addition, for overseas activities of insurance groups, supervisors need toclosely cooperate with financial supervisory authorities in the jurisdictions wherebases of the insurance groups are located (host jurisdictions).

III-1-1 Procedures of Inspection/Supervising Operations
Inspection/supervising operations of insurance companies are based on
encouraging each company to make necessary improvements by appropriately
combining various methods such as monitoring through understanding the actual
situations and dialogue, etc. supervisory measures, feedback, and information
provision according to the situation and the characteristics and seriousness, etc.
of problems that each company is facing.
In addition to the above, supervisors are required to correctly understandchanges in the global economic/market environment surrounding insurancecompanies through daily monitoring and, concerning individual situations of eachcompany, encourage efforts to pursue best practice in risk management, etc. andresolveissuesinestablishingacontrolenvironment

forbusinessmanagement/governance, etc. in dialogue with insurance companies, taking into
account monitoring data and results of hearings on an as-needed basis, etc.

322

III-1-2 Specific Methods of Inspection/Supervising Operations(1) Continued and Focused Unified on-Site/off-Site Monitoring
The FSA shall, after understanding the characteristics and issues of eachcompany, conduct continued monitoring to follow up on the status of
improvements by using different monitoring methods, including on-site
inspection, according to the characteristics and priority of the issues.
When using different monitoring methods, sufficient consideration shall begiven, in addition to individual specific situations of each company, to theviewpoints such as the effectiveness of each method in understanding theactual situations, degree of burden on the authorities side and the insurancecompanies side, and urgency of the problems, etc. Basically, supervisors shallfirst conduct an analysis of materials related to the management/financial/risk
figures, etc. and monitoring such as hearing from relevant internal/external
parties, and then make judgments on the necessity of on-site inspection under
Article 129 of the Act (in the case of foreign insurance companies, Article 201of the Act and in the case of underwriting members and licensed specified
corporations, Article 227 of the Act; the same applies hereinafter), taking into
account the results of an analysis on whether an issue concerning the current
soundness/appropriateness, etc. exists.
(2) Specific Methods(i) Presupposed Acts in Understanding the Actual Situations and Conducting
Dialogue
A. Information Collection/Profiling (understanding of characteristics)
The FSA shall conduct monitoring to understand the characteristics,
issues, and individual-specific situations on each occasion such as thestatus of voluntary efforts for improvement, etc. of each company. This
includes the understanding the impact that changes in the environment
surrounding insurance companies have on business management and thestatus of each company’s response to it.
In addition, since the trends of domestic/overseas economy andfinancial/capital markets and the actions of insurance companies affecteach other, supervisors are also required to analyze/understand thatinteraction.
Although such information collection and profiling is based on theaccumulation of the results of daily monitoring and is not constrained to323

specific formats, supervisors shall make efforts, for example, from thefollowing points of view.
(A) Macroeconomic Perspectives
It is necessary to analyze/understand the impacts that changes indomestic and overseas economic, financial market, political, and social
environments have on each company and financial system. Therefore, itis effective, for example, to collect information on changes in domestic
and overseas environments such as problematic conducts in Japan andabroad including general companies, revisions of laws and regulations
and trends in precedents both domestic and overseas, trends indiscussions in overseas authorities and international organizations, andchanges in economic/social environments (increased interest in SDGs,
etc.), etc. in cooperation with relevant departments within the Agency,
local Finance Bureaus, and relevant Ministries and Agencies, etc., andthen analyze/understand the issues common to other companies in thesame business and other industries, similar businesses/products, andlegal systems, etc.
Supervisors shall make efforts to understand/identify the issues
inherent in the overall financial sectors by analyzing the horizontal
expansion and spread of problematic events through such informationcollection/analysis.
(B) Microeconomic Perspectives
In order to realize effective dialogue, etc. with insurance companies, it
isessential

toaccumulate

in-depthknowledgeoftheactualcircumstances specific to each company. In particular, as the starting
point, it is necessary to confirm the management philosophies of
insurance companies such as what visions they have in their businessenvironment (customer characteristics, competitive environment, etc.)
and what they intend to do to achieve them. In order to do so, it iseffective to collect information such as the following, for example, fromthe insurance companies concerned and their stakeholders (employees,
customers, local communities, shareholders, etc.).

・ Not only typical materials such as financial data and risk figure data,etc., but also materials and agenda, etc. of meeting bodies for making
business management decisions shall be analyzed
・ Not only periodic hearings on the settlement of accounts and risk
management, but also hearings on business trends from those of each324

rank, including responsible persons of each section, shall be
conducted

・ In order to understand how insurance companies recognize risks andcarry out their business operations, opinion exchange with the internal
audit sections, audit (and supervisory) committee members/auditors,
and outside directors, etc. shall be conducted
・ In order to improve insurance companies’ understanding the customer
and industry characteristics, opinion exchange with business
operators and local relevant parties, etc. shall be conducted
・ Financial services users’ opinions, etc. collected by utilizing various
channels such as information on inquiries and complaints, etc. brought
to the Counseling Office for Financial Services Users and results ofvarious hearings as well as external information including media
reports and external inquiries, etc. shall be analyzed
Supervisors

shallunderstandinsurancecompanies’

businessmodels/business strategies, business operations, and organizational
control environment through information collection/analysis such as theabove and traditional monitoring, and then understand their respective
issues, characteristics, and the impacts of changes in environments
surrounding insurance companies.
B. Identification of Priority Issues and Formulation of Monitoring Policy/Plan
In order to discuss substantially important management matters withsenior managers of insurance companies as well as to utilize limited
administrative resources as efficiently as possible, it is necessary toprioritize the issues across insurance companies that are common toissuesofeachcompany

identified

throughtheabove-mentioned

information collection and understanding the characteristics, with due
consideration to the importance and urgency of the times such as social
demand. The cross-sectoral high-priority issues so identified shall be
specified in the annual policy, etc. and published at the beginning of thebusiness year.
It is then necessary to formulate the monitoring policy/plan by taking into
account the status of business management specific to each company,
specify specific response policy/plan to priority issues, and establish asystem to assign appropriate personnel, etc. In doing so, supervisors shalluse on-site inspection and other monitoring as well as monitoring of each325

company and horizontal monitoring differently according to the nature of
the important issues to enable insurance companies to concentrate their
management resources to the improvement of substantially importantmatters.
It should be noted that on-site inspection is positioned as a method of
understanding the actual situations in a series of monitoring processes,
instead of being conducted periodically as before. However, if the on-site
inspection is not conducted for a long period, the possibility of problematic
events that are difficult to predict by the authorities may have been
relatively increased and that fact may be considered as a risk factor.
In addition, if a new issue has occurred or is found during the term,
supervisors shall strive for appropriate monitoring according to therequirements of the time by flexibly reviewing the monitoring plan, etc.
(ii) In-Depth Understanding of Actual Situations of Each Company
In order to understand the actual situations, supervisors shall select themost efficient and effective method from among various hearings, requestingfor voluntary submission of materials, questionnaire, legally requiring thesubmission of a report, and on-site inspection according to the nature of theissue, the progress of response, and the actual situations of each company.
In addition, if the authorities have identified in the past or are separately
identifying the information, supervisors shall consider reducing the burden of
insurance companies by, for example, checking the content of that
information in advance and then utilizing it to the extent possible.
Furthermore, in cases where monitoring is conducted based on analysis
conducted in the past, if a new issue is identified through informationcollection, understanding of the actual situations, and dialogue, supervisors
shall appropriately respond to it according to the nature of the new issue.
Each method selected shall be implemented with consideration given to,for example, the following points. Regardless of which method is to be
implemented, supervisors shall carefully explain to insurance companies
what issues the authorities have identified and what discussions they areintending to make.
A.

Various Hearings
In order to deepen mutual understanding of priority issues with insurancecompanies, Supervisors shall conduct multi-layered hearings with the top
management, responsible persons of each section and each businessoffice, and persons engaged in the actual work, etc. according to the nature326

of the issue.
It should be noted that, considering that efforts to pursue best practices
are to exhibit originality and ingenuity according to the environments andcharacteristics of insurance companies, supervisors need to giveconsideration so as not to have the authorities force certain answers.
In addition, as part of such various hearings, concentrated hearings or
dialogue may be conducted for a certain period on specific themes within
the facilities of insurance companies.
B. Request for Voluntary Submission of Materials
Supervisors shall make efforts to carefully explain to insurancecompanies and gain their understanding by clearly indicating what
recognition of issues on which the request concerned is based and what
content of materials is required for it in a manner that the purpose of therequest is clearly and correctly communicated with consideration given to
the burden of insurance companies. In doing so, supervisors shall makeefforts to reduce the burden imposed on insurance companies bydispersing the implementation period, avoiding duplicate requests, andsetting the submission due date to allow plenty of time, etc. In particular, if
the method covers multiple insurance companies, such as questionnaire,etc., supervisors shall give sufficient consideration to each company’s
characteristics and environment.
C. Requiring Submission of a Report Under Article 128 of the Act
If it is deemed necessary, supervisors shall require the submission of areport under Article 128 of the Act (in the case of a foreign insurancecompanies, etc., Article 200 of the Act; and in the case of a licensed
specified corporation or an underwriting member, Article 226 of the Act; thesame applies hereinafter). In that case, supervisors shall carefully explain
to insurance companies what recognition of issues by the authorities on
which the request concerned is based is.
D. On-Site Inspection Under Article 129 of the Act
If it is determined necessary to conduct an in-depth examination of thecurrent soundness/appropriateness, etc., supervisors shall conduct on-site
inspections under Article 129 of the Act. In that case, supervisors shall reconfirm the correctness of priority issues identified in discussions withsenior managers and establish a hypothesis, always keeping in mind what
important management issues are and what the root causes are.
Furthermore, supervisors shall strive to make fundamental discussions on327

important

issuesconcerningbusinessmanagementof

insurancecompanies and financial administration rather than to reach easy
conclusions by further collecting and understanding the facts and actual
situations to verify the hypothesis and then discussing with senior
managers based on facts and actual situations collected.
For basic procedures for on-site inspection, refer to Attachment 1 “Basic
Procedures for On-Site Inspection”. In addition, in cases where a notice of
the inspection results is issued, within a week from the date of the issuancein principle, supervisors shall, under Article 128 of the Act, require theinsurance company to submit a report on the fact-checking, analysis of thecause, and improvement measures, etc., on the matters pointed out withina month. With regard to the matters to be reported, reference shall bemade to Form III-1-2-1(1) in Forms and Reference Materials as the basic
form, but supervisors shall sufficiently consider specifying appropriate andadequate matters to be reported individually according to the content
pointed out.
(iii) Dialogue
Dialogue shall be conducted according to the presence/absence andprobability of the occurrence of serious problems concerning financial
soundness and compliance, etc., individual specific situations on eachoccasion such as the status of voluntary efforts of insurance companies toimprove business management, etc., and nature of the problem.
When conducting dialogue, supervisors shall, while making efforts toenable insurance companies to express their positions with a sense of
security to the extent possible by eliminating assumptions on the authorities’side and the imposition of hypotheses, first sufficiently understand theconcepts and policies of insurance companies, and then ensure to carry out
the dialogue by presenting the facts.
Furthermore, in conducting dialogue, supervisors must sufficiently take into
account the interactions that have been made between the authorities andeach company, etc. and strive to carry out operations with consideration
given to the continuity of dialogue.
A. In cases where the probability of the occurrence of serious problems
concerning the financial soundness and compliance, etc. is deemed tohave increased in the understanding of the actual situations by theauthorities, first the insurance companies shall examine the validity ofissues, root causes, and improvement measures themselves, and then the328

in-depth dialogue on the formulation/implementation of improvement
measures shall be conducted between the authorities and insurancecompanies. However, in cases where it is deemed highly urgent such as
the above-mentioned problems having already occurred, etc., theauthorities shall clearly indicate the matters that they believe will require
improvement, and then confirm the response policies of each company.
B. It is important that the insurance companies for which the probability of theoccurrence of serious problems is not deemed to exist continue to makeefforts to advance their business models and risk management by utilizing
originality and ingenuity according to the situations they are in. For thisreason, the authorities shall understand the business environments andbusiness management issues of each company or strategies and policies
of each company in-depth based on the understanding of theircharacteristics through daily monitoring, and then conduct the in-depth
dialogue on business models, risk management, and human resource
development, etc. with insurance companies with the aim of having
insurancecompanies

themselves

to

gain

“awareness”

without

presupposing any particular answers (other reference cases with regard tobest practices, etc. shall be shared, as necessary, in this process).
(iv) Flexible and Appropriate Combinations of Various Methods
As described above, the FSA uses various methods in its administrative
operations for responding to insurance companies, but each of them has
advantages and disadvantages from the point of view of the effectivenessand the burden/costs, etc. on the authorities’ and insurance companies’ sides.
Therefore,

the

FSA

aims

to

realizeeffectiveandefficientinspection/supervising operations by achieving flexible combinations that canutilize the advantages of each method according to the issues of eachcompany and the occurrence/non-occurrence of serious problems concerning
the financial soundness and compliance, etc. For example, other than thealready mentioned methods, the following methods may be considered.

・
Feeding back the industries’ common situations and issues and caseexamples in specific fields, etc. contributes to the utilization of originality andingenuity by insurance companies themselves. In particular, the in-depth
dialogue will become possible after establishing advanced common values
between the authorities and insurance companies by feeding back thesemeasures based on the issues each company has. Even in that case, it isnecessary that the authorities respect independent business decisions of329

each company and do not inappropriately intervene in their judgments on
individual transactions.
Information such as the business policy and efforts to improve it that・

insurance companies voluntarily disclose can deepen dialogue withcustomers and other relevant parties and contribute to the efforts of
insurance companies to improve their business management.
If issues of each company concern the areas of customer protection and・customer convenience, the effectiveness of dialogue can be improved by,instead of entirely focusing on interactions between the authorities andinsurance companies, conducting questionnaires and hearings to third
parties such as trading partners and users and feeding back the results
when conducting dialogue between the authorities and insurancecompanies.
Measures to make approaches to stakeholders related to insurance・

companies’ business environments with the FSA sharing common values
and goals with relevant parties other than insurance companies andproviding information regarding its stances of various analysis andfinancial administration, as necessary, may be considered.
(v) Response Based on the Results of Monitoring
With regard to the above-mentioned feedback of the results of financial
monitoring, ingenious efforts shall be made in determining how to proceedwith it that is appropriate for focused discussions on priority issues by not
being bound by the traditional form of “notification of the inspection results”,
but instead continuing to make discussions on the points on which theirrecognitions vary after confirming the differences, etc.
For instance, appropriate follow-ups shall be provided by feeding back theresults to insurance companies in ways such as the following and requiringthem to continue discussions and, when necessary, make improvements
A. The results of on-site/off-site monitoring conducted throughout the year
shall be delivered in writing as a “feedback letter” for the year, as
necessary.
B. When the on-site inspection has been conducted, the results shall be fed
back each time in principle. The methods used for feeding back varydepending on the events identified and the content of the on-site inspection.
For instance, for minor events and items for which the response describedin (iii)B. above is to be taken, feedback shall be made in the form of“comments” and “opinions of the authorities” and for serious events, in the330form of “notification of the inspection results”.
C. With regard to the issues common to the industry, in addition to A. and B.
above, the information shall be provided as needed.
Problems found and information collected through monitoring shall be
categorized into (i) those limited to individual insurance companies, (ii) thosecommon to the industry concerned, (iii) those also common to otherindustries, and (iv) those that affect businesses under the jurisdiction of theauthorities, relevant Ministries and Agencies, or other industry organizations,etc. and reflected in the annual policy and monitoring plan for the next term
through the processes of III-1-2(2)(i)A. above, etc. In addition, cross-sectional
horizontal monitoring shall be considered and approaches shall be made tobusinesses under the jurisdiction of the authorities, relevant Ministries andAgencies, or other industry organizations, taking into account the extent ofproblems that goes beyond monitoring.

III-1-3 Quality Control
In order to ensure appropriate judgment on the quality and depth of monitoring
through understanding of the actual situations and dialogue in the entire
processes of inspection and supervising operations, quality control shall be
carried out at the organization level. Supervisors shall make efforts to ensure thequality of inspection/supervising operations from a broad perspective of
maximizing the welfare of all the people with regard to whether originality andingenuity of each company are respected and whether inappropriate burdens are
imposed on each company, etc., taking into account the actual individual
situations specific to business environment and management philosophy of eachcompany.
Therefore, relevant executives of the Strategy Development and Management
Bureau and the Supervision Bureau shall continue to make necessary
improvements

on

the

following

points,forexample,byconducting

multifaceted/multi-layered examinations with consideration also given to theopinions from insurance companies.
- When conducting information collection, hearings, and dialogue, whether
effective cooperation and information sharing are taking place among
monitoring teams for each business category/area not to impose an331

excessive burden on insurance companies with duplicate requests, etc. In
addition, when requesting the submission of materials, whether the content
of the request is clear, whether the differences/characteristics of eachcompany are considered, and whether the submission due date is set toallow plenty of time.
- When understanding the characteristics of each company, whether the actual
individual situations specific to its business environment and management
philosophy, etc. are sufficiently considered. In addition, whether objective
materials/facts are considered to avoid the persons in charge at theauthorities falling into assumptions.
- When identifying priority issues, whether supervisors are able to focus on
substantially important management issues according to the actual individual
situations of each company. In addition, whether common issues that expand
to other insurance companies and business categories have been
overlooked.
- When formulating the monitoring policy/plan, whether appropriate monitoringtargets and methods have been selected and a system to conduct monitoringhas been established.
- When requesting the submission of a report, whether the authorities’
recognition of the issue is carefully explained to the insurance company.
- Based on III-1-2-(2)(iii) above, whether appropriate dialogue has been
conducted. In addition, whether dialogue has been conducted as one-sided
guidance.
- Whether the analysis of the root causes are conducted for issues andproblems found as a result of monitoring.
- When feeding back the results of monitoring, whether the most appropriate
method has been chosen for making discussions focused on priority issues.
In addition, with regard to the content to be fed back, whether appropriate
discussions and requests for improvements, etc. have been made according
to the importance of the issue, whether trivial problems have been pointed
out, and whether inappropriate intervention in business management has
resulted.
In carrying out the feedback, in addition to the opinion submission system foroverall monitoring, efforts shall be made to enhance the opportunities to receive
honest opinions and criticisms from insurance companies such as, for example,
executives visiting insurance companies to directly hear their opinions about332

monitoring.
In addition, supervisors shall conduct an external evaluation on financial
administration through hearings to insurance companies and employees of the
FSA, etc. and hearing opinions from external experts through the panel of experts,
etc.

III-1-4 Cooperation with Local Finance Bureaus, etc.
(1) Cooperation Between the FSA and Local Finance Bureaus
Under the provisions of Article 49 of the Order, authorities concerning theregistration of specified insurance agents, orders to submit reports andmaterials, and questioning and on-site inspection are delegated from theCommissioner of the FSA to the Directors-General of local Finance Bureaus(those having jurisdiction over the location of the principal offices of specified
insurance agents).
In order to ensure appropriate solicitation operations of specified insurance
agents, efforts shall be made to establish close cooperation between the FSA
and local Finance Bureaus by mutually providing helpful information on thespecified insurance agents concerned, if any, as appropriate.
(2) Cooperation Among Local Finance Bureaus
The Directors-General of local Finance Bureaus exercising the authorities
delegated as prescribed in Article 47 or 49 of the Order shall, when theauthorities delegated cover jurisdictional districts of other local Finance
Bureaus, consult with those other local Finance Bureaus in advance andotherwise make efforts for close cooperation by providing helpful information, if
any, to those other local Finance Bureaus, as appropriate, etc.
(3) Authorities Other Than Those Delegated Above
When an application for permissions or approvals pertaining to theauthorities of the Commissioner of the FSA other than those delegated to the
Directors-General of local Finance Bureaus under the provisions of Article 47 or
49 of the Order is received, the Director-General shall transfer the application
to the Supervision Bureau with opinions of the local Finance Bureau attachedand make efforts for close cooperation by providing helpful information on theinsurance company concerned, if any, to the sections of the Supervision

333

Bureau in charge, as appropriate, etc.

III-1-5 Delegation, etc.
III-1-5-1 Internal Delegation of Part of Authorities of the Directors-General of
Local Finance Bureaus having jurisdiction to the Directors-General of Local
Finance Offices having jurisdiction
If the principal office of a specified insurance agent is located within thejurisdictions of a Local Finance Office, the Otaru Branch Office, or the Kitami
Branch Office, the Directors-General of local Finance Bureaus having
jurisdiction (including the Directors-General of the Fukuoka Local FinanceBranch Bureau and the Okinawa General Bureau; the same applies
hereinafter) shall be able to have the Director-General of the said Local Officeor Branch Office execute the authorities delegated to it based on its decision.
In that case, written applications and written notifications, etc. to which thoseauthorities pertain shall be submitted to the Directors-General of local Finance
Bureaus having jurisdiction.

III-1-5-2 Reports on the Amount of Payment of Registration and License Tax
Pertaining to Business License of Banks, etc.
The Commissioner of the FSA (registrar) which grants business license ofbanks, etc. must, under the provisions of Article 32 of the Registration andLicense Tax Act, notify the amount of payment of registration and license tax tothe Minister of Finance with jurisdiction over the said Act.
Therefore, each local Finance Bureau shall compile the number of payment
cases and the amount of payment of registration and license tax for the period
from April 1 of the preceding year to March 31 of the current year in the Form
III-1-5-2 in Other Forms for Reporting, etc. of Forms and Reference Materials
and report them to the Supervision Bureau by the end of April of the current
year, as the Commissioner of the FSA, the registrar, will need them for making
the above reports.

334

III-1-6 Administrative Reports on Individual Insurance Companies
In cases where the following measures have been taken, supervisors shallimmediately report them to the Director-General of the Supervision Bureau.
(1) Requesting the submission of reports and materials under the provisions ofArticle 128(1), Article 200(1), and Article 226 of the Act.
(2) Receiving a statement of insurance company voting right holdings prescribedin Article 271-3(1) of the Act.
(3) Receiving a statement of changes prescribed in Article 271-4(1) and (3) of the
Act and a correction report prescribed in (4) of the same Article.
(4) Receiving notification of reference date prescribed in Article 271-5(1) of theAct, a statement of insurance company voting right holdings prescribed in thesame paragraph, and a statement of changes prescribed in (2) of the same
Article.
(5) Ordering the submission of a correction report prescribed in Articles 271-6
and 271-7 of the Act.
(6) Ordering the submission of reports and materials prescribed in Article 271-8of the Act.

III-1-7 Measures Regarding Financial Services Support in the Event of Disasters
III-1-7-1 Financial Services Support Measures for Disaster-Stricken Areas
The government is required, under the Basic Act on Disaster Management,
to take financial measures, etc. necessary to achieve the purpose of the same
Act (Article 9(1) of the same Act). In light of this, when a disaster has occurred,
supervisors shall, while maintaining close contact with relevant organizations,ensure that insurance companies quickly and appropriately implement thefollowing measures within limits deemed necessary, in light of the extent ofdamage and other circumstances of the affected areas and the demand for335

funds in such areas.
(1) Measures to Provide Convenience for the Payment of Insurance Proceeds,
etc.
Supervisors shall request insurance companies to provide as muchconvenience as possible for policyholders, etc. who have lost their insurance
policy certificates or registered seals, etc.
(2) Measures Regarding the Payment of Insurance Proceeds and Grace Period
for Insurance Proceeds
Supervisors shall request insurance companies to take measures toprovide convenience such as considering to pay life or non-life insurance
proceeds as promptly as possible and extending the grace period for thepayment of life or non-life insurance premiums according to the situation of
the damage suffered by policyholders.
(3) Measures Regarding Responses to Suspension of Services
In cases where an insurance company has suspended its over-the-counter
services, supervisors shall request the insurance company to ensure that all
customers know at which business offices the said services have beensuspended through means such as putting up posters at business offices andposting notices in newspaper advertisements and on the Internet.

III-1-7-2 Various Financial Services Support Measures in Areas Designated forEnhanced Earthquake Disaster Prevention/Mitigation Measures Related toTokai Earthquake
When areas for enhanced earthquake disaster prevention/mitigation
measures have been designated under the Act on Special Measures
Concerning Countermeasures for Large-Scale Earthquakes, designatedadministrative organizations are required to take preemptive measures tomitigate the damage from earthquakes and prevent secondary disasters.
However, it is difficult to manage administrative processes related to financial
instruments business on an area-by-area basis, given the advanced
automation and the expansion of networks of unmanned services operations,
therefore, regarding the possible Tokai Earthquake, supervisors shall ensure336

that insurance companies take the following measures in an appropriatemanner in light of the fund demand in the affected areas, while maintaining
close contact with relevant organizations.
(1) Response to Earthquake Alert by Insurance Companies with Head Office orBusiness Offices such as Branch Offices in Areas Designated for Enhanced
Earthquake Disaster Prevention/Mitigation Measures Regarding Tokai
Earthquake(i) In cases where the alert is issued during business hours, supervisors shallrequest the insurance companies to suspend services at business offices,
etc.
(ii) Supervisors shall request the insurance companies to ensure that all
customers know at which business offices, etc. services have beensuspended through means such as putting up posters at business offices
and posting notices in newspaper advertisements Internet.
(iii) In cases where the alert is issued on a holiday or before or after thebusiness hours of business offices, etc., supervisors shall request theinsurance companies to refrain from resuming services so as to enable thesmooth implementation of anti-disaster measures if the earthquake actuallyoccurs.
(iv) Others
A. In cases where the alert is removed, supervisors shall request insurancecompanies to resume normal operations and services as soon as
possible.
B. Supervisors shall request the insurance companies to take appropriate
emergency measures based on “III-1-7-1 Financial Services Support
Measures for Disaster-Stricken Areas” if the earthquake actually occurs.
(2) Response to Earthquake Alert by Insurance Companies with Business
Offices in Areas Not Designated for Enhanced Earthquake Disaster
Prevention/Mitigation Measures
Even if insurance companies have suspended business operations andservices at the head office or branch offices, etc. in areas designated forenhanced earthquake disaster prevention/mitigation measures, supervisors
shall request them to conduct business and provide services as usual atbranch offices or the head office, etc. in other areas.

337

III-1-7-3 Administrative Report
In cases where the above measures have been taken, supervisors shallimmediately report them to the Director-General of the Supervision Bureau.

III-1-8 Complaints/Information Provision Regarding Insurance Companies
III-1-8-1 Response to Complaints, etc.
When inquiries/complaints, etc. regarding insurance companies are received,
the authorities shall explain to persons who lodge complaints, etc. that they
are not in a position to act as a mediator, etc.
They shall then refer such persons to consultation contact points of
insurance companies and insurance-related organizations and a designated
ADR body, as necessary. If persons who have made inquiries/complaints, etc.
consent to the provision of information to the insurance companies, theauthorities shall, in principle, provide information to the insurance companies.

III-1-8-2 Reporting(1) Local Finance Bureaus shall record the inquiries, complaints, etc. regarding
insurance companies that are deemed to be useful for supervising suchinsurance companies (refer to Form III-1-8-2(1) in Other Forms for Reporting,etc. of Forms and Reference Materials). When they find any information thatis deemed to be particularly important, they shall immediately report suchinformation to the FSA division in charge.
(2) The number of cases of complaints received a year within the jurisdiction ofeach local Finance Bureau shall be compiled as of the end of March eachyear and reported to the FSA division in charge by the end of April (refer toForm III-1-8-2(2) in Other Forms for Reporting, etc. of Forms and Reference
Materials)

338

III-1-8-3 Cooperation with the Counseling Office for Financial Services Users(1) In order to ensure that inquiries, complaints, etc. brought to the Counseling
Office for Financial Services Users are appropriately reflected in theadministrative processes regarding supervision, supervisory departments
and bureaus shall take the following measures:(i) analyze the inquiries, complaints, etc. referred from the counseling office;and(ii) exchange information with the Counseling Office.
(2) In addition, if persons who have made inquiries/complaints, etc. to theCounseling Office for Financial Services Users consent to the provision of
information to the insurance companies, supervisory departments andbureaus shall, in principle, provide information to the insurance companies.

III-1-9 Response to Inquiries about Interpretations of Laws and Regulations, etc.
III-1-9-1 Scope of Laws and Regulations Regarding Which Inquiries May be
Processed
Inquiries may be processed only regarding the laws and regulations that areunder the jurisdiction of the FSA, including the Insurance Business Act.
Comments shall never be made in response to inquiries regarding laws andregulations outside the jurisdiction of the FSA.

III-1-9-2 Method of Response to Inquiries(1) Regarding an inquiry to which a reply can be made based on existing
documents and reference materials, such as the Guidelines for Supervisionand reports, etc. compiled by advisory councils, etc., the reply shall be
provided promptly.
(2) When local Finance Bureaus have received an inquiry to which they find it
difficult to reply on their own, they shall compile an “inquiry letter” (refer toForm III-1-9-2(2) in Other Forms for Reporting, etc. of Forms and Reference339

Materials) and consult with the FSA division in charge via FAX, etc. (invoice
shall be from the director of the division of the local Finance Bureau incharge to the general deputy director of the FSA division in charge).
(3) When business operators to which the laws and regulations under thejurisdiction of the FSA are directly applicable or business associations(Note)comprising such business operators have made a general inquiry that meetsthe requirements specified in the following (i) and (ii) with regard to the saidlaws and regulations, the head of the FSA division in charge shall provide awritten reply and make it public if it is deemed to be appropriate to do so fromthe viewpoint of improving the predictability of the application of laws andregulations.
(Note) A “business association” refers to a group formed by a substantial
number of business operators engaging in the same type of business towhich the laws and regulations under the jurisdiction of the FSA are directly
applicable in order to promote their common interests, or a federation ofsuch groups (limited to the top-tier organization in the case of businesssectors where there are layers of associations and federations).
(i) Scope of Inquiries for Which the Reply May Be Published
An inquiry must meet all of the following requirements if the written reply
thereto is to be made public:
A. Must not ask whether a law or regulation applies to a specific transaction
involving a specific business operator, but rather ask about the generalinterpretation of the law or regulation (not eligible for the application of
the prior confirmation procedures on the application of laws andregulations by administrative agencies (hereinafter referred to as the “noaction letter system”)).
B. Must not seek factual recognition.
C. Must relate to transactions and other matters common to business
operators to which the laws and regulations under the jurisdiction of the
FSA are directly applicable (in cases where the inquirer is an associationof business operators, the inquiry must concern transactions and othermatters common to business operators constituting the association) andmust be regarding matters that many business operators are expected toinquire.
D. Must not ask about points that are clear in light of the guidelines for340

administrative processes, etc. that have been made public in the past.
(ii) Written Inquiry Forms (Including Electronic Forms)
The inquirer who wishes to use this system shall submit a written inquiry
that specifies the following items. In addition to the written inquiry, theinquirer may be asked to submit additional or corrected documents, if
necessary, in order to judge the contents of the inquiry and whether itmeets the criteria specified in (i) above.
A. The legal provision which the inquiry concerns and specific points ofissue
B. The inquirer’s opinion concerning the inquired points of issue and thebasis thereof
C. A statement from the inquirer agreeing to have the contents of theinquiry and the response thereto made public(iii) Contact Point for Inquiry
A written inquiry shall be submitted to the FSA division in charge withjurisdiction over the law or regulation in question or the section of the local
Finance Bureau in charge that has jurisdiction over the inquirer. When alocal Finance Bureau section has received an inquiry, it shall immediately
forward it via FAX or e-mail to the FSA division in charge.
(iv) Reply
A. The head of the FSA division in charge shall strive to reply to the inquirer
within two months in the principle of the arrival of a written inquiry at thecontact point. In cases where it is not possible to reply within two months,
it is necessary to provide the reason for the delay and the expected dateof reply to the inquirer.
B. Written replies shall contain the following disclaimer:“This reply expresses a general view regarding the law or regulationin question that the FSA formed at this time exclusively based on
information contained in the written inquiry, in its capacity as the entitythat has jurisdiction over the said law or regulation. Therefore, the reply
does not provide judgment regarding the application of the said law or
regulation to a specific case or have binding power on the judgment of
the investigative or judicial authorities.”
C. When the FSA division in charge decides not to reply to the inquiry
through the said process, it shall notify the inquirer of the decision andprovide the basis thereof.
(v) Publication

341

When the FSA has provided a reply according to the proceduresprescribed in (iv) above, it shall immediately publish the inquiry and the
reply on its website.
(4) Regarding inquires which do not fit the description of (3) above but are
made frequently, a “reference circular” that describes the reply to the inquiry(refer to Form III-1-9-2(4) in Other Forms for Reporting, etc. of Forms andReference Materials) shall be compiled, distributed to the relevant
departments and bureaus and stored at Financial Services Agency division in
charge of the FSA division or the planning unit of the local Finance Bureau
section in charge.
(5) In cases where the inquirer seeks a written reply from the FSA and where
the no-action letter system is applicable in light of III-1-9-3(2), the inquirer
shall be asked to apply for the said system.

III-1-9-3 Prior Confirmation Procedures on the Application of Laws andRegulations by Administrative Agencies (No-Action Letter System)
Under the no-action letter system, private companies seek prior confirmation
as to whether specific practices related to their planned business activities are
subject to specific laws and regulations, and the said organizations make thereplies they receive public. The FSA has established detailed rules concerning
the no-action letter system. This section only specifies the administrative
procedures concerning the no-action letter system, and therefore supervisors
shall make sure to refer to [Material 1] “Detailed Rules concerning the Prior
Confirmation Procedures on the Application of Laws and Regulations by
Administrative Agencies” in Reference Materials of Forms and Reference
Materials when using the no-action letter system.
(1) Contact Point for Inquiry
Inquiries shall be submitted to the Planning and Management Division,
Supervision Bureau of the FSA.
The Planning and Management Division shall immediately process theinquiry if it meets the requirements of the criteria for items to be included
specified in (2)(iii) below and forward it to the responsible division/office that342

has jurisdiction over the law or regulation in question.
Financial institutions, etc. under the jurisdiction of local Finance Bureaus
shall submit an inquiry to the relevant bureaus, which shall in turnimmediately forward the written inquiry to the Planning and Management
Division, Supervision Bureau of the FSA via FAX, etc.
(Note) In principle, the local Finance Bureau forwarding the written inquiry to
the Planning and Management Division, Supervision Bureau of the
Financial Supervisory Agency shall attach its own opinion thereto.
(2) Flow of Processes after Receipt of a Written Inquiry
The responsible division/office that has received the inquiry shall check
whether it is appropriate to reply thereto in light of (i) and (iii) below inparticular. In cases where the inquiry is not eligible for the no-action lettersystem, the inquirer shall be notified of the ineligibility. In cases where it isdeemed to be necessary for the inquirer to submit additional or corrected
documents, the inquirer may be asked to do so. However, it is important toavoid imposing an excessive burden on the inquirer, by minimizing thevolume of requested additional or corrected documents.
(i) Subject of the Inquiry
Whether the inquiry has been submitted by a private company planningto engage in a new business or transaction in order to inquire about thefollowing matters, concerning the laws and regulations listed on the
Financial Supervisory Agency’s website as subject to the no-action lettersystem (hereinafter referred to as “relevant laws and regulations(provisions)” and government orders based thereon.
A. Whether engaging in the business or transaction in question amounts tooperating without authorization.
B. Whether engaging in the business or transaction in question amounts tooperating without notification.
C. Whether engaging in the business or transaction in question leads to thesuspension of business operation or rescission of a license (adverse
dispositions).
D. Whether engaging in the business or transaction in question leads to thedirect imposition of a certain obligation or limitation of rights.
(ii) Scope of Eligible Inquirers
Whether the inquirer is an individual or a legal person planning to start a
new business and wishing to inquire about the applicability of the relevant343

laws and regulations (provisions), or a lawyer or the like employed by thesaid individual or legal person. Whether the inquirer has submitted a written
inquiry that meets the criteria for items to be included specified in (iii) below
and agreed to have the content of the inquiry and the reply thereto madepublic.
(iii) Criteria for Items to be Included in Written Inquiries
A written inquiry (including electronic forms) must meet the following
requirements:
A. Describing specific and concrete facts relating to planned businessactivity.
B. Containing specific indication of the provisions of the relevant laws andregulations (provisions) regarding which the inquirer wishes to check theapplicability to the planned activity.
C. Containing a statement from the inquirer agreeing to have the contentsof the inquiry and the reply thereto made public.
D. Clarifying the inquirer’s opinion concerning the applicability of theprovisions of the laws and regulations in B. above and the basis thereof.
(iv) Reply
In principle, the head of the division/office that has received the inquiry
shall reply to the inquirer within 30 days from the arrival at the contact pointof a written inquiry from the inquirer. However, in the following cases, theresponse timeframe shall be set as follows. In any case, the Financial
Supervisory Agency shall strive to ensure that the response time, including
the time needed for submitting additional or corrected documents, is madeas short as possible.
A. In cases where the inquiry concerns advanced financial techniques ortechnologies, thus requiring a careful judgment, the FSA shall make areply within 60 days in principle from the receipt of the inquiry.
B. In cases where the relevant section's conduct of administrative
processes may be impeded significantly by an excessive volume ofinquiries, a reply may be delayed till 30 days from the initial receipt of theinquiry or later but must be made within a reasonable period of time.
C. In cases where the law or regulation in question is under the joint
jurisdiction of the FSA and another government agency, a reply shall bemade within 60 days in principle from the receipt of the inquiry.
In cases where the inquirer has been asked to submit corrected or
additional information, the days involved in gathering the said information344

shall not be counted in the response timeframe. If it is not possible to
make a reply within 30 days, the FSA shall provide the reason for thedelay and the expected date of reply to the inquirer.
(v) Publication of Inquiries and Replies
As a general rule, the contents of inquiries and the replies thereto shallbe posted on the FSA’s website in their entirety within 30 days from theissuance of the reply.
However, in cases where the inquirer requests a delay in the publicationof the inquiry and the reply thereto, and provides a rational reason for thedelay and specifies the time when publication may be made, the FSA may
delay the publication of the inquiry and the reply. In such cases, thepublication may not necessarily be delayed until the date requested by theinquirer. When the reason for the requested delay has ceased to be valid,
the FSA may make the inquiry and the reply thereto public after giving priornotice to the inquirer. In cases where an inquiry or the reply thereto
contains information that falls under the category of matters of nondisclosure, as specified under the Act on Access to Information Held byAdministrative Organs, the FSA may, as necessary, withhold suchinformation from disclosure.

III-1-9-4 System to Eliminate Regulatory Gray Zones
Article 9(1) of the Act on Strengthening Industrial Competitiveness(hereinafter referred to as the “Strengthening Act”) stipulates a system underwhich persons who intend to conduct new business activities may request
confirmation of the interpretation of provisions of the law that stipulates
regulations concerning the intended new business activities and related
business activities, as well as ordinances based on the law (including
notifications; hereinafter referred to as the “laws and ordinances” in III-1-9-4),
and the presence or absence of application of said provisions to the new
business activities and related activities (hereinafter referred to as the “grayzone elimination system”). This paragraph prescribes the administrative
processes of the gray zone elimination system. Reference shall invariably bemade to the “Guide to the Use of the ‘Special System for Corporate Field Tests’
and the ‘Gray Zone Elimination System’ of the Act on Strengthening Industrial
Competitiveness” (Ministry of Economy, Trade and Industry, January 20, 2014)345

formulated by the Ministry of Economy, Trade and Industry (hereinafter referred
to as the “Usage Guide” in III-1-9-4).
(1) Contact Point for Inquiry
The contact point for inquiry shall be the Strategy Development Division,
Strategy Development and Management Bureau of the FSA.
TheStrategy

Development

Division,

Strategy

Development

andManagement Bureau of the FSA, which is the contact point for inquiry, shallpromptly accept any inquiry form or copy thereof that satisfies therequirements of the criteria for items to be included specified in (2)(iii) below
when it arrives. If the laws and ordinances related to the request for
confirmation described in said inquiry form are under the jurisdiction of thehead of another relevant administrative organ, the confirmation shall be
requested without any delay to the said head of the relevant administrative
organ.
(2) Procedures Following the Receipt of Inquiry Form
After accepting an inquiry form, the Strategy Development Division,
Strategy Development and Management Bureau shall promptly forward said
inquiry form to the responsible division/office that has jurisdiction over thelaws and ordinances related to the request for confirmation described in theinquiry form. While discussing with said responsible division/office, theStrategy Development Division, Strategy Development and Management
Bureau shall check the following (i) through (iii) in particular regardingwhether or not a response shall be given to the matter, and in the case of arequest for confirmation that cannot use the system, the person who
submitted said inquiry form (hereinafter referred to as the “submitter” in III-19-4) shall be thus notified. In addition, if any corrections to the inquiry form or
submission of additional documents are necessary, the required responses
may be requested of the submitter. However, additional documents shall belimited to the minimum to avoid excessive burden on the submitter.
In the case where a request concerning laws and ordinances under thejurisdiction of the FSA has been received as the head of the relevant
administrative organ outlined in Article 9(3) of the Strengthening Act, pursuant
to provisions thereof, the above notification and request for required
responses shall be made to the relevant minister in charge set forth in thesame paragraph.

346

(i) Subject of the Request for Confirmation
Whether A. and B. below are satisfied.
A. Whether the submitter is a person who intends to conduct new businessactivities.
(Note) “New business activities” refer to the development or production of
new products, the development or provision of new services, theintroduction of new production or sales methods of products, theintroduction of new provision methods of services and other new
business

activities

throughwhich

improvementofproductivity(including resource productivity (the degree of the contribution of theuse of energy or the use of mineral resources (excluding their use asenergy) to the economic activities of those who intend to conduct new
business activities)) or cultivation of new demand is expected andwhich have no danger of injuring public order or morals (Article 2(3) of
the Strengthening Act; Article 2 of the Regulation for Enforcement of
the Act on Strengthening Industrial Competitiveness (hereinafterreferred to as the “Strengthening Act Enforcement Regulation”)).
B. Whether the submitter is a person who intends to conduct new businessactivities related to businesses under the jurisdiction of the FSA.
However, this shall not apply to cases where the Commissioner of the
FSA has received a request as the head of the relevant administrative
organ set forth in Article 9(3) of the Strengthening Act, pursuant toprovisions thereof.
(ii) Subject of the Inquiry
Whether the submitter requests confirmation of the interpretation ofprovisions of the laws and ordinances under the jurisdiction of the FSA that
stipulate regulations concerning the new business activities and related
business activities the submitter intends to conduct, as well as thepresence or absence of application of said provisions, and inquires onmatters such as the following:
A. Whether conducting the business or transaction corresponds tounlicensed trading.
B. Whether conducting the business or transaction corresponds tounregistered trading.
C. Whether conducting the business or transaction would be subject tosuspension of business or rescission of license (adverse disposition).
D. Whether obligations will be directly imposed or rights be restricted in347

relation to the conduct of the business or transaction.
(iii) Criteria for Items to be Included in the Inquiry Form
Whether the following matters are included in accordance with Form 5 of
the Strengthening Act Enforcement Regulation and based on the Usage
Guide.
A. The goals of the new business activities and related business activities
B. The particulars of the new business activities and related businessactivities
C. Timing of conducting the new business activities and related businessactivities
D. Clauses of the laws and ordinances for which confirmation ofinterpretation and presence or absence of application are requested
E. Specific matters to be confirmed(Reference) Usage Guide
Gray zone elimination system
Documents to be submitted
5. Specific matters to be confirmed
Describe the provisions of the laws and ordinances that are thebasis of the regulations and the interpretation of which points thereof
are unclear, as well as the points where it cannot be determined
whether the new business activities would be subject to theregulations. Also, state the reason that conducting the new businessactivities would be difficult due to such points and your views
concerning the matter.
In order to gain a clear and straight-forward response from theministries that have jurisdiction over the regulations, describe thepoints you wish to confirm as specifically as possible, such as, “Since
it is not clear whether xx is subject to regulations pursuant to the xx
Act, I would like to confirm if it is possible to conduct xx in my new
business activities without obtaining a permit pursuant to the xx Act,”
instead of, for example, “Are the xx regulations an obstacle?”(3) Response(i) The division/office to which the inquiry form was forwarded shall, in thecase where the Strategy Development Division, Strategy Development andManagement Bureau has decided to respond, issue a written response to
the submitter by using Form 6 of the Strengthening Act Enforcement348

Regulation within one month, in principle, from when the inquiry form or
copy thereof arrived from the submitter at the contact point for inquiry.
The division/office to which the inquiry form was forwarded shall, if there
are unavoidable circumstances that prevent the issuance of a written
response within the above period, in light of the status of examination of theinterpretation of the provisions of the laws and ordinances and thepresence or absence of application related to the request for confirmation
stated in the inquiry form, notify the fact and its reason to the submitter
every period that is no longer than one month, until said written response isissued.
(ii) In the case where the Commissioner of the FSA received the request fromthe head of another relevant administrative organ pursuant to provisions ofArticle 9(3) of the Strengthening Act, the division/office to which the inquiry
form was forwarded shall, based on (1) of the same Article, state in thewritten response using Form 6 of the Strengthening Act Enforcement
Regulation the interpretation and presence or absence of application of theprovisions of the laws and ordinances related to the said request within
one month, in principle, from the day when the minister in charge set forthin (1) of the same Article received the submission of the inquiry form andcopy thereof, pursuant to the same paragraph, and send it to said ministerinchargethroughtheStrategy

Development

Division,

Strategy

Development and Management Bureau.
In such case, if there are unavoidable circumstances that prevent theissuance of a written response within the above period, in light of the statusof examination of the interpretation of the provisions of the laws andordinances and the presence or absence of application related to said
request, notify the fact and its reason to said minister in charge through theStrategy Development Division, Strategy Development and Management
Bureau every period that is no longer than one month, until said written
response is issued.
(iii) In the case where the Commissioner of the FSA requested confirmationfrom the head of another relevant administrative organ pursuant to Article
9(3) of the Strengthening Act, when the Commissioner was sent a written
response using Form 6 of the Strengthening Act Enforcement Regulationfrom said head of another relevant administrative organ, said written
response shall be issued to the submitter through the Strategy
Development Division, Strategy Development and Management Bureau or349

the division/office to which an inquiry form was forwarded regarding thesame matter as said request of confirmation.
Besides, in the case where notification was received from said head ofanother relevant administrative organ to the effect that a written response
cannot be issued within one month, in principle, as well as the reason, shallbe notified to the submitter.

III-1-10 Points of Attention in Preparing Written Applications, etc. to Be Submitted
by Insurance Companies, etc.
It should be noted that when stating the names of officers, etc. or Responsible
Actuaries in written applications, etc. to be submitted by insurance companies,
insurance holding companies, or insurance brokers, for those who have changed
their surnames, their old surnames and given names may also be stated inparentheses.
It should also be noted that if old surnames and given names have alreadybeen stated in written applications for license, etc. or written notifications of theappointment/resignation of officers, etc. submitted, it is permissible to state only
the said old surnames and given names until notification to change the oldsurnames and given names is made, including the forms other than those for thesaid documents.

III-1-11 Points of Attention regarding procedures in paper or in person
With respect to applications and notifications, etc. by insurance companies, etc.
to the authorities, and notices of disposition, etc. issued by the authorities toinsurance companies, etc., pursuant to the provisions of Article 6 (1) and Article
7(1) of the Act on the Promotion, etc. of Administration Utilizing Information andCommunications Technology(hereinafter referred to as the "Digital Procedures Act"),
respectively, notwithstanding the provisions of the relevant laws and regulations,such applications and notifications, etc. may be made by using an electronic dataprocessing system, even if the provisions of the relevant laws and regulationsprescribe that such applications and notifications, etc. shall be made in writing or byother means.
In light of the purpose of the Digital Procedures Act, the provisions of the350

Supervisory Guidelines pertaining to procedures subject to the Digital Procedures
Act may also be conducted using an electronic data processing system, regardlessof whether such procedures are conducted in writing or in person. In addition, withthe rapid progress of digitalization in all economic and social activities, thegovernment as a whole is reviewing Japan's systems and practices that
presuppose written documents, seals, and face-to-face procedures, and is working
toward the realization of a remote society where procedures can be completed
without actually visiting an office.
In order to steadily promote these efforts, the FSAhas also been promoting thecomputerization of administrative procedures by revising The Electronic Application
and Notification System of the FSA to enable online submission of all applications
and notifications received from insurance companies, etc., as well as revising the
Cabinet Office Ordinance and Supervisory Guidelines to abolish the use of seals.
Furthermore, with regard to procedures among private businesses, theGovernment of Japan held the "Study Group for Reviewing Procedures in paper, inperson and seals in the Financial Industry" to encourage the entire industry toreview its practices, and has been working to digitize documents, eliminate theneed for seals, and review face-to-face regulations.
Based on these efforts in the public and private sectors, excluding the cases
where the original documents are required to be sent as described in "III-1-12
Points of Attention Regarding Submitting Applications, etc.", the application form
can be submitted by using an electronic data processing system or other methods
that utilize information communication technology.
In light of the purpose of the above-mentioned treatment, it is recommended thatprocedures based on the provisions of this Supervisory Guidelines be conducted,
to the extent possible, in a manner other than in writing or in person, taking into
consideration the intentions of the other party to the procedures.
III-1-12 Points of Attention Regarding Submitting Applications, etc.
Based on "III -1-11 Points of Attention regarding procedures in paper or face-toface ," applications and notifications to the authorities by insurance companies, etc.
shall, in principle, be required to be submitted by the methods listed in (1) and (2)below.
However, for attached documents issued by public institutions (copy of resident
certificate, ID card, copy of family register, documents certifying payment of taxes
and fees, etc.), the original documents should be sent.
(1) The Electronic Application and Notification System of the FSA

351

Among the applications, notifications, etc. to the authorities by insurancecompanies, etc., excluding the procedures for requesting submissions using The
Integrated System for Supporting the Operation of the FSA (hereinafter referred toas the "integrated system") listed in (2) , the submission of such applications andnotifications by insurance companies, etc. to the authorities shall, in principle, berequested by the submission deadline stipulated by laws and regulations using the
The Electronic Application and Notification System of the FSA.
(2) The Integrated System for Supporting the Operation of the FSA
Business reports (or interim business reports in the case of interim periods) shall,in principle, be submitted using the integrated system.

III-2 Administrative Processes Regarding the Insurance Business Act, etc.
III-2-1 Registration, etc. Administration of Specified Insurance AgentsThe registration administration of specified insurance agents shall be carriedout with consideration given to the following points.
It shall be noted that registration administration of small amount and short term
insurance agents shall be based on III-2-4 (Administration of Registration of
Small Amount and Short Term Insurance Agents) of the “Comprehensive
Guidelines

forSupervisionfor

Insurance

Companies(Supplement)”(Comprehensive Guidelines for Small Amount and Short Term Companies).
(1) Registration of Specified Insurance Agents (Matters Related to Article 276 theAct)(i) Application for Registration (Matters Related to Article 277 of the Act)
Whether application for registration prescribed in Article 277 of the Act(hereinafter referred to as “application for registration” has been made for
specified insurance agents.
(ii) Application for Registration through the Affiliated Insurance Company asAgent, etc. (Matters Related to Article 284 of the Act)For specified insurance agents or persons prescribed in Article 280(1)(ii)
through (vi) of the Act (hereinafter referred to as “specified insurance agent,etc.”) under the provisions of Article 284 of the Act application for registration,
notification under Article 280(1)(i) of the Act (hereinafter referred to as352

“notification of change”), notification under the provisions of Article 280(1)(ii)
through (vi) of the Act (hereinafter referred to as “notification of abolition, etc.”,
or notification under the provisions of Article 302 of the Act (hereinafterreferred to as “notification of employees”) may be made through the affiliatedinsurance company as agent.
(iii) Notification/Application of Proxy Application Companies, etc.
In cases where an affiliated insurance company makes an application forregistration, etc. for a specified insurance agent, etc. as an agent under theprovisions of Article 284 of the Act, supervisors shall require the head officeor local/branch office (hereinafter referred to as “local office, etc.”) of the said
affiliated insurance company to prepare Attached Form No. 70 “Notification of
Proxy Application Local Office” (in the case of a life insurance company) or
Attached Form No. 73 “Non-Life Insurance Agency Proxy Application” (in thecase of a non-life insurance company) and submit it to the local Finance
Bureau, etc. having jurisdiction over the location of the principal office of thespecified insurance agent managed by the said local office, etc.
However, in the case of a life insurance company, if the location of theprincipal office of the specified insurance agent managed by the said local
office, etc. is Tokyo-to, supervisors shall require the said local office, etc. tosubmit it to the Tokyo Local Finance Office. (Hereinafter the local Finance
Bureau, etc. having jurisdiction over the location of the principal office of thespecified insurance agent and the Tokyo Local Finance Office shall bereferred to as the “local Finance Bureau, etc. having jurisdiction”.)
Local office, etc. of an affiliated insurance company of a specified
insurance agent shall be referred to as “proxy application company” or “proxyapplication local office” (hereinafter referred to as “proxy application company,etc.”), and supervisors shall require it to make the above an application forregistration, etc. under the name of the head of the local office, etc.
In addition, in cases where an affiliated insurance company makes anapplication for registration, etc. as an agent, if a specified insurance agent
has two or more affiliated insurance companies, supervisors shall require oneof the affiliated insurance companies to make the application as an agent.
If the person who makes an application for registration, etc. is an employeeof an insurance agency, supervisors shall require the affiliated insurancecompany that makes an application for registration, etc. for the insurance
agency to which the person who makes the said application for registration,etc. is to belong to make the application.

353

(iv) Reception of Documents Such as Written Applications for Registration, etc.
A. When documents such as written applications for application, etc.
(hereinafter referred to as “application documents, etc.”) are submitted(including

sending

application

data,

etc.

to

the

“electronic

application/notification system”; the same applies in (2) Notification of
Change, etc. and (3) Notification of Abolition, etc.) by proxy applicationcompanies, etc., the local Finance Bureaus, etc. having jurisdiction shallreceive them.
(Note) When application documents, etc. are submitted from proxyapplication companies, etc. via the Life Insurance Association of Japanor the General Insurance Association of Japan, the local Finance
Bureaus, etc. of competent jurisdiction shall also receive them.
B. With regard to specified insurance agents that are officers or employees oflife insurance companies or officers or employees of those who received
entrustment from life insurance companies, in cases where overallmanagement of the said specified insurance agents is collectively carriedout by a business office of life insurance companies or those who received
entrustment from life insurance companies, the said business office shallbe able to be deemed to be the “principal office” prescribed in Article 49(1)of the Order of the said specified insurance agent.
C. As with the principal office of an insurance agency, the secondary officethat

independently

conducts

transactions

with

non-life

insurancecompanies shall be able to be registered separately from the principal
office.
In this case, the registration applicant shall be able to be therepresentative of the principal office of a non-life insurance agency to beregistered, instead of the head of the local office, etc. of the said non-life
insurance agency.
D. When application data, etc. is sent to the “electronic application/notification
system”, the local Finance Bureau, etc. having jurisdiction that received theapplication data, etc. shall separately receive a revenue stamp.
(v) Screening Criteria for Written Applications for Registration, etc.
A. Whether the specified insurance agent for which an application forregistration is being made does not fall under Article 279(1)(vi) of the Act.
B. Whether the descriptions of the written application for registration(Appended Form No. 17 of the Regulation) are based on the criteria foritems to be included specified in III-2-1 (Life Insurance Agents) and354

Appedix-1 and Appendix-2 of III-2-2 (Non-Life Insurance Agent) in II. Other
Forms for Reporting, etc. of Forms and Reference Materials of thisGuidelines.
In addition, in cases where there are multiple representatives of a nonlife insurance agency that is a corporation, whether the representatives
other than the first one describedin Appended Form No.

65“Representative or Administrator (Appended Table)” (hereinafter referred toas the “Representative Appended Table”) are attached to the written
application.
C. Affixing of Required Revenue Stamps(A) If the registration applicant is an insurance agency, whether a revenue
stamp of the amount prescribed in the Registration and License Tax Act
is affixed.
(B) If the registration applicant is a life insurance agency that is an “office
employee”, “sales employee”, “employee of an individually owned
insurance agency”, or “employee of an insurance agency that is a
corporation”, whether a revenue stamp of the amount prescribed in
Article 39-3 of the Order is affixed.
D. When deficiencies are found in the content of a written application forregistration, the written application for registration shall be returned to theproxy application company, etc. to be corrected.
In the application for the registration of a life insurance agent, occupation
shall be categorized as follows.
(A) Office employee (symbol “O”)
An officer (excluding a representative officer and auditor and a memberof the audit committee) or employee of a life insurance company who isregarded as an office employee under the rules of employment, etc. or
any other equivalent person(B) Sales employee (symbol “S”)
An employee of a life insurance company who is mainly engaged ininsurance solicitation and regarded as a sales employee under the rulesof employment, etc. or any other equivalent person(C) Individually owned insurance agency (symbol “I”)
An individual who received entrustment for insurance solicitation of alife insurance company(D) Insurance agency that is a corporation (symbol “C”)
A corporation that received entrustment for insurance solicitation of a355

life insurance company(E) Employee of an individually owned insurance agency (symbol “IE”)
An employee of (C)(F) Employee of an insurance agency that is a corporation (symbol “CE”)
An officer (excluding a representative officer and auditor and a memberof the audit committee) and employee of (D)(vi) Documents to be Attached to Written Applications for Registration
With regard to the documents to be attached to written applications forregistration, whether the following documents prescribed in items of Article
277(2) of the Act and items of Article 214(1) of the Regulation are attached.
It shall be noted with regard to handling of attached documents that for theapplication for registration under the provisions of Article 284 of the Act, it
shall suffice to present them in principle, and they shall be retained at theproxy application company, etc. in a state always ready to be submitted.
A. Documents to be attached to written applications for registration that are
certified by a public agency must be issued within three months before thedate of application.
B. Documents to be attached to written applications for registration shall be
as follows.
(A) Case where the registration applicant is a persona. Documents prescribed in Article 277(2)(i) of the Act (Appended Form
No. 17-2 of the Regulation)
b. A document certifying that the registration applicant is a specified
insurance agent (Article 214(1)(i) of the Regulation)c. An extract of certificate of residence or any other substitutive document(Article 214(1)(iii) of the Regulation(B) Case where the registration applicant is a corporationa. Documents prescribed in Article 277(2)(i) of the Act (Appended Form
No. 17-2 of the Regulation)
b. A document indicating the names and addresses of officers prescribedin Article 277(2)(ii) of the Act (prepared using Appended Form N. 66 tobe submitted)
It should be noted that a document indicating the names andaddresses of the officers may be used in place of the list of officers.
(Officers to be notified in a written notification for officers/employees
engaging in insurance solicitation may be excluded.)c. A document certifying that the registration applicant is a specified

356

insurance agent (Article 214(1)(i) of the Regulation)d. The articles of incorporation or a certificate of registered matters, or
any other substitutive document (hereinafter referred to as the “articles
of incorporation, etc.”) (Article 214(1)(ii) of the Regulation)
C. “A document certifying that the registration applicant is a specified
insurance agent” prescribed in Article 214(1)(i) of the Regulation shall bean entrustment contract for insurance solicitation, Appended Form No. 71“Proxy Application for Registration for Life Insurance Agent (and) Proxy
Notification of Change to Registered Matters/Abolition of Business, etc.”, orAppended Form No. 73 “Non-Life Insurance Agency Proxy Application”(hereinafter collectively referred to as “proxy application form”).
D. “Any other substitutive document” prescribed in Article 214(1)(ii) of theRegulation shall be a transcript/extract of the commercial registry, etc.
(Note 1) The articles of incorporation, etc. shall have descriptions that in
the registration of a life insurance agent in principle, the life insurance
agent can conduct business related to life insurance solicitation and thatin the registration of a non-life insurance agent in principle, the non-life
insurance agent can conduct business related to non-life insurance
solicitation.
(Note 2) For the articles of incorporation, it shall suffice to attach a copy ofthe original if it contains the description stating the fact that it is identicalto the original.
E. “Any other substitutive document” prescribed in Article 214(1)(iii)(a) of theRegulation shall be the following documents, and “any other substitutive
document” prescribed in (b) of the same paragraph shall be atranscript/extract of the commercial registry, etc.
(A) A certificate of information specified in the residence certificate(B) A seal registration certificate(C) A copy of the following documents within the term of validity
A driver's license, health insurance card, welfare certificate (health andwelfare certificate of a person with mental disabilities, physical disability
certificate, medical treatment and education handbook, etc.), pension
book, passport, basic resident register card, residence card or special
permanent resident certificate, or My Number Card
(Note) For the articles of incorporation, etc., it shall suffice to attach a
copy of the original if it contains the description stating the fact that it isidentical to the original.

357

(vii) Written Proxy Applications, etc.
When application documents, etc. are submitted by a proxy applicationcompany, supervisors shall check whether a written proxy application is
attached.
(viii) Handling of the Registry of Specified Insurance Agents (hereinafterreferred to as the “registry” in III-2-1)
The registry shall be organized and stored to enable proper managementof specified insurance agents. In cases where application for registration, etc.
is sent to the “electronic application/notification system” using electronic data,a list output by the said system shall be the registry.
(ix) Notification of Completion of Registration
When a specified insurance agent is registered, a document indicating thefact shall be prepared using Appended Form No. 67 (life insurance company)
or No. 68 (non-life insurance company) and delivered to the proxy applicationcompany, etc. without delay under the provisions of Article 278(2) of the Act.
(x) Denial of Registration
A. In cases where registration is denied under the provisions of Article 279(1)through (3) of the Act, the fact shall be notified to the proxy applicationcompany, etc. using Appended Form No. 69 “Denial of Registration”
without delay under the provisions of (4) of the same Article.
B. A written notification of denial of registration shall state the reason for
denial by clearly specifying the item number of items of Article 279(1) of the
Act under which the applicant falls or the location that includes false detailwith regard to an important particular or fails to detail a material fact in thewritten application or a document attached thereto.
(2) Notification of Change, etc.
(i) Notification of Change in Matters Described in the Written Application for
Registration (Matters Related to Article 280(1)(i) of the Act)
A. Whether the specified insurance agent makes notification of change when
there has been a change to the matters listed in items of Article 277(1) of
the Act.
B. In cases where a proxy application company, etc. makes notification ofchange as an agent for a specified insurance agent, the notification shallbe made to the local Finance Bureau, etc. having jurisdiction to which thesaid specified insurance agent is currently registered.
C. When notification of change is received, the matters changed shall be358

registered in the registry for the said specified insurance agent.
(ii) In making a notification of change, the following points shall be considered.
A. In cases where the names of the location where offices are located arechanged under relevant laws and regulations such as the Act on Indicationof Residential Address (Act No. 119 of 1962), notification of change may beomitted.
B. In cases where an insurance agency that is a corporation makes a legalorganizational change, notification of change shall be made.
C. In cases where the occupational category of a life insurance agent is to bechanged from “office employee”, “sales employee”, “employee of anindividually owned insurance agency”, or “employee of an insurance
agency that is a corporation” to “individually owned insurance agency”,
whether a revenue stamp of the amount prescribed in the Registration andLicense Tax Act is affixed to the notification of change.
D. In cases where the content of a notification of change is for the change ofthe principal office of the said specified insurance agent to the location thatis under the jurisdiction of other local Finance Bureaus, etc. having
jurisdiction, the local Finance Bureau, etc. having jurisdiction to which thesaid specified insurance agent is currently registered shall send theregistry to the local Finance Bureau or the Tokyo Local Finance Office thatwill be the new local Finance Bureau, etc. having jurisdiction.
E. A notification to an affiliated insurance company referred to in Article
280(2) of the Act shall be made, after receiving a notification of change andchecking the content thereof, to the proxy application company, etc.
(3) Notification of Abolition, etc. (Matters Related to Article 280(1)(ii) through (vi)of the Act）
(i) Whether the specified insurance agent, etc. makes notification of abolition,etc. when it comes to fall under any of the items of the Article 280(1).
(ii) In cases where a proxy application company, etc. makes notification ofabolition, etc. prescribed in Article 280(1)(iii) through (vi) of the Act as anagent for a specified insurance agent, the notification shall be submitted to
the local Finance Bureau, etc. having jurisdiction to which the said specified
insurance agent is currently registered.
(iii) When a notification of abolition, etc. is received, the registration of the said
specified insurance agent shall be deleted under the provisions of Article308(1)(ii) of the Act.

359

(iv) A notification to an affiliated insurance company referred to in Article 308(2)of the Act shall be made, after receiving a notification of abolition, etc. andchecking the content thereof, to the proxy application company, etc.
(4) Notification of Officers or Employees (Matters Related to Article 302 of theAct)(i) When a non-insurance agency intends to have its officers or employees
engage in insurance solicitation, whether a notification of employees is made.
(ii) It shall be noted that when making a notification of officers or employees toengage in insurance solicitation, those subject to the said notification may
not engage in insurance solicitation before the date of the notification of
employees.
(5) Management of Register of Specified Insurance Agents (Matters Related to
Article 285 the Act)
With regard to the registers of specified insurance agents to be kept by anaffiliated insurance company under the provisions of Article 285(1) of the Act,the affiliated insurance company shall have local offices, etc. keep those of
specified insurance agents belonging to the said local offices, etc. andappropriately manage them according to changes made to the mattersdescribed in written applications for registration of specified insurance agentsor abolition of registration.
(6) Notification of Deletion Associated With the Cancellation of Registration
When the registration of specified insurance agents has been canceled
pursuant to the provisions of Article 308(1)(i) of the Act, a notification shall bemade to the affiliated insurance company of the said specified insurance agent
using Appended Form No. 74 under the provisions of (2) of the same Article.
(7) Procedures When an Insurance Company Becomes an Insurance Agency inConducting Agency Services or Business Handling Services for Other
Insurance Companies (Matters Related to Article 98 of the Act)(i) The insurance company shall obtain permission from the Commissioner of
the FSA under the provisions of Article 98(2) of the Act or make notification to
the Commissioner of the FSA under the proviso to the same paragraph, andthen register to the local Finance Bureau, etc. having jurisdiction as aninsurance agency under Article 276 of the Act.

360

(ii) In the case of (i), of the documents to be attached to the written application
under the provisions of Article 277(2) of the Act, the attachment of thosedescribing the names and addresses of officers of the insurance company tobe the said insurance agency (related to (ii) of the same paragraph) and thearticles of incorporation, etc. of the insurance company to be the said
insurance agency (related to Article 214(1)(ii) of the Regulation) shall be able
to be omitted.
In addition to the documents to be attached, if the document certifying thepermission of the Commissioner of the FSA or the entrustment contract iswritten in foreign language, the translation thereof shall also be attached.
(iii) In cases where the insurance company to be the said insurance agency
conducts agency services or business handling services for non-life
insurance solicitation operations, the head of the local office, etc. of the said
insurance agency, as an officer or employee under Article 302 of the Act,
shall be able to notify the Directors-General of the local Finance Bureau, etc.
having jurisdiction of the local Finance Bureau to which it is registered, dateof registration, and the fact that it has been registered.
(8) Re-Entrustment of Insurance Solicitation (Matters Related to Article 275 theAct)
In cases where the permission referred to in Article 275(3) of the Act isobtained for re-entrustment of insurance solicitation, the operations ofregistration of specified insurance agents conducted by an affiliated insurancecompany, principal insurance solicitation agent, and secondary insurance agent
shall be handled equivalently as described in III-2-1(1) through (7).

III-2-2 Subsidiary Companies, etc.
From the point of view of prohibition of other businesses prescribed in Article
100 of the Act, the scope of businesses of subsidiary companies, etc. of
insurance companies shall be as follows.
(Note 1) It should be noted that in cases where an insurance company or its
subsidiary companies holds shares or equity interests of a domestic
company (excluding subsidiary companies of the said insurance company) ina total number that exceeds the voting right holding threshold (meaning the361

number prescribed in Article 107(1) of the Act; the same applies hereinafter),businesses that the said domestic company (hereinafter referred to as“specified investing company”) can conduct are those that companies listed
in Article 106(1)(i) through (vii) of the Act, companies listed in (xii) of thesame paragraph, and companies listed in (xiv) of the Act can conduct andmust meet the standards for subsidiary companies prescribed in the rules,
notices, and this Guidelines.
(Note 2) When determining subsidiary companies, etc. and affiliatedcorporations, etc., regardless of whether the said insurance company
prepares securities reports, etc. under the Financial Instruments andExchange Act, whether the criteria such as the Regulation on Terminology,
Forms, and Preparation Methods of Financial Statements Statement No. 60of the Audit Committee of the Japanese Institute of Certified Public
Accountants “Audit Treatment to Determine the Scope of Subsidiaries andAffiliatedCompaniesinConsolidated

Financial

Statements”(datedDecember 8, 1998), and other business accounting standards that are
generally accepted as fair and appropriate are met shall also be considered.
(Note 3) It should be noted that a “company” prescribed in Articles 106 and 107of the Act shall not include a special purpose company (for example, acompany that has been incorporated for the purpose of securitizing assets or
raising equity capital, etc.), association, investment corporation, partnership,
LCC, and any other business entity that is equivalent to a company(hereinafter referred to as “business entity that is equivalent to a company”),
but whether the purposes of restricting businesses of subsidiary companies,
etc. and prohibiting other businesses does not deviate through a business
entity that is equivalent to a company shall be considered.
(Note 4) Of the treatment of subsidiary companies, etc. of an insurance holding
companies, the approval prescribed in Article 271-22(1) of the Act that isrequired when the insurance holding company is to make any company otherthan those listed in the same paragraph of the Act as its subsidiary company
is not necessary if the insurance holding company is to make a similar
company its subsidiary corporation, etc. (excluding a subsidiary company) or
affiliated corporation, etc. It shall be noted, however, that the content ofbusinesses that the company (including a specified investing company)
conducts or is to conduct shall not fall under any of the following.
(1) The content of the said businesses fall under the following (i) or (ii), andtherefore the social credibility of insurance companies that are subsidiary362

companies of the insurance holding company may be ruined.
(i) The content of the said businesses may harm the public policy and good
morals.
(ii) The content of the said businesses may preclude the stable lives of thecitizenry or sound development of the national economy.
(2) The content of the said businesses is likely to damage the soundness ofmanagement of the company concerned in light of the amount of statedcapital and human resource structure, etc. of that company, and if thesoundness of management is damaged, the soundness of management of
insurance companies that are subsidiary companies of the insurance
holding company may also be damaged.
It shall also be noted that consideration shall be given to a company thatis to become a subsidiary company, etc. or affiliated corporation, etc. of an
insurance company to ensure that it is not for the purpose of deviating the
purposes of restricting businesses of subsidiary companies and prohibiting
other businesses.

III-2-2-1 Scope of Businesses of Subsidiary Companies, etc.
With regard to the scope of businesses of subsidiary companies, etc., thefollowing points shall be considered.
(1) Whether dependent services (meaning dependent services subscribed in
Article 106(2)(i) of the Act) conducted by subsidiary companies of an
insurance company are limited to businesses related to the business of theinsurance company that does not serve as the basis for that business.
(Note) It should be noted that subsidiary companies or affiliated corporations,etc. of an insurance company that conduct dependent services also needto meet the criteria prescribed in the “Establishment of the Criteria for
Determining Whether a Company Conducting Dependent Services for an
Insurance Company or Insurance Holding Company, or Subsidiary
Companies Thereof Under the Provisions of Article 106(10) of the
Insurance Business Act, etc.” (Notice No. 38 of 2002; hereinafter referred
to as the “Notice on Income Dependency”). It should also be noted that inthis case, the “amount of income” is the same as that referred to in the
Notice (income from the said insurance company and its subsidiary363

companies).
(2) Whether finance-related services (meaning finance-related services
subscribed in Article 106(2)(ii) of the Act) conducted by subsidiary companiesof an insurance company are within the following scope.
(i) Agency services (excluding those that fall under businesses listed in Article
56-2(2)(ii) of the Regulation) or business handling services related toinsurance business of the insurance company- Whether they are within the scope of businesses listed in Article 51 of theRegulation(ii) Credit guarantee business
A. Whether businesses related to business loan of the said insurancecompany and subsidiary companies, subsidiary corporations, etc., andaffiliated corporations, etc. of the said insurance company and its
insurance holding company are not handled, and whether they arehandled with consideration given to the following points.
B. In the business operations of a credit guarantee company, whether
sufficient consideration is given to ensuring the establishment of a
specialization structure for insurance business, enhancement of internal
reserves, and other preparations for appropriate payment by setting ofappropriate credit guarantee rate and execution of appropriate allocation
process, etc. based on the characteristics of the guarantee not to
obstruct smooth execution of credit guarantee. In particular, for credit
guarantee within the group, considering that credit risks are notexternally transferred, whether sufficient consideration is given to ensurethat the business conditions of the said credit guarantee company do notaffect the ensuring of the soundness of management of the said
insurance company and subsidiary companies, subsidiary corporations,etc., and affiliated corporations, etc. of the said insurance company andits insurance holding company.
C. When a credit guarantee company conducts a credit guarantee, whether
unnecessary personal collateral is not also secured in addition tophysical collateral.
D. Whether the insurance company does not commit any acts such as
forcing debtors requiring credit guarantee to receive credit guarantee of acredit guarantee company that the insurance company has establishedas its subsidiary company.

364

E. Whether the insurance company reduces the portion equivalent to thefollowing from the interest rates of guaranteed housing loans of a credit
guarantee company compared to the ordinary interest rates.
(A) Losses associated with bad debts that are normally expected(B) Costs required for establishing, managing, and disposition ofcollateral, etc.
(C) Costs expected to be reduced by simplifying credit investigation andexamination of loan application, etc.
(iii) Sales of Computer Software- Whether the software is mainly (50% or more as a guideline) related tothe businesses of the said insurance company and financial and pension
operations, etc. of companies. Whether software that considerably
deviates from the businesses of the said insurance company is not sold(it is permissible to provide software developed by a parent insurancecompany for itself (including processing part of the software) to otherinsurance companies, banks, etc., and financial instruments business
operators conducting securities-related businesses).
(iv) Telecommunications Business (So-Called Van Business)- Whether products/services that are mainly (50% or moreas a guideline)

related to the businesses of the said insurance company and financial
and pension operations, etc. of companies are handled.
(Note) When an inquiry about the notification to the Ministry of Internal
AffairsandCommunications

under

Article

16(1)

of

the

Telecommunications Business Act has been received, it shall be
replied that “notification is not required if subsidiary companies, etc.
provide services of intermediating other persons' communications(hereinafter referred to as “intermediating services”) not for the purposeof profit (cases where it is clear from the prices and the conditions forproviding services set by the said subsidiary companies, etc. thatintermediating services are provided not for the purpose of gaining
profit such as, for example, a case where a jointly owned subsidiarycompany, etc. provides intermediating services only for the investing
financial institutions: 100% invested subsidiary companies areincluded)”.
(v) Health/Welfare-Related BusinessA.

Health-related

business includes, for example, business that

establishes facilities such as an indoor exercise facility or function such365

as a call center, etc. and assigns professional instructors or medical
professionals, etc. to contribute to the maintenance/improvement ofhealth of members and consulters.
B. Welfare-related business includes, for example, operation andmanagement of elderly welfare-related facilities such as welfare
facilities for the elderly (including residences with health and welfare
services for the elderly); meal provision/transfer business for residents
of elderly welfare-related facilities; operation and management of
rehabilitation institutions (including fitness clubs); consultation, agency
services, and research and development on health, medical care, andwelfare such as long-term care; development, loan, and sale of careequipment; training for care personnel, and visiting care and in-homecare services for the elderly.
(vi) Investment Advising Business- Whether investment advising business is handled from the point of view of
the characteristics of business and protection of investors, withconsideration given to the following points.
A. Whether safe custody is handled not by the company concerned, but
by trust banks, etc.
B. Whether the scope of providing investment advice does not include
real properties and antiques, but includes securities and financial
products.
(vii) Arrangement/Introduction Business- Whether arrangement/introduction business is not handled in a way thatdeviates from the purpose of prohibiting other businesses, such as
including businesses not related to insurance business in the scope ofarrangement/introduction

business,

etc.

The

scope

of

arrangement/introduction business includes, for example, mediation,
introduction, and arrangement of automobile repair business operators,
etc. mainly for policyholders, etc. of automobile insurance; and mediation,
introduction, and arrangement of medical institutions, etc. mainly forpolicyholders, etc. of overseas travel accident insurance.
(viii) Leasing Business- When concluding leasing contracts for real properties, whether leasing
business is limited to a form similar to financing (so-called financing
lease), excluding development/operation of public facilities such as
education, cultural facilities, and social welfare facilities, etc., and366

whether businesses other than those that a company eligible to be a
subsidiary company can conduct, such as real property business, etc,
are not conducted.
(Note) Whether a control environment for managing the prevention of
abuse of advantageous position and transactions involving conflict ofinterest, and considering that insurance companies cannot conduct real
propertybusiness,whethersufficientconsideration/verificationisconducted in advance from the point of view of complying with laws andregulations, etc. to ensure not to experimentally act as agent or mediate
the sales, purchasing, or leasing of real properties.
(3)

Whether specified subsidiary corporations, etc. (meaning subsidiarycorporations, etc. that are not specified investing companies; the same
applies hereinafter) and specified affiliated corporations, etc. (meaning
affiliated corporations, etc. that are not specified investing companies; thesame applies hereinafter) of an insurance company are as follows. However,this does not apply for a business entity that is equivalent to a company.
(i) Whether the scope of businesses of specified subsidiary corporations, etc.
and specified affiliated corporations, etc. of an insurance company is within
the scope of business that a company eligible to be a subsidiary company(meaning a company eligible to be a subsidiary company prescribed in
Article 106(1) of the Act) can conduct and meets the standards for
subsidiary companies prescribed in the Regularion, Notice and thisGuidelines for Supervision.
It should be noted that companies that conduct specialized bankingrelated services (meaning specialized banking-related services prescribedin (2)(iii) of the same Article) can be specified subsidiary corporations, etc.
or specified affiliated corporations, etc. of an insurance company only when
the insurance company has banks as its subsidiary companies, etc..
(Note) It should be noted that only when specified subsidiary corporations,etc. or specified affiliated corporations, etc. conduct businesses related
to commercial real properties, businesses listed in Article 56-2(1)(xviii) of
the Regulation that the said companies conduct do not need to meet thestandards equivalent to the standards prescribed in Article 2(1)(i), Article6(i), or Article 7(i) of the Notice on Income Dependency.
(ii) With regard to specified subsidiary corporations, etc. or specified affiliatedcorporations, etc. of an insurance company that exclusively conduct367

dependent businesses mainly for businesses conducted by specified
investing companies or other specified subsidiary corporations, etc. or
specifiedaffiliatedcorporations,etc.

(hereinafterreferredtoas“subordinated corporations, etc.”) of the said insurance company, if thepercentage of the amount of income from subordinated corporations, etc.
in the total income exceeds 50% (in cases where businesses listed in
Article 56-2(1)(xviii) of Regulation are conducted, if real property subject tothose businesses are shared by two or more persons and one of them isthe said insurance company or its subsidiary company, the amountcalculated by multiplying the amount of income for the said businesses of acompany established by the said insurance company or the said subsidiarycompany according to its share in the said real property by the percentageof the said share shall be deemed to be the total income), it is permissible
to treat them as not violating (i) above.
(iii) In cases where specified subsidiary corporations, etc. and specified
affiliated corporations, etc. of an insurance company that have been
notified as affiliated companies (including companies established by thesaid affiliated companies for conducting their businesses and companies
conducting businesses similar to them, and excluding companies that fallunder (iv)) and had been conducting businesses other than those that canbe conducted by companies eligible to be a subsidiary company at the timeof the enforcement of the Act on Revision, etc. of Related Acts for the
Financial System Reform (hereinafter referred to as the “new Act”) continue
to conduct those businesses, it is permissible to treat them as not violating(i) above for the time being, provided that the names, businesses, andother required matters of the said specified subsidiary corporations, etc.
and specified affiliated corporations, etc. have been reported as orderedseparately.
However, this shall not apply to the cases where the said specified
subsidiary corporations, etc. or specified affiliated corporations, etc.
become subsidiary companies or specified investing corporations of thesaid insurance company and the cases where the said specified subsidiarycorporations, etc. and specified affiliated corporations, etc. newly conductbusinesses other than those that had been conducted by them before theenforcement of the new Act.
(Note 1) An affiliated company refers to a company in which an insurancecompany invests that has a close relationship with the insurance based368

on the history of its establishment and financial and personal
relationships, etc.
(Note 2) In cases such as the following, it is permissible to treat themequivalently as the above-mentioned specified subsidiary corporations,etc. or specified affiliated corporations, etc. unless doing so would
deviate from the purpose of the Insurance Business Act.
A. Case where affiliated corporations of an insurance company that havebeen notified as such conduct the above-mentioned businesses andthere are unavoidable circumstances for becoming specified investing
companies (limited to subsidiary corporations, etc. or affiliatedcorporations, etc.) of the said insurance company at the time of theenforcement of the new Act through the said insurance company’s
acquisition of the shares of the said affiliated companies held by othercompanies (limited to the case where notification prescribed in Article
132 of Supplementary Provisions of the new Act)
B. Case where companies that have met the above requirements as
specifiedsubsidiarycorporations,

etc.

or

specifiedaffiliatedcorporations, etc. of an insurance company became specified investors(limited to subsidiary corporations, etc. or affiliated corporations, etc.)of the said insurance company under the provisions of Article 107(4)(i)of the Act (limited to case where the approval prescribed in the same
item has been obtained) at the time of the enforcement of the new Act
C. Case where companies that have meet the above requirements as
specifiedsubsidiarycorporations,

etc.

or

specifiedaffiliatedcorporations, etc. of each of two insurance companies became
specifiedsubsidiarycorporations,

etc.

or

specifiedaffiliatedcorporations, etc. (hereinafter referred to as “surviving companies”) of
either one of the said insurance companies through a merger

at thetime of the enforcement of the new Act (limited to the case where, if thesurviving companies continue to conduct the businesses that they had
been conducting after the merger, necessary reviews had been
conducted on the said businesses by the end of March 2002)(iv) Whether specified subsidiary corporations, etc. or specified affiliatedcorporations, etc. do not conduct businesses other than those thatcompanies eligible to be a subsidiary company can conduct, such as real
property business for individuals, sale of goods and travel mediation
business, etc.

369

In cases where specified subsidiary corporations, etc. or specified
affiliated corporations, etc. had been conducting these businesses at thetime of the enforcement of the new Act, however, whether necessary
reviews have been conducted by the end of March 2002 in principle.
It should be noted that in cases where specified subsidiary corporations,etc. or specified affiliated corporations, etc. had been conducting
dependent businesses or finance-related businesses (including those thathave been reported as businesses equivalent to these businesses asordered separately) or both of these businesses (limited to the case where
the said dependent businesses meet the standards that are equivalent tothe standards prescribed in each proposal of the Notice on Income
Dependency (based on the example in (ii) above; however, the incomesfrom those conducting insurance solicitation through entrustment from aninsurance company may be included in the incomes from subsidiarycompanies of the said insurance company in calculation); it is permissible
to treat this case as if the provisions of Article 56-2(3) of the Regulation do
not apply), it is permissible to treat these cases as not violating (i) above forthe time being provided that necessary reviews have been conducted on
the businesses other than the said dependent businesses or financerelated businesses by the end of March 2002.
(Note 1) It should be noted that if the said specified subsidiary corporations,etc. or specified affiliated corporations, etc. have not completed thenecessary review after the end of March 2002, they shall be requested tosubmit a report on the justifiable reason for not having completed thereviews as ordered separately.
(Note 2) In association with the businesses conducted by subsidiarycompanies of an insurance company, in cases where there areunavoidable circumstances from the point of view of public nature, etc. tohave specified subsidiary corporations, etc. or specified affiliatedcorporations, etc. of the said insurance company conduct businesses
required by local governments, etc., it is permissible to treat the saidbusinesses as “businesses equivalent to these businesses” even if they
are businesses other than those that can be conducted by company
eligible to be a subsidiary company.
III-2-2-2

Treatmentof

Agency/Mediation

Companies

Selling/Purchasing

Collateral Properties (Excluding Real Properties) for Loans, etc. of Other
Business Operators

370

Whetheragency/mediationcompanies

selling/purchasingcollateralproperties (excluding real properties) for loans, etc. of other business operators
are treated with consideration given to the following points.
(1) Whether business operations of the said companies are limited to thefollowing.
Agency/mediation services (hereinafter referred to as “agency services,etc.”) for selling/purchasing collateral properties (excluding real properties)
for loans, etc. conducted when other business operators need to exercise
the security interest for recovering those loans, etc.
(Note) It should be noted that, based on the purpose of prohibiting otherbusinesses, agency services, etc. for selling/purchasing are not permitted
other than for exercising the security interest.
(Note 2) It should be noted that, considering that insurance companies
cannot conduct real property business, agency services, etc. forselling/purchasing real properties are not permitted.
(Note 3) It should be noted that acquiring, holding, managing, and selling
collateral properties are not permitted for companies other than thoseprescribed in Article 56-2(1)(xxiv) of the Regulation.
(2) In the execution of business operations of the said companies, whether the
standards of the Notice on Income Dependency are met.

III-2-2-3 Treatment of Holding/Managing Companies of Collateral Properties
Related to Loans, etc. of Insurance Companies (Self-Bidding Companies)
Whether holding/managing companies of collateral properties related toloans, etc. of insurance companies are treated with consideration given to thefollowing points.
(1) Whether business operations of the said companies are limited to thefollowing.
(i) Acquisition of collateral properties related to the said loans, etc. conductedwhen the parent insurance company needs to exercise the security interestfor recovering those loans, etc. (including the case where a third party

371

exercises the security interest for collateral properties related to the parent
insurance company) (for properties other than real properties, acquisition is
not limited to that through successful bidding at auction, but also includes
acquisition by so-called underhand sales).
(ii) Holding, management, and sale of properties acquired (hereinafterreferred to as “holding, etc.”).
(2) In the execution of business operations of the said companies, whether thefollowing points are observed.
(i) Holding, etc. of Real Properties
a. Whether the price of successful bidding at auction is based on theminimum sale price published by the court.
b. When acquiring real properties, whether due consideration is given to
the operation to ensure not to have social criticisms.
c. Whether the business operations conducted during the period of holding
the real properties acquired are limited to those for maintaining/improving
the value that is essential for smooth sale of the said real properties suchas leveling ground, completing construction of unfinished buildings, andpurchasing adjacent land, etc.
d. In cases where the said real properties are leased during the period ofholding the real properties acquired, whether business operations arelimited to the extent that does not prevent smooth sale of the said real
properties.
e. When the said companies execute business operations, whether they
conduct businesses that affiliated companies cannot conduct, such as
hotel business.
(ii) Holding, etc. of Movable Properties
a. Based on the fact that movable properties are of great variety and thepotential risks of holding, etc. of them are also wide-ranging, whether acontrol environment has been established wherein the risks such as
liability for management and liability for non-conformity to contracts that
may arise from the holding, etc. of the said movable properties areproperly identified, analyzed, and managed according to the types andcharacteristics of the said movable properties to appropriately respond tothese risks.
b. When acquiring the said movable properties, whether they areappraised using objective and rational appraisal methods.

372

c. Whether efforts have been made to appropriate manage the movable
properties acquired according to their types and characteristics, etc. toimprove/maintain their values.
d. Whether efforts have been made to consider appropriate methods ofselling them and converting them into cash according to their types andcharacteristics, etc. and to realize them.
e. When the said companies conduct the holding, etc. of movable
properties, whether they conduct businesses that are inappropriate foraffiliated companies to conduct.
(iii) Holding, etc. of Claimsa. When acquiring the said claims, whether they are appraised using
objective and rational appraisal methods.
b. Whether efforts have been made to maintain the values of the claims
acquired, such as obtaining information necessary for determining thecredit capability of the third-party debtors of the said claims (debtors of
the target claims) as needed and continuously monitoring their financial
conditions.
c. Whether efforts have been made to realize smooth recovery of theclaims acquired by taking appropriate recovery measures (includingtransfer to third parties) on time.
(iv) Holding, etc. of Other Properties
Whether other properties are handled equivalently as for the holding, etc.
of the above-mentioned real properties, movable properties, and claims.
(3) whether the target properties are collateral properties related to loans, etc.
of the parent insurance company and purchasing the said properties is
expected to enable recovery by the parent insurance company.
(Note) Loans, etc. include the claims such as the reimbursement rights, etc.
obtained by the parent insurance company by performing the guarantee
obligation that have been the secured claims the said properties.
(4) Others(i) Whether the said companies that conduct the holding, etc. of real
properties have obtained the license referred to in Article 3 of the Real
Estate Brokerage Act under the provisions of the same Act.
(ii) Whether the said companies that conduct the holding, etc. of properties
other than real properties have obtained the license, permission,373

registration, or approval necessary for the holding, etc. of the said
properties.
(iii) Whether the said companies conduct segregated management ofbalance/profit and loss for each property acquired.
(iv) Whether the parent insurance company and the said companies takenecessary measures to ensure the financial soundness of the said
companies.

III-2-2-4 Scope of Businesses of Overseas Subsidiary Companies, etc. of
Insurance Companies(1) It must be noted that it is necessary to ensure not to allow overseas
subsidiary companies, etc. of insurance companies to conduct businesses
other than those that can be conducted by companies eligible to be a
subsidiary company by applying the same concept concerning the scope ofbusinesses that is applied to domestic subsidiary companies, etc. also to thescope of businesses of those overseas subsidiary companies, etc.
(Note) This shall not apply to the case where it is necessary to exercise thesecurity interest for recovering overseas loan claims, but it is extremely
difficult to sell collateral assets due to the situations of the local market,
and when there is no other appropriate disposition method under the local
laws, a subsidiary managing company is established to hold/manage
foreclosure assets.
In addition, businesses conducted by foreign companies conducting
insurance business that are permitted by the local authorities shall bepermitted in principle, provided that they do not deviate the purpose of laws.
(2) Subsidiary corporations, etc. and affiliated corporations, etc. that have beenreported as invested foreign corporations (including companies establishedby the said invested foreign corporations to have them conduct theirbusinesses and other companies that conduct businesses equivalent
thereof) and have been conducting businesses other than those that can be
conducted by companies eligible to be a subsidiary company shall be treatedequivalently as described in III-2-2-1(3)(iii) above.
(Note) “Invested foreign corporations” refers to overseas foreign corporations
in which insurance companies invest in a form of management control or374management participation.
Management control refers to a case where an insurance company
substantially holds a majority of the voting rights (including the case where
the said insurance company holds a majority in its calculation for its own
account even if the name of the owner of voting shares or investment is ofa person other than the said insurance company such as its official) of aforeign corporation (including the case where the said insurance company
and the said foreign corporation substantially hold a majority of the voting
rights of another foreign corporation or the said foreign corporation
substantially holds a majority of the voting rights of another foreign
corporation).
Management participation refers to a case where an insurance company
substantially holds at least 50% of the voting rights of a foreign corporationand has significant influence on the financial and business policies of theforeign corporation through personnel, financial, and trading relationships,
etc. It should be noted that “has significant influence” does not apply, inprinciple, to the case where there is another investor that substantiallyholds a majority of the voting rights of the said foreign corporation.
(3) It should be noted that in cases where an application for authorizationreferred to in Article 106(7) of the Act is made to make a company prescribedin (1)(viii) through (xii) of the same Article (in the case of a company listed in
the same items, limited to a foreign company) or holding company subject tospecial provisions prescribed in (4) of the same Article (hereinaftercollectively referred to as the “foreign company, etc. conducting insurance
business”) a subsidiary company, the following matters need to be clearlystated in the written statement of reasons or other application documents for
authorization.
(i) Whether or not the foreign company, etc. conducting insurance businesshas subsidiary companies that are not companies eligible to be a
subsidiary company(ii) In cases where companies described in (i) are subsidiary companies, thecontent of businesses conducted by the said companies and the recent
financial and profit and loss status of the said companies(iii) The content of the required measures to be taken so that the said
companies are no longer subsidiary companies within five years from thedate on which the companies described in (i) became subsidiary375

companies
It shall be noted that the authorization referred to in the same paragraphcannot be granted in cases where it may cause adverse effects on thefinancial soundness of the insurance company, cases where the content ofbusinesses of companies other than companies eligible to be a subsidiarycompany may injure public order or morals and thereby ruin social credibilityof the foreign company, etc. conducting insurance business, and cases
where it cannot be confirmed that the foreign company, etc. conducting
insurance business can implement management of subsidiary companies
adequately and fairly to ensure the appropriateness of businesses of the said
companies other than companies eligible to be a subsidiary.
(4) The purpose of Article 106(4) of the Act is to grant a grace period for five
years for the application of regulations on the scope of businesses ofsubsidiary companies as an exception when making companies other thancompanies eligible to be a subsidiary company subsidiary companies bymaking the foreign company, etc. conducting insurance business subsidiarycompanies on the premise that the insurance company takes required
measures to make the said companies no longer its subsidiary companies. In
addition, the fact that the cases where companies other than companies
eligible to be a subsidiary company can be subsidiary companies for morethan five years by obtaining approval of the Commissioner of the FSA are
limited to cases where the circumstances listed in the items of (6) of thesame Article exist is also based on the same purpose. Based on these,“unavoidable circumstances” in the items of the same paragraph may beconsidered to include the following circumstances.
(i) Those related to (i) of the same paragraph
A. Activities to sell the shares of companies other than companies eligible
to be a subsidiary company have been initiated, but the selling schedule
has been delayed due to the local economic conditions and status ofnegotiation with the potential buyer, etc.
B. Due to local legal reasons, the liquidation proceedings of companies
other than companies eligible to be a subsidiary company have not been
progressed.
(ii) Those related to (ii) of the same paragraphIn light of the characteristics of the local insurance market, it is376

indispensable to continue to have companies other than companies eligible
to be a subsidiary company as subsidiary companies, and the purposescannot be achieved by entrusting businesses to third parties without thecapital relationship.
It should be noted that since the provisions of (4) of the same Article are
exceptions to the regulations on the scope of businesses of subsidiarycompanies, when making application for approval referred to in (5) of thesame Article, the fact that those unavoidable circumstances exist at the timeof the application and the policy for holding the voting rights of companies
other than companies eligible to be a subsidiary company (measuresconsidered to eliminate the unavoidable circumstances within one year after
obtaining the approval, etc.), etc. need to be specifically described in theapplication documents each time.
(5) It should be noted that despite III-2-2-4(1), an insurance company may havecompanies other than companies eligible to be a subsidiary company as its
subsidiary corporations, etc. (excluding subsidiary companies; the same
applies hereinafter in III-2-2-4(5)) or affiliated corporations, etc. by making
the foreign companies, etc. conducting insurance business its subsidiarycompanies, but in view of the purpose of the regulations on the scope ofbusinesses of subsidiary companies, it is necessary to take required
measures to make them no longer subsidiary corporation, etc. and affiliatedcorporations, etc. within roughly five years in principle.
The same shall apply to cases where an insurance company makes
companies other than companies eligible to be a subsidiary company its
subsidiary corporations, etc. or affiliated corporations, etc. by making theforeign companies, etc. conducting insurance business its subsidiarycorporations, etc. or affiliated corporations, etc.

III-2-3 Points of Attention on Crypto-Assets
III-2-3-1 SignificanceAlthough there are various designs and specifications of cryptocurrency
assets, there are some that are difficult to track their transactions, such as

377

transferring records not disclosed and there is a high risk of being used forterrorist financing and money laundering. In addition, in general, it is difficult toappreciate the intrinsic value of crypto-assets because there are no otherassets to support their value, hence, as considering that price fluctuations are
significant when an insurance company group holds crypto assets, it isnecessary to take into consideration the risk of price fluctuation. Besides
regarding the management of crypto-assets, there are system risks such assystem malfunctions and cyber-attacks.
In addition to the above, considering the reputational risks where these risks
become apparent, the acquisition of crypto-assets by an insurance company
group must be within the minimum necessary range. For an insurancecompany group, on the other hand, in the business of acquiring, holding or
disposing of crypto-assets, including those by indirect methods such as
investment in a fund whose actual investment target is crypto-assets, etc.
(hereinafter referred to as "acquisition of crypto-assets, etc."), the businesses
related to crypto-assets (hereinafter referred to as "crypto-assets related
businesses") need to have a secure system in place so that there is no risk ofhindering the operation of the insurance company's individual business or
causing serious damage to the insurance company group.
Besides although underwriting of insurance in which the insurance company
does not acquire crypto assets, such as underwriting of various insurances forcompanies operating the crypto-assets exchange business and underwriting
various insurances to compensate the damages related to the crypto-asset
exchange business, does not correspond to crypto-assets related businesses,
it is necessary to pay attention to whether it is a deed that breaks theregulation.

III-2-3-2 Main Points of View
Regarding cryptocurrency-related operations in the insurance company
group, the above-mentioned system needs to be established. Specifically, it isnecessary to pay attention to the following points regarding such preparation.
(1) Risk Identification/Evaluation/Reduction based on the Characteristics ofCrypto-Assets, etc.
Based on the mechanism of the crypto-assets (including issuers,378

managers, other related parties, and the contents of the projects closely
related to the crypto-assets.), the anticipated use, distribution status,
technology used for the crypto-assets, and other characteristics of thecrypto-assets (hereinafter referred to as "characteristics of the crypto-assets,etc." ), whether the identification and evaluation of the risk of crypto-assets
have been thoroughly examined, and the internal control system has been
established to appropriately reduce the risks, including the following
measures (2) to (4). Also, whether these are being regularly verified andreviewed.
(2) Measures against Terrorist Financing and Money Laundering
Whether, if there is a high risk that will be used for terrorist financing andmoney laundering, the suitability of crypto-assets related businesses iscarefully assessed. For example, it shoud be noted that insurancecompanies should not conduct crypto-assets related business regarding
crypto-assets of which the transfer records are extremely difficult to be
tracked, because those are particularly likely to be used for terrorist financing
and money laundering.
Besides, whether appropriate measures are taken in line with thosedescribed in the Guidelines for Countermeasures against Money Launderingand Terrorist Financing, such as paying attention to the status ofterrorist

financing and money laundering countermeasures of other parties of cryptoassets related businesses. In particular, regarding crypto-assets related
business, if there is a possibility that cryptocurrency assets will be transferredfrom or to those who live or reside overseas, whether appropriate measures
are taken in accordance with the guideline II-2 (4).
(3) Measures to Ensure Financial Soundness
Even if it is necessary to acquire cryptocurrency assets in the business of
the insurance company group, from the viewpoint of ensuring soundness,whether an appropriate policy has been established, for example, limiting theamount of crypto-assets to be acquired to the minimum necessary range forthe business. Also, regarding the holding of crypto-assets, whether it ispossible to take appropriate measures such as promptly selling them, taking
into consideration the market risk and liquidity risk of the crypto-assets.
Furthermore, whether the insurance company group will not acquire
crypto-assets for the purpose of investment.

379

(4) Security Management Measures Related to Crypto-Assets Related
Businessa. Whether the departments and responsible persons in charge of managing
crypto-assets are appointed (when multiple departments are in charge ofmanaging cryptocurrency assets, the responsibility and liability are
identified between departments). Also, whether persons who havesufficient knowledge and experience regarding the characteristics of thecrypto-assets are properly stationed to handle it.
b. Whether the management of crypto-assets, dealing with problems in caseof outflow, and other internal rules regarding cryptocurrency assets areproperly established, and the officers and employees are well andthoroughly informed. Also, whether the internal regulations are regularly
verified and reviewed.
c. Whether the system risk management architecture for managing thecrypto-assets being handled, such as the measures to prevent the outflow
of crypto-assets due to unauthorized access, is securely established. Also,
whether the system risk management system is regularly verified andreviewed by experts.
III-2-4 Arm's Length Rule
When there is an application for approval under Article 100-3 or the proviso of
Article 194 of the Act, regarding the transactions or acts listed in each clause of
Article 100-3 or Article 194 of the Act,

whether there are compelling reasons

listed in each clause of Article 54 or Article 134 of the Regulation will be
examined, and the items to be paid attention to in that case are as follows.
(1) When applicable to Article 54(iii) or Article 134(ii) of the Regulations(i) Whether the specified related parties (which refer to the specified relatedparties specified in Article 100-3 of the Act or the specially related parties
specified in Article 194 of the Act; the same shall apply hereinafter) are in afinancial crisis and need reconstruction assistance.
(ii) Whether sufficient self-help efforts and clarification of management
responsibilities are made for specific parties to receive reconstruction
assistance.
(iii) Whether it is more economically rational to carry out the transaction or act

380

than when the specified related parties are wound up and liquidated.
(iv) Whether, in the case of debt waiver or monetary donation, the total amountof the expected loss due to the support during the period of the management
improvement plan amortized and/or allocated before the start of the plan.
(2) When Applicable to Article 54 (iv) of the Regulations- Whether it is clear from the social norm that if the insurance company does
not carry out the transaction or act with a specific party, it will suffer a larger
loss in the future.

III-2-5 Modification of Insurance Clauses
III-2-5-1 Reporting of Modification of Insurance Clauses(1) Approval of Reporting of Modification of Insurance Clauses
The following points should be paid attention to when approving reportingof modification of insurance clauses under Article 240-2(3) of the Act.
(i) Whether it is not currently difficult to continue the insurance business.
(ii) Whether it is rational that it may be difficult to continue the insurance
business, for example, if the insurance clauses are not modified

when

the future business and property situation is predicted not to pay off thedebt with the property of the insurance company. (Note 1)
Of these, at the time of the prediction of (ii) above:
A. (a) Matters related to financial and economic trends such as interest rates,
stock prices, and exchange rates;(b) Matters related to insurance contracts, such as new contract
expansion rate, insurance contract continuation rate, insurance
accident occurrence rate, etc.; and(c) Matters related to operations such as asset allocationmust be based on objective and reasonable assumptions regarding eachof them (Note 2).
B.The effects of management improvement measures that can be taken tocontinue the insurance business, such as mergers and reorganizations,organizationalchanges,business

cost

reductions,andbusiness

restructurings must be incorporated.
(Note 1) Regarding the analysis period, the practice of analyzing the future381

income and expenditure for 10 years in the life insurance company has
been established according to the business standards of the Institute ofActuaries of Japan, which can be used as the reference. But sinceconsidering that the procedure for modifying

the insurance clauses isvoluntary and autonomous, it does not exclude the analysis for a longer
period in all cases.
(Note 2) The method stipulated in the practical standards of the Institute ofActuaries of Japan can be used as a reference in determining whether or
not the assumptions made in these analyses are objective andappropriate.
(2) Contents of the Report Form
Of the documents to be attached as stipulated in Article 196 of theRegulation when making a report under Article 240-2(1), "a document stating
any other matters which would serve as reference information" as stipulated
in Article196(iii) of the Regulation shall include predictions of the futurebusiness and property conditions prepared by the method shown in (1) (ii)above, and matters related to the contents of the management improvement
measures incorporated in the predictions.
III-2-5-2 Appointment of the Insurance Inspectors
If approved under Article 240-2(3) of the Act, the insurance inspectors shallbe appointed promptly in principle to investigate the details of the modificationof the insurance clauses and other matters.
As a general rule, the insurance inspectors shall be appointed from: (1) the
actuaries (including corporations); (2) certified public accountants; and (3)lawyers.

III-2-5-3 Measures to be Taken by the Insurance Company
Whether, when the insurance company proceeds with the procedure formodification of insurance clauses, the following policy is taken into
consideration and appropriate measures are taken.
(1) Efforts to Improve Management382

Whether, when modifying insurance contracts, the insurance company
clearly and plainly explains to the general meeting of shareholders andpolicyholders about, in addition to the circumstances leading to themodification of insurance contracts, the measures to be taken as the result ofconsidering the wide range of management improvement measures
includingmerger/reorganization,organizationalchange,project

cost

reduction, business reorganization, etc. in order to reliably implement
insurance contracts after the insurance clauses are modified, and theprediction of the future business and property conditions that incorporatethem.
(2) Dealing with the Funds and Subordinated Loans
Whether the explanation is clearly and plainly given to the shareholders'meeting and policyholders on the measures to be taken as the result ofconsidering measures such as reduction of funds and subordinated loans,reduction of interest rates, or increase of interest rates so as not to impose aburden only on policyholders who are subject to the modification of
insurance clauses.
(3) Matters Concerning Management Responsibility
Whether the management system after the modification of insurance
clauses, including the reasons, are clearly and plainly explained to thegeneral meeting of shareholders and policyholders, etc.
(4) Policy on Policyholders' Dividends, etc.
Whether, if there is a policy regarding policyholders' dividends, thedistribution of surplus, or other payment of money related to the insurance
contracts as per the modification of insurance clauses, the details are clearlyand plainly explained to the general meeting of shareholders andpolicyholders, etc.

III-2-5-4 Approval of the Modification of Insurance Clauses(1) Approval of the Modification of Insurance Clauses
When approving the modification of insurance clauses based on Article
240-11(2) of the Act, the following points must be paid attention to.

383

(i) Whether the procedure for the general meeting of shareholders wasproperly implemented.
(ii) Whether each matter shown in III-2-5-3 is clearly and easily explained tothe policyholders.
(iii)Whether it is expected that the insurance company will take sufficientmanagement improvement measures and that the possibility of being
difficult to continue the insurance business will be resolved by thosemeasures and the modification of the insurance clauses resolved at thegeneral meeting of shareholders, etc.
(iv)Whether there are any problems from the viewpoint of protection ofpolicyholders, etc., that the modification of the insurance clauses issignificantly unfair to specific policyholders.
(2) Contents of the Offer Form
Of the documents stipulated in Article 200 of the Regulations attached whenseeking approval pursuant to Article 240-11(1) of the Act, "a document stating
any other matters which would serve as reference information” stipulated in
Article 200(v) shall include the matters related to the contents of management
improvement measures to be taken in conjunction with the modification of theinsurance clauses .III-2-6 Asset Management Limit
In approving the proviso of Article 48-3(2) of the Regulations and the proviso of
Article 48-5(2) of the Regulation, the plan for eliminating the excess of the asset
management limit in the future is requested and the implementation status of theplan shall be regularly reported except for in the case that the excess will bepromptly resolved.

III-2-7 Dealing with the Standard Policy Reserves When They Are Not
Accumulated(1) Regarding the accumulation for policy reserves, when the insurancecompany accumulates premium reserve and refund reserve (hereinafterreferred to as the "premium reserve, etc.") by applying Article 69(4)(iv), theinsurance company shall apply to obtain authoraization of change of thestatement of calculation procedures listed in Article 4(2)(iv) of the Law(including examination at the time of license). If there is that application, it shall384

be dealt with by paying attention to the following points.
(i) Whether the insurance company that applies Article 69(4)(iv) of theRegulations and accumulate premium reserves, etc. by a method other than
the standard policy reserve or the Level Premium System has established aplan for the accumulation of policy reserve (hereinafter referred to as the"accumulation plan") to be accumulated by the standard policy reserve or the
Level Premium System within a reasonable period of time. In addition,
whether the plan is appropriate based on the business plan or businessperformance etc.
(ii) For the insurance companies that apply the provisions of Article 69(4)(iv) of
the Regulations, if profits are expected to remain favorable, such as whencurrent net income or current net surplus is expected to be generated,
whether the insurance company takes measures for steady implementationof the accumulation plan such as accelerating the implementation of theaccumulation plan.
(iii) Whether, when changing the accumulation plan, there are truly
unavoidable reasons, such as the case that a recoverable temporary loss
has occurred.
(2) Whether, when the accumulation of premium reserve etc. is shfted to theamount based on the standard policy reserve or the Level Premium System,
the statement of calculation procedures has been changed without delay.
(3) Regarding the implementation status of the accumulation

plan, the reportbased on Article 128 of the Act shall be requested every year, and if the status
falls below the reserve rate in the accumulation

plan for the current fiscal

year, a hearing shall be held on the reason and measures for achieving theplan.
After conducting hearings, if the response is found to be inadequate, a reportshall be requested on the measures to steadily implement theaccumulation

plan based on Article 128 of the Act, and if it is found that there are serious
problems, administrative disposition based on Article 132 of the Act shall betaken.
The insurance companies' measures to be taken for the achievement or
restoration of standard policy reserves can be considered as follows:(i) Improvement of income and expenditure by reducing project costs andreviewing insurance premiums;

385

(ii) Securing resources for increasing policy reserves through capital increases,
etc.; and(iii)Improvement of income and expenditure by improving the continuation rateand changing the sales strategy (only when there is a track record including
similar ones.)
The improvement measures by financial reinsurance shall not be recognized
as the countermeasures in this case.

III-2-8 Restrictions on the Acquisition of Voting Rights
Regarding approval under Article 107(2) of the Act, it is necessary to pay
attention to the following points in addition to the need for approval each time thecompany intends to hold more than the voting right holding threshold and formore than one year.
(1) The new business activities conducted by the company specified pursuant to
the Cabinet Office Ordinance as a company exploring new business fields (socalled venture business company) as prescribed in Article 106(1)(xiii) or Article
271-22(1)(x111) of the Act refers to the development or production of new
products that enables developing new business fields, the development orprovision of new services, the introduction of new methods for production orsales of new merchandise, and other business activities, and the fields include
not only the types of business targeted for the establishment for R&D, but also
the types of other various services. In judging the applicability, the regions andtypes of the business will be taken into consideration, but the introduction oftechnologies and methods that are already prevalent to a considerable extent
and business that is still in the research and development stage are notincluded.
(2) The "day of commencement" prescribed in Article 56(5)(i) to (iii) of theRegulation refers to the date on which the company that had already engaged
in the business have decided to start the new business activity prescribed in (i)of the same Clause (so-called the "second establishment".)

III-2-9 Exemption from the Application of Regulations on the Dividends to386

Members in the Mutual Insurance Company
With respect to the application for the approval of exemption from the applicationof the member dividends regulations under Article 55-2(5) of the Act, if it isdeemed necessary for the applicant company to make efforts to enhance its
capital base to deal with the changes in the business environment, theapplication shall be approved because the situation falls under "unavoidable
circumstances in light of the status of its settlement of account " prescribed in (4)of the same Article.III-2-10 Liability Reserve Bonds
Liability reserve bonds shall be treated in accordance with the Industry Audit
Committee Report No. 21, the '"Treatment of Accounting and Auditing for Liability
Reserve Bonds" in Insurance Industry, issued by the Japanese Institute ofCertified Public Accountants on November 16, 2000.

III-2-11 Insurance Company's Major Shareholder
III-2-11-1 Items to Be Confirmed in the Approval Examination for Insurancecompany’s major shareholder(1) When examining whether there are risks of impairing the sound andappropriate operation of the business of the insurance company in light ofmatters related to the funds acquired by the applicant company for approvalas the insurance company’s major shareholder (hereinafter referred to as the"application company") in relation to the voting rights of the insurancecompany, the purpose of holding the voting rights, and other matters related
to the holding of voting rights, it is important to ensure the continued andstable management of the business from the perspective of protecting
policyholders, etc., and therefore, for example, to thoroughly examine it.
a. Whether the policy and purpose of the holding voting rights of theinsurance company are not likely to undermine the soundness andappropriateness of the insurance company's business. for example,
whether the company has the policy of not holding voting rights for the
purpose of short-term trading, but rather to continue to hold voting rights
for a certain period in light of the characteristics of the insurance business,and to stabilize and grow the management of the insurance company
through governance as a shareholder (including how this can be ensured);387

Also how the plans regarding the public offering of the share areconsidered.
b. Whether or not there are any risks of harm to the soundness andappropriateness of the insurance company's business in terms of thesource of funds for the acquisition of voting rights. For example, whether it
is possible to acquire the voting rights without excessive borrowing.
c. Whether or not the transactions among the group companies, including theapplicants are properly secured.
(2) When examining whether there are risks of impairing the sound andappropriate management of the insurance company's business in light of theapplicants' assets and income/expenses, the following points, for example,
shall be thoroughly verified.
a. Whether there are not any risks of harm to the soundness andappropriateness of the insurance company's business in light of theapplicants' financial condition and fund-raising status.
b. Whether sufficient cash flow, etc. are prepared to ensure the soundness ofthe management of the insurance company even if the insurance company
is unable to make profits as planned, in particular, for those who hold morethan 50% of the voting rights of the insurance company.
c. When reviewing for approval, financial statements for the most recent
fiscal year and materials such as audit reports (if the applicant is a foreign
corporation, etc., similar materials showing its financial status) shall be
requested, and whether there is not any additional information in the audit
report to the effect that there are significant doubts about the premise of
the applicant as a going concern shall be confirmed.
(3) When examining whether the applicant has sufficient understanding of the
public nature of the insurance business and sufficient social credibility in lightof its personnel composition, etc., the following points, for example, shall bethoroughly verified.
(i) Whether the applicant has an understanding of the public nature of theinsurance business and sufficient social credibility in light of the applicant's
management system and the management control system of the insurancecompany in which the applicant holds voting rights not less than the major
shareholder threshold.
(ii)To ensure the soundness of the management of the insurance company, it388

is a prerequisite that the independence of the management of theinsurancecompanybeensured.

However,toensurethattheindependence of the management of the insurance company is not
impaired due to the requirements of the management strategy of theapplicant, for example, the following points shall be sufficiently verified(a) Whether the independence of management of the insurance company
is impaired or not by the fact that the officers or employees of theapplicant concurrently serve as the officers or employees of theinsurance company.
(b) Whether the sound and appropriate management of the insurancecompany's business is not impaired in terms of risk management by theapplicants being entrusted with a part of the insurance company's
business.
(4) Even if the management independence of the insurance company isensured, there is a possibility that the insurance company may be exposed
to risks of the applicants that the insurance company does not intend, suchas deterioration of the applicants' management. In particular, in cases where
the insurance company and the applicants share a common operating base,
there is a risk that the insurance company's operating base may be lost atonce (co-funding risks) due to the bankruptcy of the applicant. To deal withsuch risks, for example, the following points shall be sufficiently verified.
a. Whether or not there are sufficient measures in place to block theapplicant's incurring risks owing to the insurance company. Moreover, suchmeasures should include, at the minimum, the following items:(a) In the event of deterioration in the applicant's business conditions, theapplicant shall not receive support or financing from the insurancecompany.
(b). The applicant shall assume in advance various risks, such as a decline
in the stock price of the insurance company and defection of business
partners, owing to the deterioration of the applicant's businessperformance, disposal of the insurance company's shares, thedisappearance of synergy effects, and reputational risks, caused by the
insurance company, and shall take measures to prevent such risks fromdamaging the soundness of the insurance company's management (e.g.,securing revenue sources and funding sources, and enhancing capital).
(c) In particular, in cases where the insurance company shares the389

applicant's operating base, measures should be taken to ensure that thebankruptcy of the applicant will not make it difficult for the insurancecompany to continue its business.
b. Even with the risk-blocking measures described above, it is assumed that
there may be cases where it is difficult to completely block the applicant's
risks owing to the insurance company. From the perspective of early
identification of deterioration in the management of the insurance company
due to the management risks of the applicant, the financial conditions andsocial credibility of the applicant that may affect the management of theinsurance company shall be fully considered in the process of examination
for approval of the insurance main shareholder.

III-2-11-2 Matters to Be Considered in Post-approval Supervision(1) For insurance company’s major shareholder, the company shall be required
to submit disclosure materials, such as annual securities reports (including
the status of fundraising) (if there are no disclosure materials, the materials
in which its management and financial conditions are described) and the
documents in which the business relationship with the insurance company(contracts, borrowings, etc.) of which the major shareholder holds more than
the threshold number of voting rights for each fiscal year of the major
shareholder in accordance with the provisions of Article 271-12 of the Act.
(2) If there is any doubt about the effectiveness of measures to ensure theindependence of the insurance company and to block business risks to theinsurance company based on the results of off-site monitoring or inspections,the company shall request the insurance company’s major shareholder tosubmit a report pursuant to Article 271-12 of the Act, as necessary, and if aserious problem is found, the company shall cope with the problems by
issuing an order for taking measures pursuant to Article 271-14 of the Act.

III-2-12 Points to Be Paid Attention to by Financial Institutions in Relation to theEnhancement Law
With regard to the items to be included in the plan for business restructuring390

and the plan for specific business restructuring prescribed in the Act on theStrengthening of Financial Institutions, etc., the following points should be paid
attention to, in line with the way the insurance company presents its financial
statements, etc.

III-2-12-1 Matters Related to the Setting of the Targets for Improving
Productivity and Financial Soundness Through Business Restructuring in the
Guideline for the Implementation of Business Restructuring(1) Life Insurance Companies
a. The "operating profit" in the guideline for the implementation of businessrestructuring (hereinafter referred to as the "Implementation Guideline") 1.
(a)(1) refers to, for example, the core profit.
b. The "value of turnover of tangible fixed assets" in a. (2) of the
Implementation Guideline 1 refers to, for example, the value obtained by
dividing annualized premium by the book value of the tangible fixed assets.
c. The "value added per employee" in the Implementation Guideline 1. (a)(3)Refers to, for example, the total value added by one employee (the sum ofbasic profit, labor cost, and depreciation).
d. The "total interest-bearing debt" in the Implementation Guideline 1.(b)(1)refers to all the hybrid capital instruments, including, for example,
insurance policy reserves, and the "working capital" refers to, for example,
the loan receivables excluding the non-performing loan.
e. The "ordinary income" in the Implementation Guideline 1 (b)(2) refers to,for example, the operating income, and the "ordinary expenses" refers to,for example, the ordinary expenditure.
(2) Non-life Insurance Companies
a. The "operating profit" in the Implementation Guideline 1. (a)(i) refers to, forexample, the amount of underwriting income minus underwriting expenses.
b. The "tangible fixed assets turnover ratio" in the Implementation Guideline
1. (a)(2) refers to, for example, the sum of the net premium written andreserve premium written divided by the book value of the tangible fixed
assets.
c. The "value added per employee" in the Implementation Guideline 1.(a)(3)refers to, for example, the total value which has been added by one

391

employee (the sum of insurance underwriting profit minus insurance
underwriting expenses, labor cost, and depreciation).
d. The "total interest-bearing debt" in the Implementation Guideline 1.(b)(1)refers to , for example, all the hybrid capital instruments, including, forexample, insurance policy reserves, and the "working capital" refers to, forexample, the loan receivables excluding the non-performing loans.
e. The "ordinary income" in the Implementation Guideline 1. (b)(2) refers to,for example, the ordinary revenue, and the "ordinary expenses" refers to,for example, the ordinary expenditure.

III-2-12-2

The

MatterConcerning

the

Definition

of

the

Corporate

Reorganization of the Implementation Guideline 2. (a).
(1) Life Insurance Companies(a) The "sales" of the Implementation Guideline 2. (a)(3) refers to, forexample, the annual-basis premium.
(b) The "sales cost per unit concerning the goods or service" of the
Implementation Guideline 2. (a)(5) refers to, for example, the working
expenses per unit of the annual-basis premium.
(2) Non-life Insurance Companies(a) The "sales" of the Implementation Guideline 2. (a)(3) refers to, forexample, the total amount of the net premium and income deposit
premium by policyholders.
(b) The "sales cost per unit concerning goods or service" of the
Implementation Guideline 2. (a)(5) refers to, for example. the expense perunit of the total amount of the net premium and income deposit premiumby policyholders (total amount of damage inspection expenses, andmiscellaneous charges and expenses of collection, other insurance
underwriting expenses, business expenses, and administrative expenses).

III-2-12-3 The Business Type in the Structural Excess of Supply of the
Implementation Guideline 2.b. (3) or the standard of a business sector(1) Life Insurance Companies

392

The "sales" in the "operating profit on sales" of the Implementation
Guideline 2.b.(3)(ii) refers to, for example, the annual-basis insurance
premium, and "operating income" refers to, for example, the basic profit.
(2) Non-life Insurance Companies
The "sales" in the "operating profit on sales" of the Implementation
Guideline 2.(b)(3)( ⅱ ) refers to, for example, the total amount of the net
premium and the income deposit premium by policyholders, and the"operating income" refers to, for example, the amount of the insurance
undertaking profit minus the insurance underwriting expense.

III-2-12-4 The Matters Related to the Setting of the Targets for Improving
Productivity and Financial Soundness of the Implementation Guideline 3 by theBusiness Restructuring.
(1) Life Insurance Companies
To the Implementation Guideline 3. (a)(1) to (3), and (b) (1) and (2), theabove-mentioned III-2-12-1(1) a. to e. are applied, respectively.
(2) Non-life Insurance Companies
To the Implementation Guideline 3. (a)(1) to (3), and (b) (1) and (2), theabove-mentioned III-2-12-1(2) a. to e. are applied, respectively.

III-2-12-5 the Matter Concerning the Definition of the Specific Corporate
Reorganization of the Implementation Guideline 4. (a)(1) Life Insurance Companies
The "sales" of the Implementation Guideline 4.(a)(iv) and (v) refers to, forexample, the annual-basis premium.
(2) Non-life Insurance Companies
The "sales" of the Implementation Guideline 4.(b)(4) and (5) refers to, forexample, the total amount of the net premium and income deposit premiumby policyholders.

393III-2-13 Management of the Incidental Business
III-2-13-1

Management of "Other Incidental Business "Whether or not sufficient responses from the following perspectives anddevelopment are secured in the business of insurance companies under Article
98(1),of the Act, excluding the operations listed in each item of the sameprovision (hereinafter, "other incidental business ").
(1) Regarding the consulting service, the business matching business, humanresources introduction business, and office fiduciary obligation which theinsurance company carries out for a customer company, when separatingfrom specific business and carrying out such business from the viewpoint ofeffective use of the expert knowledge in full in the specific business of theservice for the correspondent company, etc., it also falls under "otherincidental business."(Note 1) These types of business also include advice for the insurancecompany going public etc. to the customer company carried out for thebusiness of these, or the business introduced to the customer company ofwhich going public, etc. are possible for the financial instruments broker
that carries out securities-related business.
Moreover, the business which only introduces a customer to thefinancial-instruments trader who carries out securities-related businesswithout solicitation is also included in "other incidental business."(Note 2) The business which deals with the consultation concerning
individual property accumulation is also included in "other incidental
business."(Note 3) The business concerning introducing the investment trust
management company to the financial-instruments broker etc. which
carries out securities-related business, or an asset management company
is also included in "other incidental business."(Note 4) The office support business carried out for an insurance agent, thebusiness in the same group, etc. is also included in "other incidental
business " in principle if related with the business which the insurancecompany concerned is carrying out.
(Note 5) Pay attention to the human-resources introduction business in that394

permission is necessary granted based on the Employment Security Act.
Moreover, mind in the enforcement not to abuse the dominant status on
dealings unfairly.
Furthermore, it should be noted that the control environment regarding thefollowing points shall be established when conducting the business, fromthe perspective of customer protection and compliance with laws andregulations..
a. Whetherthe control environment is established to ensure strict compliancewith laws and regulations, including the prevention of acts that could posea problem under the Antimonopoly Law as abuse of a superior position..
(Note 1) Whether the control environment to ensure strict compliance, suchas not falling under the category of investment advisory business as
defined in the Financial Instruments and Exchange Law, is established in
conducting the business of providing consultations on the formation ofindividual assets .
(Note 2) Whether the control environment to ensure that the products, thecontents of the service and the price, etc. concerning the pertaining
business do not fall under an action applicable to Article 300(1)(v), or an
action applicable to Article 234 (1)(i) of the Regulation implemented so
as not to serve as the activities prohibited in the Act.
b. Whether the contractual coverage of products, the information of theservice, prices,, etc., which are offered, are specified in writing.
c. Whether with regard to the management of customer information related tothe incidental business, specific standards for handling such information,
including the use of such information for purposes other than those forwhich it is intended, are established, and a verification system to ensurethat such information is thoroughly communicated to officers andemployees, is established. (refer to II-4-5-2).
(2) Whether, in the judgment of whether the business other than the business
defined in above (1) (the business carried out for the purpose of effective
use of surplus capacity is included) falls under the category of "otherincidental business ", treated with comprehensive consideration enough fromthe following viewpoints to pay careful attention to that other businesses are
forbidden in Article 100 of the Act.
a. Whether the business concerned is covered in the list of business listed ineach item of Article 97 and Article 98(1) of the Act.

395

b. Whether the structure of the business concerned is not excessive for the
structure of the intrinsic business which the business accompanies.
c. Whether the functional affinity with the insurance business and thehomogeneity of the risks are recognized regarding the business concerned.
d. Whether the business contributes to the application of the surplus capacity
which arose properly while the insurance company carried out intrinsic
businesses.

III-2-13-2 The Agency of Business or Business Agent of the Insurance
Business,etc.
When the insurance company seeks to carry out agency of business or act
as a business agent of the insurance business,etc.

of a subsidiarycorporation or a person with close affiliation pursuant to the provision of theproviso to Article 98(2) of the Act (hereinafter the "business agency, etc." in III2-13-2), the insurance company shall submit a letter of notification to theCommissioner of the FSA in the attached form 6-3 beforehand.
In this case, the following points of view in addition to the items listed in each
item of Article 100-3 or Article 194 of the Act, and Article 51-2(2) of theRegulation shall be paid attention to.
(1) The other party of the contract shall be a subsidiary company or a person
who falls under the category of a person with a close affiliation listed in each
item of Article 51-3 or 141-3 of the Regulation.

(2) After the notification, when the other party of the contract of the businessagency, ceases to fall under the status of a subsidiary corporation or aperson with a close affiliation, permission is required from the Commissionerof the FSA pursuant to the main provision of Article 98(2), beforehand.

III-2-14 Re-recruitment of Funds
The following points shall be paid attention to when the approval to change theArticles of Incorporation pertaining to the matters regarding the redemption of the396funds (Article 126(ii) of the Act),and accepting the notification of an increase in
the total amount of the funds (Article 127(iv)of the Act), and the notification of theamendment of the Articles of Incorporation ((v)of the same Article). After a certain
period, the resolution of the Member Representatives Meeting on the increase of
the funds (including establishing multiple times), when recruiting Funds, pay
special attention to whether the recruitment of the Fund is based on the purposeof the law, such as from the viewpoint of protecting the rights of members.
Besides, it should also be paid attention to that there is an application orequivalent of the provisions of the Insurance Business Act or the Companies Act
concerning duty of care, duty of fidelity, liability for damages, etc. to the company
in concluding the funds contribution agreement, etc., regarding the directors ofmutual insurance companies.
(1) Whether the decision-making of the Member Representatives Meeting was
made after sufficient explanations at the Member Representatives Meeting on
the conditions for re-recruitment of the Fund, such as the increase in the total
amount of the funds described in the Articles of Incorporation (the amountdivided by the time of application), the timing of recruitment (for example, thetime specified within the range of about three months), the level of interest on
the funds, and the method of repayment of thefunds, etc.
(2) Whether or not there are risks that the repayment of the Fund and thepayment of interest on the funds may not meet the limitations of Article 55(1)and (2) of the Act, and other measures that may lack the protection ofmembers' rights, with respect to the conditions for re-recruitment of the funds.
(3) Whether all the funds will be recruited after the Member Representatives
Meeting and by the end of the next fiscal year.
(4) Whether, even if the full amount of the total amount of the Fund stipulated in
the Articles of Incorporation is not recruited due to unavoidable circumstances,a resolution on the provisions of the articles of incorporation will be required
again at the next Member Representatives Meeting.
(5) Whether, in the case of recruiting funds after the period of deciding theresolution concerning the increase of the funds (including the stipulating ofmultiple periods) from the Member Representatives Meeting, it is necessary to397

report to the authorities because each of the Fund applications falls under
Article 127(iv) of the Act, but in that case, the conditions, etc. of the recruiting
funds meeting the requirements of (1) and (2) above.
III-2-15 Preparation of Explanation Documents, Public Viewing, etc.
III-2-15-1 Application of the Principles of Importance(1) Regarding the scope of consolidation and the principle of importanceregarding the scope of the interest method, in addition to consolidated
financial statements, etc. prepared under the Financial Instruments andExchange Act, pay attention so that the consolidated financial statements of
insurance companies (Article 110(2) of the Act, and Article 59(4) and (5) of
the Regulation), and the consolidated statements of the insurance holding
companies (Article 271-24(1)of the Act, Article 210-10(1) and (2) of theRegulation) shall be also covered.
(Note) The instruction documents to be consolidated are clearly stated in theRegulation (Article 59-3(1)(i) and Article 210-10-2(1)(i) (a).
(2) Whether, with regard to the contents of these statements comply with theprovisions of Article 5(2) and Article 10(2) of the Regulation on Terminology,
Forms, and Preparation Methods of Consolidated Financial Statements, andReport No. 52 of the Audit Committee of the Japan Institute of Certified
Public Accountants, "Handling of audits pertaining to the application ofprinciples of importance concerning the scope of consolidation and thescope of application of the interest method" (July 21, 1993).
Besides, whether or not, in judging the importance, they are judged inparallel on both the qualitative and qualitative sides, and the characteristics
of individual subsidiaries, etc. engaged in the financial industry are fully
considered from the viewpoint of properly displaying the financial status andoperating results of the insurance company group.

III-2-15-2 Notes on the Items Described(1) General Notes
a. Whether , in addition to what is stipulated in this Supervisory Guidelines,398

appropriate and easy-to-understand expression are used for each
description, referring to Cabinet Office Order on Disclosure of Corporate
Affairs,and the Regulation on consolidated financial statement, etc.
b. Whether, if there are no applicable items in the company for each
description item, or if annotations are required, appropriate expressions
are used to that effect.
(Note) It should be paid attention to that among the matters shall be
described in the consolidated explanation documents, those pertaining
to the fiscal year 1997 or earlier will be stated to that effect if theinsurance company has not made consolidated financial statements.
c. Pay attention so that there is no problem to voluntarily and proactively
disclose information other than the mandatory disclosure items stipulated
in the Regulation. In particular, of the matters that should be used as areference to know the business and property status of insurancecompanies, especially important items such as solvency margin ratios
should be disclosed quarterly. Besides, in the case of exposure to areas ofstrong market interest, etc., in light of international best practices, it isdesirable to disclose them actively so that user and invester can judge
properly.
(2) Notes on the Individual Items
a. Whether there is a systematic and easy-to-understand explanation of the"organization for management" using the organization chart, etc.
b. Whether the "Contents of Major Business" contain the contents for eachcategory such as insurance underwriting and asset management, acting
on behalf of the business management and administrative affairs, and thecounter sales operations such as that of the government bonds.
c. Whether the "Business Overview in the Most Recent Business Year"provides a general explanation of the business conditions, businessperformance, asset management, profit and loss status, and issues that
the Company should address.
d. Whether the total amount of individual insurance, individual annuity
insurance, and group insurance are described, and they state the amountof the group pension insurance holding contract.
e. The "Asset Management Indicators (Add-on Table)" shall state theaccounts other than special accounts.
f. Whether the "Risk Management System" includes the risk content, basic399

policy for risk management, and risk management systems such theexamination

systems,

inspection

systems,andcomprehensive

management systems for asset liabilities.
g. Whether the "Legal Compliance System" includes the basic policies andoperational systems for compliance.
h. Whether the trade name, the company name, and the contact informationof the designated ADR organization of the other party to the basic contract
for the implementation of procedures listed. If the designated ADR agency
is not present, whether the content of the complaint handling and dispute
resolution measures properly described in accordance with the actual
situation's (e.g., using an external organization) name and contact
information of the external organization).
i. Whether "the contents of the main business of insurance companies andtheir subsidiaries, etc. and the structure of the organization" have asystematic and easy-to-understand explanation of the main business in theinsurance company group and the positioning of the group companies thatmake up the business in the industry etc. and the situation of the businessindicated by the business system diagram.
j. Whether "the amount of ordinary income belonging to the category inaccordance with the classification of each type of business, the ordinary
income or ordinary loss, and the amount of assets when the insurancecompany, its subsidiary corporations, etc. operate two or more different
types of businesses (hereinafter, "ordinary income, etc.") (excluding eachcase where the ratio of the ordinary income, etc. to the total amount issmall, by segment information for the type of business stipulated in Article15-2(1) of the Regulation on Consolidated Financial Statements.

III-2-15-3 Disclosure of the Amount of Risk-managed Claims and the Amountof Receivables Classified Based on the Debtor Category(1) Whetherthe consolidated Risk-managed claims are prepared for insurancecompanies, subsidiary corporations, etc. included in the scope of
consolidation based on the consolidated balance sheet.
(2) Disclosure Categories of Risk-managed Claims
a. Claims to Bankrupt Borrowers

400

The "liabilities on which accrued interest income is not recognized as
there is no prospect of collection or repayment of the principal or interest
due to the fact that the payment of the principal or interest has been
delayed for a considerable period or for other reasons" in Article 59-2(1) (v)(b)(1) of the Regulation refers to cases where accrued interest income is
not included in profit in accordance with the "Treatment of Accrued Interest
Income of Insurance Companies" issued by the Commissioner of the
National Tax Agency on October 8, 1969.
b. Bad Claims(i) The "loans on which interest payments are deferred for restructuring or
supporting the debtors" in Article 59-2,(1)(v) (b) (2) of the Regulation
shall refer to the "loans on which accrued interest income is notrecognized as the interest rate shelving".
(ii) Pay attention so that the "bad claims" shall refer to the "liabilities forwhich the interest is not accrued as the interest rate shelving. It shouldbe paid attention to the fact that the "bad claims" include the "interest
rate reduction and exemption" are judged based on the status of interest
collection after the interest rate reduction and exemption, and if theaccrued interest after the interest rate reduction and exemption is notrecognized as income, it should be included in the "bad claims" to bedisclosed.
c. Restructured Claims(i)Pay attention to the fact that the "arrangements in favor of the debtor" in
Article 59-2, (1) (v) (b) (4) of the Regulation does not matter whether thearrangements are made by agreement between the creditor and thedebtor or by law or judgment. Specific examples of such arrangements
could include, for example, the following types of claims or combinationsof claims, but it should be paid attention to that regardless of these,loans that meet the definition of the regulation are subject to disclosure.
(a) Claims with reduced or exempted interest rates: Loans for which theinterest rate for the initial commitment period has been reduced to alevel lower than the interest rate normally applied to debtors with thesame credit risks as the debtor (hereinafter referred to as the "baseinterest rate") at the time of the revision of the commitment terms(b) Postponed Interest Payment claims: Loans for which the payment ofInterest Is Postponed.
(c) Claims to debtors with financial support: Loans to debtors that have401

waived claims or provided other forms of support, and have decided tocontinue to provide the necessary support for the implementation of
the restructuring plan.
(d) Claims to bankrupt debtors: Loans to bankrupt debtors that provide
certain concessions favorable to the debtor with interest rates lower
than the base rate at the time of modification of the contract terms.
(e) Partially forgiven claims: Loans for which a portion of the principal orinterest has been forgiven based on the agreement of the relevant
parties in a private placement, or an approval decision in a corporate
reorganization or civil rehabilitation proceedings.
(f) Claims for which payment in kind has been made: Remaining balanceof loans for which assets such as real estate or accounts receivable
have been delivered by the debtor to the creditor as partial payment of
the debt (including delivery through the exercise of security interests).
(g) Claims for which the debtor's shares were accepted: The remainingbalance of liabilities for which the debtor received shares issued by the
debtor as partial payment of the debt. However, this excludes cases
where the liabilities have been converted into shares issued by the
debtor in accordance with the original agreement.
(Note) In making judgments regarding the above cases, for example,
the following points should be paid attention to.
a. The base interest rate should be set in accordance with economic
rationality.
b. With respect to an individual debtor, it should be determined
whether or not a yield substantially equivalent to that when thebase rate is applied to theloans is secured, taking into accountthe overall profitability of the transaction for the debtor, such as
income from fees, dividends, etc. other than interest, reduction of
credit risk due to collateral, guarantees, etc., and competitive
perspective.
c. In particular, when the debtor is a small or medium-sizedenterprise, the classification shall be made based on the actual
business conditions of the enterprise, taking into account not only
the financial conditions of the enterprise but also the enterprise's
technological capabilities, sales capabilities and growth potential,
payment of remuneration to the representative or other officers,
income and assets of the representative or other officers,402

guarantee status and guarantee capacity, etc.
d. Even for cliams for which terms and conditions have been
amended, the credit risk itself should be mitigated if there is acertain prospect of the sale ofassets held by the company inquestion and the repayment resources are secured through suchsales.
(ii) In the past, even loans to debtors who have made interest rate
reductions, interest payment graces, debt waivers, grace periods of
repayment of the main unit, and receipt of substitute payments andshares for rebuilding or supporting the management of debtors in thepast, the interest rate on the execution of new loans has declined due tochanges in financial and economic conditions, etc., or if it is expectedthat the base interest rate has been secured for the loans as a result of
an improvement in the management situation of the debtor and thedecrease in credit risk, the liabilities will not fall under the loans
conditions mitigation claim.
In particular, if the business reconstruction has been initiated throughthe implementation of financial support in line with the highly likely (Note1) or drastic (Note 2) business reconstruction plan (Note 3) (Note 4), it
may be judged that loans based on the management reconstruction plan
do not fall under the liabilities condition relief liabilities. Besides, if you
have not formulated a likely drastic business reconstruction plan, if the
debtor is a small and medium-sized enterprise and is expected toformulate the business reconstruction plan within the maximum of one
year from the date of the change in the loans terms (Note 5), it may be
judged that it does not fall under the liabilities condition relaxation claim
from the date of the change of the loans to the debtor up to one year.
(Note 1) "Highly feasible" means that the plan meets all of the following
requirements. However, if the debtor is a small or medium-sizedenterprise and the progress of the plan is generally steady for morethan one year, the plan may be judged to be a "highly feasible" plan.
(a) The consents should have been obtained with the relevant parties
necessary to realize the plan.
(b) The amount of support, such as debt forgiveness, in the plan isfixed, and there is no situation in which additional support beyond
that in the plan is expected to be necessary.
(c) The expense and profits in the sufficiently shall be strict.

403

(Note 2) “Drastic” does not exclude a reasonable extension of the periodof approximately 3 years (considering the size of the debtor company
or the characteristics of the business). Later, it means that the debtor'sbusiness conditions are good and that there are no matters. If the
debtor is a small and medium-sized enterprise, it often takes longer toimprove management than a large enterprise. Therefore, in III-2-15-3(4) c. "the reasonable and feasible" is formulated. If the "highmanagement improvement plan" has been formulated, the plan can be
regarded as a highly feasible and drastic plan.
(Note 3) The SME Revitalization Support Council (including Industrial
Reconstruction Counseling Center) or
the rehabilitation plan formulated and supported by The Resolution
and Collection Corporation, a business plan formulated and supportedby the Industrial Reconstruction Counseling Center in the liabilities
purchase support business, and a business rehabilitation ADR
procedure (Specific Certification Dispute Resolution Procedure(Article 2(16) of the Strengthening Law)), the business revitalizationplan(Article 25 of the Regional Economy Vitalization Corporation ofJapan Law) Article 2) of the business operator that the Enterprise
Turnaround Initiative Corporation of Japan made a purchase decision(Article 31(1) of the same law) and the Business Rehabilitation
Plan(Article 19(2)(i) of the Great East Japan Earthquake Business
Rehabilitation Support Organization Law) of the business operator
that the Great East Japan Earthquake Business Rehabilitation
Support Organization decided to purchase (Article 25(1) ofthe samelaw) is a "highly feasible drastic business restructuring plan" only
when it is recognized that the plan meets the requirements stated in(Note 1) and(Note 2).

(Note 4) Even if the business reconstruction based on the existing plan
meets all the requirements of (Note 1) and (Note 2), the same shallapply as the condition "when business reconstruction has been
initiated through the implementation of financial support in line with ahighly likely and drastic management reconstruction plan."For example, when the financial institution changes the terms ofliabilities to the debtor, and the debtor has formulated a management
improvement plan, etc. (including other financial institutions (including
government-affiliated financial institutions, etc.) that the debtor has

404formulated a management improvement plan, etc. in line with thechanges in the terms of the liabilities, etc. and the credit guarantee
association has formulated a management improvement plan, etc. inaccompanying the change in the terms of the existing guarantee. ), if
the plan is deemed to meet the requirements of (Note 1) and (Note 2),
it may be judged that the loans pertaining to the change of theliabilities conditions, etc. made by the financial institution to the debtor
does not fall under the liabilities relaxation

condition.

Even if the plan initially meets all the requirements of (Note 1) and(Note 2), including the case of (Note 3), it will be deemed to lack theserequirements after that, and for liabilities based on the plan., if it isexpected that a yield that is substantially the same as the case where
the base interest rate is applied is not secured, pay attention to the factthat the loans based on the plan will fall under that condition.
(Note 5) "When there is a prospect of formulating such a businessreconstruction plan" means that, there is no agreement yet between
the insurance company and the debtor, but that there are resources forthe debtor's business reconstruction (e.g., assets that can be sold,
expenses that can be reduced, plans for development of new products,
and prospects for expansion of sales channels), and that the debtor iswilling to formulate a business reconstruction plan.
(3) Claims Which are subject to Disclosure as the Amount of Claims Classified
based on the Debtor Category In the main text of Article 59-2(1)(v)(d) of theRegulation, the outstanding interest and temporary payment listed as theclaims shall specifically refer to the following:a. The outstanding interest refers to the outstanding interest on loaned
securities or loans; andb. The temporary payment refers to a temporary payment equivalent to theliabilities (compensation right incurred by making a substitute payment
based on the acceptance of payment and a temporary payment related to
the loans.)(4) Disclosure Classification of the Claims Classified Based on the Debtor
Classification405

According to the criteria stipulated in Article 59-2(1)(v)(d) of the Regulation,
the categories are as follows. However, in that case, instead of applying thefollowing criteria mechanically and uniformly, the debtor's repayment ability
will be examined based on the debtor's actual financial condition, cash flow,
profitability, etc. After confirming the liabilities conditions and the performancestatus of the liabilities, based on the characteristics of the type of industry,
etc., the outlook for business continuity and profitability, debt repayment
ability by cash flow, validity of management improvement plans, etc., support
status of the financial institutions, etc. will also be examined. It is appropriate
to classify after comprehensively considering the above. In particular, if the
debtor is a small and medium-sized enterprise, it is appropriate to consider
not only the financial status of the company, but also to consider technicalcapabilities, sales force, growth potential, condition of payment ofcompensations to officers including representatives, condition of income,content of asset, guarantee status or guarantee capacity of representatives,
comprehensively based on the actual management situation of the company
in order to classify the claims.
(Note 1) Regarding the disclosure target of claims classified based on the
debtor classification, it is determined based on the criteria stipulated in
Article 59-2(1)(v)(d) of the Regulation.
(Note 2) In classifying debtors, in support of companies that need to beenriched in capital due to sudden changes in the business environment, it
should be paid attention to the fact that it is strongly required to improvethe management of the client companies by not only changes in liabilities
conditions, but also the capital borrowing and investment, etc.
* "Capital borrowing" means a loan whose lending terms are deemedtohave enough capital characteristics and which can be treated as capital inevalutation of debtors.
It should be noted that capital similarity is judged based on the actual
characteristics of the loan. Capital similarity is not limited by the debtor's
attributes (scale etc. of the enterprise) or creditors' attributes (financial
institution, industrial corporation, individual, etc.) and the purpose of loans,etc., and it is basically judged from the viewpoint such as the repayment
condition, the interest rate setting, and subordination.
In general, it is thought that the following conditions are

required to be

met:a. As for repayment condition, the repayment period must exceed five years

406when it is contracted, and the loan must be repaid in a lump sum at thematurity date, or a long-term grace period equally appreciable as a lump sum
repayment must been set.
b. As for the interest rate setting, the interest rate must be set corresponding
to the profit available for dividend as is the case with the capital (themechanism, in which the interest cost is suppressed when the debtor is in asevere condition, such as a performance-linked type, etc., is set).
c. As for subordination, it must be secured at the time of legal bankruptcy (orthe loan must be equipped with a mechanism in which the loan cannot be
repaid in advance of other claims at least until legal bankruptcy).
a. Bankrupt and Substantially Bankrupt Claims"Bankrupt and substantially bankrupt claim" refers to "a claim against a
debtor who has fallen into failure for the reasons of a statement ofcommencementofbankruptcy

reorganization-proceedings,

andproceedings,

commencement

commencementofofrehabilitation

proceeding, etc. a claim on the same condition," and it is a claim against a
debtor who has fallen into failure substantially in status, such as serious
financial difficulties with no outlook of reconstruction, or who has fallen into
failure for the reason of bankruptcy, liquidation, reorganization of
corporation, civil rehabilitation, disposition of suspension of business byclearing house, etc. As for a request for special conciliation based on the
Act on Special Conciliation for Expediting Arrangement of Specified Debts,
the debtor should not be judged as falling into bankruptcy merely becauseof such request but should be judged based on the actual state of the
debtor's management.
Specifically, it includes claims against: (1) a debtor who has a large
amount of non-performing loans in its financial position, or has a clearly
excessive amount of debts compared to the debtor’s repayment capacity,and has been in a state of substantial insolvency for a considerable period
and has no prospect of recovery of its business although it continues its
business formally; (2) a debtor who suffers a large amount of loss due to adisaster, accident or sudden change of economic status (or similarreasons) with no outlook for reconstruction and is substantially in arrears ofprincipal or interest for a long period (in principle, six months or more inarrears, and not considered to be in arrears for a transitory period), or who
is voluntarily in arrears of principal or interest for a long period (in principle,
six months or more in arrears, and not considered to be in arrears for a407

transitory period); (3) a debtor who is deemed to have discontinued
operations virtually in a situation such as abolition of business offices dueto the voluntary closure of business.
Furthermore, in cases where the progress of the management
improvement plan, etc. is significantly below the plan, and a rapid recovery
in business performance is not expected in the future, and the
management improvement plan, etc. has not been reviewed, or wheresome financial institutions have not agreed to provide support based on the
management improvement plan, etc., and it is deemed certain that the
debtor will fall into bankruptcy in the future, the debtor "is in serious
financial difficulties and there is no prospect of recovery", and therefore,
the debtor is subject to bankrupt and substantially bankrupt claims.
b. Doubtful Claims
A doubtful claim is "a claim against a debtor who is not currently in a
stateof bankruptcy, but whose financial situation and businessperformance is worsened, and which is highly likely to become unable tocollect its principal and interest based on contracts." These are claims
against debtors (including debtors who are still being supported byfinancial institutions) who are not currently in a state of bankruptcy, but arein financial difficulty and are making poor progress with their management
improvement plans, and are highly likely to fall into bankruptcy in the future.
Specifically, these are claims against debtors who are currently
continuing their business, but have effectively fallen into a state ofinsolvency, have extremely weak business conditions, are delinquent on
their loans, and so have significant concerns about the ultimate collectionof principal and interest, and therefore have a high probability of incurring
losses, and are deemed to have a high probability of falling into bankruptcy
in the future.
Claims against debtors whose reorganization plan has been approved inaccordance

with

the

Corporate

Reorganization

Act

or

the

Civil

Rehabilitation Act, etc., may be judged as Doubtful Claims.
Furthermore, for debtors for whom the reorganization plan, etc. has been
approved, if any of the following requirements are met, the reorganization
plan, etc. is judged to be reasonable and highly feasible, and the claim
against such debtor may be judged to be a substandard claim or a normal
claim.
(i) If, after the approval of the reorganization plan, based on the plan, the408

debtor is found to be in good business condition and has no particularfinancial problems within 5 years in principle (if the debtor does not needsupport from financial institutions, etc. to restructure and is able toensure the continuity of its business through self-help efforts, thisincludes situations where there are problems with loan terms, such as
the reduction, exemption, or shelving of interest rates, situations where
there are problems with performance, such as principal or interest
payments being effectively overdue, as well as situations where thedebtor's business conditions are weak or unstable, or situations where
there are problems with the debtor's financial condition that require
careful management going forward.), and it is recognized that thereorganization plan, etc. will generally continue to proceed as planned.
(ii) If, based on the plan, the debtor is found to be in a good businesscondition and has no particular financial problems in more than 5 years
but within 10 years in general (if the debtor does not need support fromfinancial institutions, etc. to restructure and is able to ensure thecontinuity of its business through self-help efforts, this includes situations
where there are problems with loan terms, such as the reduction,
exemption, or shelving of interest rates, situations where there areproblems with performance, such as principal or interest payments being
effectively overdue, as well as situations where the debtor's businessconditions are weak or unstable, or situations where there are problems
with the debtor's financial condition that require careful management
going forward), and a certain period has passed since the decision toapprove the reorganization plan, etc., and the progress of thereorganization plan, etc. has generally exceeded the plan, and it isrecognized that the plan will generally continue to progress as planned.
c. Substandard Claims
Subsrandard claims are of claims against debtors that require carefulmanagement, such as debtors with problematic lending conditions (e.g.,interest rate reduction, exemption, or shelving), debtors with performance
problems such as principal or interest payments being effectively overdue,
or debtors whose business conditions are weak or unstable, or financial
condition is problematic, refers to the "claims past due three months ormore and the restructured claims."
Moreover, the claims that are not formally past due but are effectively
past due for three months or more are also classified as substandard409

claims. Whether it is substantial past due or not is judged based on suchfactors as whether or not the loans made close to the due date are used to
repay the principal or interest.
For debtors for whom a management improvement plan has beenformulated on the premise of support of financial institutions, etc., if all of
the following requirements are met, the management improvement plan,etc. will be judged to be reasonable and highly feasible, and the claims
against such debtors will be judged to be either substandard claims or
normal claims. (Such a plan is referred to as a "reasonable and highly
feasible management improvement plan.)If the debtor is a small or medium-sized enterprise, it may not be
possible to formulate a large and detailed management improvement plan
as in the case of a large enterprise, taking into account the size of theenterprise and the number of employees, etc. Even if the debtor has notformulated a management improvement plan, it is necessary to make a
judgment on the classification of claims based on materials prepared andanalyzed by the financial institution in line with the debtor's actual situation,for example, plans to sell assets in the future, plans to reduce executive
compensation and overhead expenses, plans to develop new products, etc.
and plans to improve income, expenditure, etc.
Besides, if the debtor is a small or medium-sized enterprise, it is notalways possible to prepare a detailed management improvement plan, etc.
Therefore, due to economic trends and other factors, the progress of the
management improvement plan, etc. may fall short of the plan (sales andnet income are generally less than 80% of the business plan).In suchcases, it is necessary to analyze the reasons for the below-plan progressand consider the prospects for future management improvement, rather
than making mechanical and uniform judgments based solely on the
progress of the management improvement plan. (However, if the progressof the management improvement plan is significantly below the plan, it will
not be treated as a "reasonable and feasible management improvementplan"). When examining the progress and future prospects of the
management improvement plan, etc., it is appropriate to focus more on the
cash flow prospects, although it is also important to examine the balance
sheet aspects.
Besides, if the debtor has formulated a management improvement plan,etc. using loan systems prepared by goverments, and the management410

improvement plan, etc. has been formulated after examination by thenational or prefectural government, the judgment shall be made bycomprehensively taking into account the actual situation of the debtor andthe involvement of the national or prefectural government.
This standard is only a guideline for verifying the reasonableness andfeasibility of management improvement plans, etc., and should not beapplied mechanically or uniformly when examining the classification ofclaims.
(i) The period of the management improvement plan, etc. is generally
within 5 years, in principle, and the feasibility of the plan is high.
However, this includes cases where the period of the management
improvement plan, etc. is longer than 5 years but generally within 10
years, and the progress of the management improvement plan, etc. is
generally in line with the plan after the formulation of the management
improvement plan, etc. (i.e., sales and net income are generally 80% ormore of the business plan) and it is recognized that it will continue toproceed geneally as planed in the future.
(ii) The debtor is found to be in a good business condition and has no
particular financial problems based on the plan (if the debtor does notneed support from financial institutions, etc. to restructure and is able toensure the continuity of its business through self-help efforts, after
completion of the period of the plan, this includes situations where there
are problems with loan terms, such as the reduction, exemption, or
shelving of interest rates, situations where there are problems withperformance, such as principal or interest payments being effectively
overdue, as well as situations where the debtor's business conditions are
weak or unstable, or situations where there are problems with the
debtor's financial condition that require careful management going
forward).
(iii) All financial institutions agree to provide support based on the business
improvement plan.
However, if it is possible to restructure by providing support alone or byproviding support from some of the financial institutions, etc., it isconsidered sufficient if the financial institutions, etc. concerned agree toprovide support based on the business improvement plan, etc..
(iV) The support provided by financial institutions is limited to interest rate
reduction and exemption, maintenance of loan balance, etc., and does411

not involve the provision of funds to the debtor such as debt forgivenessor cash donation.
However, in cases where the financial institution has already provided
funds to debtors through debt forgiveness, cash donation, etc. since thestart of the management improvement plan, etc., and is not expected to
do so in the future, and in cases where the financial institution needs toprovide funds to debtors through debt forgiveness, cash donation, etc. in
the future based on the management improvement plan, etc., but has
already recorded the estimated amount of loss from the support as a fullallowance and loss will not be incurred in the future.
It should be paid attention to that in cases where loan systems
prepared by goverments are used, interest subsidies, etc. by prefectural
governments subsidized by the national government based on suchinstitutional funds are not included in the debt forgiveness, etc.
d. Normal Claims
Normal claims are defined as “claims with no particular problems interms of the debtor's financial condition or business performance, and areclassified as other than claims in bankrupt and substantially bankrupt
claims, doubtful claims, and substandard claims.
Moreover,theclaimsagainstthenational

government,

local

governments, and controlled financial institutions are classified as normal
claims.

III-2-15-4 Places Where Explanatory Documents Available for Public Inspection
Whether, although the name of the "sales office or office" where insurancecompanies make explanatory documents available for public inspection differsfrom insurance company to company in terms of organization, the insurancecompany take sufficient care to keep explanatory documents in the following
locations, etc,.
(1)The term "sales office or office" refers to a place that has space for
insurance company staff and sales staff to serve policyholders, etc., and isconsidered to be the business organization of the insurance company.
For example, branches and offices of life insurance companies andbranches and offices of non-life insurance companies are included.

412

(Note) Computer centers, welfare facilities, etc. are not included.
(2)The hours of public inspection can be the business hours of the place where
the information is available for public inspection.
(3)Whether, due to the nature of the organization of the place for public
inspection, for example, when staff members are not present at the place,are measures taken to indicate the hours when public inspection is available.
(4)Whether the major agents that have space to serve policyholders, etc.
different from the place used for residence are also instructed to provide thesame level of disclosure as sales offices or offices by, for example, keeping
explanatory documents of insurance companies and making them available
for public inspection.
(Note) Whether the measures such as establishing internal rules on thescope and handling of "major agents" are being taken.

III-2-15-5

Points

to

Be

Paid

Attention

to

When

Preparing

SimpleSupplementary Materials for Explanatory Documents
Whether, when the insurance company prepares simple supplementarymaterials (pamphlets, etc.) for explanatory documents, is its consideration
given to the content of such supplementary materials so that the content is notpresented as if the entire document were excellent by extracting someindicators, etc.

III-2-16 Supervisory Response to Deplorable Event, etc.
The supervisory response to deplorable event, etc. shall be handled as follows(1)First Report of Discovery of deplorable event, etc.
When the insurance company discover the deplorable event and first report
it to supervisors, the following points shall be confirmed:
The same treatment shall be applied when there is no first report from theinsurance company and the report of deprovable event is submitted.

413

a. Whether the reports are made promptly to administrative departments suchas headquarters, internal audit departments, and to the board of directors,
etc. in accordance with internal rules, etc.
b. Whether the facts that may violate penal laws and regulations are reported
to the police and other relevant organizations.
c. Whether the department independent of the incident (internal audit
department, etc.) investigates and clarifies the incident.
(2) Acceptance of the Reports of

Deplorable Event, etc.

In accordance with who has committed the acts prescribed in each item of
Article 85(5) of the Regulation (each item of Article 166(4) of the Regulation forforeign insurance companies, etc.; for licensed specified corporations, each
item of Article 192(4) of the Regulation: the same shall apply hereinafter), suchas an insurance company, subsidiary company prescribed in Article 2(12) ofthe Act (excluding an insurance company or a small amount and short term
insurance company, which is a subsidiary company of another insurancecompany), subcontractors, or their officers or employees (excluding those whoare registered or notified as insurance agents) (hereinafter referred to as"insurance company, etc." in III-2-16), or those who are registered or notified
as insurance agents or their officers or employees (hereinafter referred to as"insurance agent." in III-2-16), supervisors respond as follows.
a. Acceptance of Written Report for Notification of Deprolable Events, etc.
concerning Insurance Companies, etc.
If the insurance company, etc. commit any of the acts falling under any of
the items of Article 85(5) of the Regulation, the Insurance Division shallreceive a written report for notification of deprolable event, etc. addressed to
the Commissioner of the FSA from the representative director of theinsurance company of insurance companies, etc. concerned.
b. Acceptance of Written Report for Notification of Deprolable Events, etc.
concerning an Insurance Solicitor
If the insurance agent commits any of the acts falling under any of theitems of Article 85(5) of the Regulation, the Financial Bureau, etc. shallaccept a written report for notification of deprolable events, etc. from thehead of the branch office, branch shop, etc. of the insurance company
managing the insurance agent to the Director General of the Financial
Bureau, etc. having jurisdiction over the location of the principal office of theinsurance agnet.

414

The financial bureaus, etc. that have received such written report for
notification of deprolable event, etc. shall compile the contents of such
notification of deprolable event and the number of cases received for one
month, and report them to the Insurance Division by the 10th of the following
month.
However, if the financial bureau, etc. judge that it is urgent, it shall report to
the Insurance Division as needed.
c. The following items shall be confirmed upon receipt of the r Written Reportfor Notification of Deprolable Events, etc.
(i) In accordance with the provision of Article 85(1)(xvii)) of the Regulation,
written report for notification of deprolable event, etc. is to be submitted
within 30 days from the date when the insurance company becomes awareof the occurrence of the misconduct, etc. At the time of receipt of thewritten report, it is to be confirmed whether the report is properly made inaccordance with the provisions of laws and regulations.
(ii) In cases where an insurance company or insurance agent has not madea public announcement even though it may have a significant impact on
the judgment of policyholders, etc., it shall be confirmed whether thedecision is made after being considered appropriately.
(iii) When receiving a written report for notification of deprolable event,etc. pertaining to an insurance agent who belongs to two or more affiliatedinsurance companies, etc. (it refers to those prescribed in Article 2(24) of
the Act, licensed specified corporations and affiliated specified insurers
prescribed in Article 4-2 of the Supplementary Provisions of the Act. The
same applies in III-2-16.) , if the event may also occur at another affiliatedinsurance company, etc., considering its content and characteristics, and it
shall be confirmed whether a similar event has occurred at anotheraffiliated insurance company, etc. by conducting a hearing with theinsurance agent, etc. as necessary. However, it should be noted that it isnecessary to take into consideration the Act on the Protection of Personal
Information, etc.
(3) Verification of the Appropriateness of Operations
The relationship between deprolable events and the appropriateness ofoperations shall be verified based on the following points.
The verification shall be also taken into account the factors described in a.
and b. in the proviso to III-4-1.

415

a. In the case of a written report for notification of deprolable event, etc.
concerning an insurance company, etc.
(i) Whether there are not any executives involved in the event, or there is
any systematic involvement. Also, whether the responsibility of the
management is clarified.
(ii) Whether the facts are being investigated, and the similar problems arebeing checked in other departments, and whether the managers andothers are being held accountable in a strict manner.
(iii) Whether effective measures to prevent recurrence are being taken in atimely and appropriate manner through analysis of the causes based on
the facts.
(iv) What the impact of the event on the management of the insurancecompany is.
(v) Whether the internal check and balance function are being properly
exercised.
(vi) Whether there are sufficient education, management, and guidance for
officers and employees within the insurance company.
(vii) Whether response after discovery of the event is appropriate.
b. In the case of written report for notification of deprolable event, etc.
pertaining to an insurance agent(i) The viewpoint of verification for insurance companies responsible foreducation, management and guidance of insurance agnets shall be as
follows(a) Whether the company is rigorously investigating the truth of the facts,
checking whether similar problems have occurred in other departments(or other offices in the case of insurance agencies), and holding
managers and others accountable.
(b) Whether effective measures to prevent recurrence are being taken in atimely and appropriate manner through analysis of the causes based on
the facts.
(c) What the impact of the incident on the management of the insurancecompany is.
(d) Whether the internal check and balance function is being properly
exercised.
(e) Whether the insurance company's education, management, andguidance for insurance agents is sufficient.
(f) Whether the response after the discovery of the incident is appropriate.

416

(ii) The viewpoint of verification for insurance agents shall be as follows.
Furthermore, the size, characteristics of operation, and content of the
deplorable event, etc.

of the insurance agent shall be taken into account.

(a) Whether there are not any executives involved in the event, or there is
any systematic involvement. Also, whether the responsibility of the
management is clarified.
(b) Whether the facts are being investigated, and similar problems arebeing checked in other departments (in the case of insurance agencies,
other offices, etc.), and whether the managers and others are being held
accountable in a strict manner.
(c) Whether effective measures to prevent recurrence are being taken in atimely and appropriate manner through analysis of the causes based on
the facts.
Especially, when the cause of occurrence is the issue specific to theinsurance agencies, whether the insurance agencies themselves
conduct abovementioned measures in a timely and appropriate manner.
(d) Whether the internal check and balance function are being properly
exercised.
(e) Whether there are sufficient education, management, and guidance for
insurance agents within the insurance agencies.
(f) Whether response after discovery of the event is appropriate.
(4) Supervisory Measures
The following measures shall be taken when the written report for notificationof deprolable event, etc. is submitted.a. Hearings shall be conducted with
the insurance company regarding the facts, analysis of the causes of theincident, and measures for improvement and response, etc., and, based on
the occurrence of similar incidents at the insurance company, a report shallbe required from the insurance company, as necessary, in accordance with
Article 128 of the Act, and, if a serious problem is found, an administrative
action shall be taken in accordance with Article 132 or 133 of the Act.
Besides, the Finance Bureau, etc. shall endeavor to closely cooperate with
the FSA as appropriate.
b. Hearings shall be conducted with the insurance agent (or the said insurance
agencies when the said insurance agent is an officer or employee of theinsurance agencies) who has committed any of the acts falling under any ofeach item of Article 85(5) of the regulation regarding the facts, analysis of
the causes of the incident, and measures for improvement and response,417

etc., taking into account the abovementioned a. by the Finance Bureau, etc.,
as necessary.
Based on the result, a report shall be required from the specific insurance
agent, as necessary, in accordance with Article 305 of the Act, and, if aserious problem is found, an administrative action shall be taken inaccordance with Article 306 or 307 of the Act.
In addition, the Finance Bureau, etc. shall endeavor to closely cooperatewith the FSA as appropriate.
c. When the Finance Bureau, etc. find it necessary, for example, where thearea in which an insurance agent who has committed any of the acts fallingunder any of the items of Article 85 (5) of the Regulation (or an insurance
agencies if the insurance agent is an officer or employee of the insurance
agencies) conducts business falls under the jurisdiction of other Finance
Bureau, etc., and damage, etc. is expected in the jurisdiction of the other
Finance Bureau, etc., the Finance Bureau, etc. shall endeavor to closelycooperate with the other Finance Bureau, etc. such as providing information
to the said Finance Bureau, etc. Besides, in the case of cooperation, a reportshall be made to the Insurance Division.
d. The FSA shall analyze the occurrence of acts prescribed in each item of
Article 85(5) of the Regulation, and provide information to the Finance
Bureau, etc. when it is deemed necessary, such as when similar cases tend
to occur frequently nationwide.
(5) Standard Period of Time for Processing
When requiring reports under Article 128 of the Act pertaining to a written
report for notification of deplorable event, etc. (Article 305 of the Act forSpecific Insurance Agents), or taking administrative actions based on Article
132 of the Act (Article 306 of the Act for Specific Insurance Agents) or Article
133 (Article 307 of the Act for Specific Insurance Agents), those actions shallbe conducted within about one month (two months when the Finance Bureau,etc. conducts cooperation with the FSA or hearings directly with the insurance
agent (or the insurance agencies if the insurance agent is an officer or
employee of the insurance agencies)) as a general rule from the date of receiptof the written report for notification of deplorable event, etc. (if you require areport under Article 128 or Article 305, the said report).

418

III-2-17 Calculation of solvency Margin Ratio
The accuracy of the Solvency margin ratio shall be checked considering thefollowing points in accordance with the provisions of Article 86, Article 87,
Article 161, Article 162, and Article 190 of the Regulation, and fully taking into
account the Notice on Calculation of Capital, Funds, Reserves, etc. of
Insurance Companies and the Amount Equivalent to Risks in Excess of Normal
Estimates (Ministry of Finance Notice No. 50 of February 29, 1996; hereinafterreferred to as the "Notice" in III-2-17). If there is a problem, notification of thedetails of the problem shall be provided and attention shall be drawn to it.
III-2-17-1 Checking the Contents of the Notification Form
When receiving notification of borrowing monetary consumption loans withthe subordinated special provisions prescribed in Article 85(1)(xii) (or Article
166(1)(v)) of the Regulation (hereinafter, "subordinated loan") or issuing bonds
with subordinated special provisions (hereinafter called "subordinated bonds"),
the following points should be considered to confirm that these are eligible tocontribute to the enhancement of ability for paying insurance proceeds.
(1) Whether there is any statement to the effect that the content of the contract
gives priority to the senior creditor, by establishing legal structure asconditional claims which has the effect of the subordinated creditor's right toclaim payment shall be suspended and the subordinated creditor's right toclaim payment shall become effective on the condition that the seniorcreditor receives payment in full in the event of a subordinated situation,such as bankruptcy or corporate reorganization,.
(2) Whether there is any statement to the effect that the content of the contract
is such that any change that is disadvantageous to the senior creditor or any
payment that is contrary to the subordination clause is invalid.
(3) Whether there is any statement that any optional redemption by the debtor
requires the prior approval of the authorities.

III-2-17-2 Checking the Stability and Eligibility of the Capital, etc.

419

(1) Whether the "step-up interest rate is excessive" or not as prescribed in
Article 1(10) of the Notice shall be determined in light of the following
conditions.
a. The step-up interest rate shall not be added for the period from the time of
the contract until the day when five years have passed.
b. Whether it is below the "150 basis points" minus "swap spread between
the index on which the original interest rate is based and the index on
which the interest rate is based after step-up," or "50% of the original credit
spread" minus "the swap spread between the index on which the original
interest rate is based and the index on which the interest rate is based
after step-up ."However, in the case of specified hybrid capital instruments prescribed in
Article 1(6) of the Notice, "150 basis points" above shall be read as "100basis points".
c. Whether the swap spread is calculated based on the difference in pricing
between the initial reference security/interest rate and the reference
security/interest rate after the step-up at the time of pricing, rather than at
the date of notification, and it is planned to ensure that it is within thescope of b. above.
(Note) However, this check should be performed for securities issued,borrowed, or renewed on or after June 9, 1998.
(2) Whether the insurance company that raised the capital, etc., does not makeloans to the lenders of subordinated loans, etc., by way of circumvention ofloans, etc., that are the source of the capital, etc.

III-2-17-3 Check for Deduction of "Intentional Retention
The case in which it has to be deducted as “deductible item" under Article 12 of the Notice” from total solvency margin is the case in which a company"intentionally holds shares or other capital-raising instruments of otherinsurance company to improve the ratio indicating the enhanced solvency ofthe said other insurance company" (hereinafter referred to as "intentional
holdings").
For the time being, this "intentional holding" refers specifically to the420following cases. Whether they fall under this category or not.
(1) Life Insurance Companies
a. The case in which, from April 1, 1999, a life insurance company has
provided subordinated loans or undertaking subordinated bonds for a
Japanese life insurance company, or from February 4, 2000, a life
insurance company has provided subordinated loans or undertaken bonds
for a Japanese non-life insurance company, or from March 31, 2001, a life
insurance company has provided subordinated loans or undertaken
subordinated bonds for a Japanese bank subsidiary, a long-term credit
bank subsidiary, a securities subsidiary, etc.
* In such cases, the loans are deemed to be made for recapitalizationcooperation, and all of them fall under the category of "intentional holding.
b. The case in which, from April 1, 1999, a life insurance company has
undertaken shares of Japanese life insurance companies and othercapital-raising measures (excluding subordinated loans and subordinatedbonds), or from February 4, 2000, a life insurance company has
undertaken shares of Japanese non-life insurance companies and othercapitalraising measures (excluding subordinated loans and subordinatedbonds), or from March 31, 2001, a life insurance company has undertaken
sharesofsubsidiaries,

Japanese
securities

banking

subsidiaries,

subsidiaries,etc.

long-term

and

other

creditbankcapital-raisingmeasures (excluding subordinated loans and subordinated bonds) for
management

reconstruction, support, and recapitalization.

* Besides, in cases other than the aforementioned purposes ofmanagement restructuring, support and recapitalization, holding ofoutstanding shares and other capital-raising instruments procured fromsecondary markets, etc. for pure investment purposes, etc. and temporary
holding by securities subsidiaries for market-making, etc. do not fall under
the category of "intentional holding.
(2) Non-life Insurance Companies
a. The case in which, from April 1, 1999, a non-life insurance company has
provided subordinated loans or undertaken subordinated bonds for a
Japanese non-life insurance company, or from February 4, 2000, a non-life
insurance company has provided subordinated loans or undertakne
subordinated bonds for a Japanese life insurance company, or from March421

31, 2001, a non-life insurance company has provided subordinated loans
or undertaken subordinated bonds for a Japanese bank subsidiary, a longterm credit bank subsidiary, a securities subsidiary, etc.
* In such cases, the loans are deemed to be made for recapitalization, andall of them fall under the category of "intentional holding.
b. The case in which, from April 1, 1999, a non-life insurance company has
undertaken shares of Japanese non-life insurance companies and othercapital-raising measures (excluding subordinated loans and subordinatedbonds), from February 4, 2000, a non-life insurance company has
undertaken shares of Japanese life insurance companies and othercapital-raising measures (excluding subordinated loans and subordinatedbonds) or from March 31, 2001, a non-life insurance company has
undertaken shares of Japanese banking subsidiaries, long-term credit
bank subsidiaries, securities subsidiaries, etc. and other capital-raisingmeasures (excluding subordinated loans and subordinated bonds) for
management

reconstruction, support, and recapitalization. .

* In cases other than the aforementioned purposes of management
restructuring, support and recapitalization, holding of outstanding sharesand other capital-raising instruments procured from secondary markets,
etc. for pure investment purposes, etc. and temporary holding by
securities subsidiaries for market-making, etc. do not fall under the
category of "intentional holding.
(Note)With respect to (1) and (2) regarding "intentional holding," thecheck for "cases where it is recognized that the holding is intentionallymade by a third party through lending to the third party" is also applied.
In the case of insurance companies, the check shall be conducted forcapital procurement for which the payment of funds was made on orafter April 1, 1999, and for capital procurement by banking subsidiaries,
etc., long-term credit banking subsidiaries, etc., and securities
subsidiaries,

etc.,

the

check

shall

be

conducted

for

capitalprocurement for which the payment of funds was made on or after
March 31, 2001.

III-2-17-4 Checks When Calculating the Solvency Margin Ratio(1) Whether, in the case of securitization of assets, even if it falls under the422

legal form of transfer, there is a substantial transfer, such as complete
transfer of risk to the transferee.
(2) Whether, if the transfer falls under the category of intentional retention,
the amount equivalent to such retention is deducted from the total solvency
margin of the lender insurance company, and the deduction is madeappropriately.
(3) Whether the amount falls under the condition, while the "amountequivalent thereto" prescribed in the Article 1(4) (iii) of the Notice refers to theamount of voluntary reserve (including the amount accumulated in the fiscal
year) recorded in the net assets section for the appropriation to the repaymentof foundation funds.
(4) Whether the "amount equivalent to the balance of the subject transaction
pertaining to the transaction deemed to be intentionally conducted" in Article2(8)(i)(ii) of the Notice is properly calculated.
(Note) In cases where the outstanding balance of transactions as of the endof the fiscal year is significantly higher than the average of outstanding balance
as of the end of the each month of the said fiscal year or in cases where theratio of the outstanding balance of derivatives transactions to the outstandingbalance of physical assets as of the end of the fiscal year (hereinafter referred
to as the "coverage ratio") is significantly higher than the average of thecoverage ratios as of the end of each month of the fiscal year, the reasons forthe difference shall be heard.

III-2-17-5 Checks When Accepting Notification of Early Redemption, etc.
When accepting notifications of early repayment of subordinated liabilities or
early redemption of subordinated bonds as prescribed in Article 85, Clause 1,
Item 13 (or Article 166, Clause 1, Item 6) of the Regulation, or notifications ofacquisition of own shares as prescribed in Article 85, Clause 1, Item 16 of theRegulation, the purpose of the public notice shall be fully taken into account,and the relevant notifications shall be checked.

423

III-2-17-6 Minimum Guarantee Risk for Variable Annuities, etc.
For variable annuities, etc., which guarantee a minimum amount of
insurance claims, etc., it is necessary to appropriately manage and assess theminimum guarantee risk so as not to hinder the fulfillment of obligations in the
future, as well as to reasonably and appropriately accumulate premium reserveand contingency reserve III and secure solvency based on actuarial data, etc.
In doing so, the following points should be taken into consideration.
(1) Standardized Method
When using the standard method (which determines the amountequivalent to the guaranteed minimum risk corresponding to the level thatcan cover approximately 90% of events together with the reserve for
insurance premiums) for the evaluation of the amount equivalent to theguaranteed minimum risk pursuant to the provision of Article 2, Clause 4 of
the Public Notice, the amount of the guaranteed minimum risk shall be
determined based on the amount of insurance benefits, etc. of variableannuity contracts, etc. concluded before March 31, 2005.
(2) Alternative Method
In the case where an alternative method is used for the evaluation of theamount equivalent to the guaranteed minimum risk pursuant to the provisionof Article 2, Clause 4 of the Public Notice, the matters to be noted are as
follows:
a. Whether or not, as a response to risks that exceed normal expectations, it
should be paid attention to that "II-2-1-3-1 Reserves for insurance
premiums (2) b. to f.)" can cover approximately 90% of events for theamount of guaranteed minimum risk corresponding to the level together
with reserves for insurance premiums.
b. Whether or not the amount equivalent to the minimum guaranteed risk is
calculated for variable annuity contracts, etc., concluded before March 31,
2005, which guarantees the minimum amount of insurance benefits, etc.
c. Whether or not, when notifying the Commissioner of the FSA that analternative method is used to calculate the amount equivalent to theminimum guaranteed risk under the solvency margin standard, thedocuments explaining that the criteria as specified in Appendix 6-2II2 ofthe Notification shall be attached. In addition, whether or not it is stipulated,424

in cases where the use of alternative methods is suspended or significant
changes are made to the risk measurement model.
(3) Treatment of Hedging and Reinsurance
a. Whether or not risk mitigation is handled by hedging in accordance withthe provisions in Appendix 6-2II3 of the Notification.
b. Whether or not, in the case of reinsurance, the minimum guaranteed risk
is deducted to the extent that it does not exceed the portion transferred byceding.

III-2-18 Transfer of Insurance Contracts(1) Notification of Transfer of Insurance Contract and Objection, etc.
a. The reason why Article 138 of the Act obliges the person who concludes thecontract to be transferred to notify certain matters during the procedure oftransferring the insurance contract is that becoming the policyholder of thecompany to be transferred when the transfer of the insurance contract isconcluded constitutes a material fact for the person who concludes suchinsurance contract, and therefore, the person should be provided with thenecessary information in advance. This is based on the idea that it isnecessary to allow the person to decide whether or not to conclude theinsurance contract after receiving the necessary information in advance.
It is appropriate that the method of notification and acceptance should be
the same as the method of conclusion of the relevant contract, and in
addition to the written document, an electromagnetic method may be used.
b. Article 137, paragraph (1) of the Act and Article 88-3,(iv) of theRegulations (Article 137, paragraph (1) of the Act and Article 166-3, (iv) of
the Regulations as applied mutatis mutandis pursuant to Article 210,
paragraph (1) of the Act with respect to the transfer of insurance contracts inJapan by a foreign insurance company, etc.) and Article 138, paragraph (1),(iii) of the Act and Article 89-3 of the Regulations (Article 138, paragraph (1),(iii) of the Act and Article 167-3 of the Regulations as applied mutatis
mutandis pursuant to Article 210, paragraph (1) of the Act with respect to thetransfer of insurance contracts in Japan by a foreign insurance company,etc.) require the person who concludes the contract subject to transfer togive notice. The "Service Description for the Agreement to be transferred"425

that is required to notify the person who enters the Agreement for Transfer
means, for example: After the transfer, there may be complaints andconsultations from customers concerning the contract subject to transfer, themethods for responding to various maintenance procedures such as addresschanges and claims for benefits (such as guidance of the contact desk), andmatters related to the supplementary services relating to the contract subject
to transfer (such as whether or not the automobile insurance road service,
medical advice, and medical information service will continue).
c. Article 137(5) of the Act requires a refund to a transferee who objected to thetransfer procedure of an insurance policy and offered to cancel if the policy is
to be transferred, and the regulation is based on the idea that it is necessary
to ensure that the transferee who does not want to transfer the contract
should not be treated disadvantageously by termination. Accordingly, theamount of refund prescribed in this clause shall not be a detriment to suchtransferee, depending on the characteristics of the insurance product, suchas the so-called cancellation deduction. In addition, public notice andnotification of matters prescribed in Article 137(1) of the Act and Article 883(v) of the Regulation (Article 137(1) of the Act and Article 166-3(v) of theRegulation as applied mutatis mutandis pursuant to Article 210 of the Act for
the transfer of insurance contracts of foreign insurance companies in Japan),shall beconducted so that the information of the amount of refunds

expected at the time of termination is provided appropriately for thetransferee to understand it fully.
(2) Approval of Transfer of Insurance Contracts
The points to be paid attention to when examining the approval of thetransfer of insurance cotracts in light of the approval standards set forth in
Article 139(2) of the Act and the consideration matters set forth in Article 90-2of the Regulation are as follows:a. Criteria Prescribed in Article 139(2)(i) of the Act(i) Consideration Matter prescribed in Article 90-2(i) of the Regulation
For example, whether the transfer of insurance contracts is not being
carried out without sufficient policy reserve allowance by selecting only
policy groups with profitability problems.
(ii) Consideration Matter prescribed in Article 90-2(ii) of the Regulation
Whether it is expected that the policy reserves for the insurance
contracts of the transferring company and the destination company after

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the transfer will be accumulated reasonably and appropriately based on
actuarial analysis of future profits and losses.
(iii) Consideration Matter Prescribed in Article 90-2(v) of the Regulation
Whether, in the case where the transferring company is a mutualcompany and dividend-paying cotracts are transferred, allowance is madefor surplus other than dividend reserves for individual insurance contracts
to be appropriately distributed to policyholders subject to transfer, while
taking into consideration the contribution of employees related to thetransferred policies and the soundness of the transferring company, etc.
(iv) Others
Whether, in the calculation of the policy reserve, dividend reserve,
solvency in terms of its ability to pay for insurance proceeds, etc. anddistribution of surplus prescribed in Article 90-2(ii) to (v) of the Regulation,
there has been a confirmation by an actuary or a person who meetsrequirements prescribed in Article 78 of the Regulation not belonging to thetransferring company and transferred company, etc., based on the practicalstandards of the The Institute of Actuaries of Japan .
b. Criteria prescribed in Article 139(2) (ii) of the Act
For example, whether there is not a significant difference in the content ofservices related to the contract to be transferred before and after the transfer.
c. Criteria prescribed in Article 139(2) (iii) of the Act
For example, whether only a group of contracts with strong profitability is
being transferred, together with significantly excessive assets, in a mannerthat unfairly harms the interests of creditors.
(3) Company Divestiture
Company divestiture involving the succession of insurance contracts shallalso be handled in accordance with (1) and (2) above.

III-3 Points to Pay Attention to When Providing Administrative Guidance, etc.
III-3-1 Points to Pay Attention to When Providing Administrative Guidance, etc.
Administrative guidance, etc. (including the act of providing information,
consulting, and advising that is not necessarily clearly differentiated fromadministrative guidance, in addition to administrative guidance referred to in427

Article 2(vi) of the Administrative Procedure Act.) for insurance companies shallbe carried out appropriately in accordance with the Administrative Procedure Act
and other laws and regulations. In particular, when providing administrative
guidance, the following points should be paid attention to:(1) General Principle (Article 32 of the Administrative Procedure Act)(i) Whether the content of the administrative guidance is realized only throughthe voluntary cooperation of the other party.
For example, the following points should be noted:
A. Whether the content and actual operation of the administrative guidance
are fully recognized by the other party.
B. Whether the administrative guidance is continued despite the fact that thecounterparty clearly expresses its intention not to cooperate with theadministrative guidance.
(ii) Whether the other party is treated disadvantageously because the otherparty did not follow the administrative guidance.
A. It should be noted that publicizing the fact, without any legal basis, thatthe counterparty did not comply with the administrative guidance may also
constitute "disadvantageous treatment" under the circumstances where
publicizing the fact would function as a social sanction against thecounterparty, such as causing economic loss.
B. Even if it is not clear at the stage of providing administrative guidance by
the Administrative party whether or not the authority is imposing adisposition to be exercised, this does not deny the provision ofadministrative

guidance

itself,indicating

circumstances after the administrativethat,

depending

guidanceon

theis provided, therequirements for exercising the authority to impose a disposition may be
met and the authority concerned may be exercised.
(2) Application-related Administrative Guidance (Article 33 of the Administrative
Procedure Act)
Whether the applicant's exercise of rights is hindered by the continuation of
the administrative guidance despite the applicant's expressed unwillingness tofollow the administrative guidance.
(i) Even in cases where the applicant has not explicitly expressed the intention
not to comply with the administrative guidance, it shall be determined
whether the other party to the administrative guidance has not expressed the428intention to refuse, taking into consideration the history of the administrative
guidance and changes in the surrounding objective circumstances.
(ii) It should be noted that even in cases where the applicant is responding to
the administrative guidance, it does not necessarily mean that the applicant
has also voluntarily consented to the withholding of judgment and responseto the application.
(iii) For example, the following points should be paid attention to:
A. Whether the applicant is forced to follow the administrative guidance andthe applicant is prevented from exercising his/her rights.
B. Whether the review and response to the application is not withheld on the
grounds that the administrative guidance is being provided in the casewhere the applicant has not clearly expressed its intention not to comply
with the administrative guidance.
C. Whether the supervisor stops the administrative guidance and takes
prompt and appropriate action against the application if the applicant
expresses its intention not to follow the administrative guidance.
(3) Administrative Guidance for Authority over Permission (Article 34 of the
Administrative Procedure Act)
Whether the supervisor engages in conduct such as compelling acounterparty to comply with the Administrative Guidance in question by
deliberately suggesting that they are capable of exercising the authority, in thecase where the supervisor cannot exercise the authority to grant permission,etc. or to render dispositions pertaining to permission, or where the supervisor
has no intent to exercise the authority.
For example, the following points should be paid attention to:(i) Whether, although the refusal of the license or approval, etc. cannot be
imposed, the supervisor requests certain actions or inactions by indicatingthat it can be done.
(ii) Whether the supervisor compels the counterparty to follow theAdministrative guidance, for example, by suggesting that the supervisor
will exercise the authority immediately if the administrative guidance is notfollowed, or by implying that some kind of disadvantageous treatment will
be given.
(4) Means of Administrative Guidance (Article 35 of the Administrative Procedure
Act)

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(i) Whether, when providing administrative guidance, the purpose and content
of the administrative guidance and the responsible person are indicated tothe other party.
For example, the following points should be paid attention to:a. Whether the content of the action or inaction required of the other party
is made clear.
b. Whether it is indicated which person is responsible for the administrative
guidance.
c. Whether, when providing administrative guidance that is based on
individual laws, the provision that supports the administrative guidance isindicated.
d. Whether, when providing administrative guidance that is not based on
individual laws, the purpose is indicated in order to facilitate
understanding of the necessity of the administrative guidance.
(ii) Whether, in principle, the delivery of a document stating the purpose andcontent and the person in charge are issued with regard to the administrative
guidance, when the other party requests, so long as no extraordinary
administrative inconvenience arises thereby (however, excluding cases thatfall under each item of Article 35(4) of the Administrative Procedure Act).
a. When requested to deliver a document, it is necessary to deliver it as soon
as possible.
b. Cases of "extraordinary administrative inconvenience" that that may makeit possible to refuse to deliver a written document refer to cases in which it
would cause significant inconvenience to the administrative management
to indicate in writing the purpose and contents of the administrative
guidance and the person in charge, such as the cases in which theadministrative purpose cannot be achieved due to the document being
used or interpreted in a manner unrelated to the intention of the preparer.
c. Attention should be paid to the fact that cases cannot be considered to fallunder the category of "extraordinary administrative inconvenience" merely
because the number of cases to be processed is large or because it needs
to be done quickly.

III-3-2 Points to Pay Attention to When Conducting Interviews, etc.
When an employee has an interview, etc. (meaning communication through an

430

interview, telephone, e-mail, fax, etc.; hereinafter the same shall apply) with an
officer or employee, etc. of the insurance company, the following points shall betaken into consideration.
(1) Whether the employee participating in the interview, etc. always maintaindiscipline and dignity, and conduct themselves in a calm and cool manner.
(2) Whether the purpose of the interview, etc., and the name and affiliation of theother party are confirmed.
(3) Whether the method of the interview, the place and time of the interview, theparticipating employee and the other party are appropriate in light of the
purpose and contents of the interview.
(4) Whether the contents and results of the interviews, etc. are checked asnecessary to ensure that both parties are aware of the same thing. In particular,
whether, when the contents and results of the interview are subject toconfidentiality obligations, it is made clear to both parties.
(5) Whether, in cases where the contents of the interview, etc. require a decisionby the supervisor, the employee seeks the decision of the supervisor inadvance or reports promptly after the interview, depending on thecircumstances. In addition, whether, in cases where interviews, etc. areconducted individually with multiple counterparts on similar cases, the FSA
takes into consideration the uniformity and transparency of the administrative
response.

III-3-3 Contact and Consultation Procedures
When providing administrative guidance, etc. through interviews, etc., if there
is any doubt about the appropriateness of the administrative guidance, etc., inlight of the Administrative Procedure Act, etc., the relevant section of the FSA
should be contacted and discussion about how to respond should be held asnecessary.
III-4. Points to Pay Attention to When Carrying Out Administrative Disposition431

III-4-1 The Flow of Basic Administrative Affairs Regarding Administrative

Disposition (Adverse Disposition)
III-4-1-1. Administrative Disposition

The major methods of adverse disposition by the supervisory authority (i.e.,
adverse disposition as referred to in Article 2(iv) of the Administrative
Procedure Act; the same shall apply hereinafter) are: (i) business improvement
orders pursuant to Article 132 of the Act; (ii) business suspension orderpursuant to Article 132 of the Act; (iii) business suspension order pursuant to
Article 133 of the Act; and (iv) rescission of license pursuant to Article 133 of
the Act. The following are examples of the basic flow of administrative work
related to these activities.
(1) Report Collection Based on Article 128 of the Act(i) If it is recognized that there is a problem with the risk management system,compliance system of laws and regulations, business management(governance) system, of the insurance company through on-site
inspections and off-site monitoring (hearings, deplorable event notice etc.),
the necessary facts, cause analysis, improvements and countermeasures,and other matters shall be asked to be reported.
(ii) In cases where the report has been reviewed and further investigation
has been deemed necessary, additional reports shall be requested under
Article 128 of the Act.
(2) The Follow-up on Improvements and Countermeasures Reported under
Article 128 of the Act(i) In cases where no serious problems are arising from the viewpoint ofbusiness health and appropriateness as the result of the validation of theabove reports, and where it is possible to call for insurance companies totake voluntary measures to improve, the following-up shall be conducted
through voluntary hearing and other means to follow up the improvements
and countermeasures reported in (1) above.
(ii) If necessary, regular follow-up reports shall be requested under Article
128 of the Act.
(3) Business Improvement Orders Pursuant to Article 132 of the Act

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In cases where, for example, a serious problem is found as the result of
the report (1) above (including additional reports) in terms of the health andappropriateness of the business, or where the voluntary efforts of theinsurance company do not lead to business improvement, submitting andexecuting a business improvement plan shall be considered to be executed
under Article 132 of the Act.
(4) The Business Suspension Order under Article 132 of the Act
In the event that it is deemed necessary to take a certain period to improve thebusiness and to concentrate on the improvement of the business, ordering
the suspension of all or part of the business for a certain time period andrevocation of the license shall be considered, taking into account the
improvement period pursuant to Article 132 of the Act.
(5) Business Suspension Order under Article 133 of the Act
In the event of a serious violation of laws, regulations, or other acts that
may harm the public, as a result of the verification of the report above (1)(including additional reports), ordering the suspension of all or part of its
business shall be considered under Article 133 of the Act. In addition, under
Article 132 of the Act, the Government shall consider ordering theestablishment of an internal control system for compliance with laws andregulations.
(6) Rescission of the License under Article 133 of the Act
In cases where the continuation of future business is deemed
inappropriate, for example, due to serious violations of laws and regulations
or numerous acts that may harm the public as the result of the verification of
the report above (1) (including additional reports), the revoke of the license
shall be considered pursuant to Article 133 of the Act.
When considering administrative actions (3) to (6), the following factors (i) to(iii)shall be taken into account, and whether or not any other factors are to beconsidered shall be examined.
(i) Severity and Malicious Nature of Such Conduct
a. Severity of the Public Interest Infringement
Whether the insurance company severely infringes on the public interest,for example, compromises the credibility of the financial market by433

constituting and providing products that are significantly inappropriate fromthe viewpoint of properly disclosing the financial contents of its customers.
b. Severity of the Damage to Users
How large the number of users that have been affected extensively is.
How severe the damage that individual users have suffered is.
c. The Malicious Nature of the Act Itself
For example, whether the insurance company conducts malicious activity,
such as continuing to sell similar products although the insurance company
has received numerous complaints from the users.
d. The Period and Repeatability of the Act
Whether the act was carried out for a long period or a short period.
Whether it has been repeated continuously or one-off. Whether similar
violations have been carried out in the past.
e. Presence of Intentionality
Whether the act was deliberately carried out recognizing that it was
illegal or inappropriate, or it was due to negligence.
f. Presence of Organizational Feature
Whether the act was carried out at the discretion of the individual sales
representatives in the field, or the management was involved in it orwhether there was any further involvement from the management.
g. The presence of Concealment.
Whether there was any concealment after the problem was recognized.
Whether the concealment was organizational, if there was any.
h. Whether or not they are involved with anti-social forces.
Whether there was any involvement with anti-social forces. If so, to what
extent.
(ii) The Appropriateness of the Management and Business Management
Systems behind the Conduct
a. Whether there are sufficient awareness and commitment by the
representative director and the board of directors regarding compliancewith laws and regulations.
b. Whether the internal audit departments are well-established andfunctioning properly.
c. Whether the structure of the Compliance and Risk Management
departments are sufficient and functioning properly.
d. Whether the business personnel is aware of compliance with laws andregulations, and Whether there is adequate in-house education.

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(iii) Reason for Mitigation
In addition to the above, Whether there are any other reasons for
mitigation, such as those insurance companies themselves are voluntarily
working on necessary measures to protect users prior to the government's
response.
(7) Standard Period of Time for Processing
In principle, the administrative disposition referred to in (3) to (6) above
shall be conducted approximately within one month from the time the report
described in (1) above is accepted. In the case where the disposition isconducted at the FSA via the Local Financial Bureau, where the disposition
is to be carried out at a Local Financial Bureau but requires coordination with
the FSA, or where the disposition is based on laws and regulations under cojurisdiction with other ministries and agencies, the disposition shall be
conducted within approximately two months from that time.
(Note 1) In the judgment of "the time when the report is accepted," thefollowing points should be noted:(i) In the case of requesting the report under Article 128 of the Act morethan once (only if the report is requested within the above period fromthe time the most recent report is received), the time shall refer to thetime the final report was received.
(ii) In relation to the reports submitted, when corrections to the documents
or additional submissions (excluding minor ones) are requested, the timeshall refer to the time when the corrections or additional submissions are
made.
(Note 2) The period required for the explanation and hearing is not includedin the standard period of time for processing.
(Note 3) The standard period of time for processing shall apply to each pieceof information on which disposition is to be examined.
(Note 4) In the case of an incident that spans multiple parties, the standard
period of time for processing shall be calculated from the time that allnecessary reports are received from the parties concerned.

III-4-1-2 Termination of Obligation to Report the Status of Performance ofBusiness Improvement Orders pursuant to Article 132 of the Act

435

In the event that the order for business improvement is issued under Article
132 of the Act, it is generally necessary to request a report on the performanceof the business improvement plan submitted by the insurance company tofollow up on the efforts of the insurance company to improve business
operations based on the order and to encourage improvement efforts, in whichcase the following points shall be paid attention to:(1) If an insurance company to which a business improvement order is issued
pursuant to Article 132 of the Act has been asked to report on theperformance of the business improvement plan submitted by the insurancecompany on the set date, the reporting obligation of the insurance company
shall be canceled upon the arrival of the deadline.
(2) If an insurance company to which the order for business improvement isissued pursuant to Article 132 of the Act has been asked to continuously
report without a deadline on the performance of the business improvement
plan submitted by the insurance company, the obligation to report on theperformance of the plan shall be terminated when it is deemed that
adequate improvement measures have been taken under the business
improvement plan concerning the problem that caused the order to beissued. At that time, a decision will be made on whether or not to revoke thedecision based on the progress of improvement efforts as determined by thereport and the results of the inspection.

III-4-2 Relationship with the Administrative Procedure Act etc.

(1) Relationship with the Administrative Procedure Act
It should be noted that if adverse dispositions have been attempted to be
imposed under Article 13(1)(i) of

the Administrative Procedure Act,

opportunities for hearing must be given, and in the case of attempted adverse
dispositions under item 2 of the same clause, an opportunity for explanationmust be granted
In all cases, it is important to note that when conducting an adverse
disposition, the grounds for the disposition shall be given under Article 14 of
the Administrative Procedure Act (when the adverse disposition is in writing,the grounds for the disposition must also be given in writing).

436

Furthermore, it shall be noted that in the event of a disposition that denies
the permission or approval requested by the application, the grounds for the
disposition shall be stated under Article 8 of the Administrative Procedure Act(when a disposition that denies permission or approval shall be made in writing,the reason for the disposal must also be stated in writing).
In doing so, it is necessary not only to provide the rationale, but also toclarify what laws, regulations and standards have been applied to thedisposition based on what facts.
(2) Relationship with the Administrative Complaint Review Act
It should be noted that, in the event of rendering a disposition for which anadministrative complaint may be filed, the fact that an administrative complaint
may be filed shall be instructed in writing based on Article 82 of the
Administrative Complaint Review Act.
(3) Relationship with the Administrative Case Litigation Act
In the event of any disposition against which an action for the revocation
may be filed, it shall be noted that, under Article 46 of the Administrative Case
Litigation Act, matters concerning the raising of the actions for the revocation ofadministrative dispositions shall be instructed in writing.

III-5. Opinion Exchange System
III-5-1 SignificanceIn the event of an adverse disposition, in addition to the grant for opportunities
for hearing and explanation based on the Administrative Procedure Act,
responding to a request from an insurance company, specified insurance agent,or insurance broker (in III-5, hereinafter referred to as “insurance company etc.”),it is beneficial to share a common understanding of the facts that lead to thedisposition and their severity by exchanging opinions at multiple levels between
the supervisory authorities and the insurance company, etc.

III-5-2 Supervision Method and Response437

If an insurance company etc. which has recognized that it is highly likely to bereceive an adverse disposition in the process of hearing about reporting under
Article 128 of the Act regarding insurance companies and Article 305 regarding
specified insurance agencies, an insurance broker requests an opportunity to
exchange views between the executive of the supervisory authority (Note 1) andthe executive of the insurance company, etc. (Note 2), and the supervisory
authority attempts to render an adverse disposition against the insurancecompany, etc. with opportunities for hearing and explanation, excluding cases
where such action is urgently necessary, it shall provide the opportunity to
exchange views on the facts that lead to the adverse disposition and theirsignificance before giving notice of the opportunity for hearing and explanation.
(Note 1) Examples of an executive of the supervisory authority: The head of theoffice in charge of the FSA and a Local Financial Bureau.
(Note 2) The request from the insurance company etc. to set up the opportunity
for exchange of views shall be made only between the time the supervisory
authority receives the report on the facts that cause such disposition based on
Article 128 or 305 of the Act, and the time it makes the notification of hearing
or explanation.

438

IV. Points of Attention regarding Examination of Insurance Products
The standard for the examination of insurance products is prescribed under Article
5(1)(iii) and (iv) of the Act and Articles 11 and 12 of the Regulation (referred to as the“Examination Standard” hereinafter in IV), and the points of attention regarding theexamination of insurance products have been published and updated as necessary
in order to enhance the efficiency, clarity and transparency of the actual examination
process. Regarding an application made in accordance with laws by an insurancecompany or a person who intends to become an insurance company (referred to as
the “Insurance Company” hereinafter in IV) for authorization or notification
concerning the introduction of a new product or the modification of an existingproduct related to life or non-life insurance (referred to as the “Product Authorization
Application” hereinafter in IV), the examination shall be conducted from theperspective of respecting individual Insurance Companies’ ingenuity and enablingthem to quickly develop products in response to the changes in policyholders’ needs,
with attention paid to the following points in particular. The Insurance Act has been inforce since April 2010, wherein it has established provisions for protecting
policyholders, etc. The examination of insurance products shall be continued inaccordance with the provisions of the Insurance Act. It should be noted that the
points of attention regarding the examination of insurance products, etc. shall be
updated timely in light of the results of the examination of Product Authorization
Applications and the needs of policyholders, etc. in order to enhance the efficiency,
clarity and transparency of the examination process.
IV-1 General Matters
In the examination of products, particular attention shall be paid to the following
points, which are common to the First, Second and Third Sectors.

IV-1-1 Descriptions of General Policy Conditions and Special Provisions
From the viewpoint of the protection of policyholders, etc., attention shall be
paid to whether the descriptions of the general policy conditions and special
provisions are clear, plain and simple.

439

IV-1-2 Scope of Coverage and Compensation(1) Whether the scope of coverage or compensation (hereinafter referred to as
the “Coverage, etc.”) conforms to the provisions of Article 3(4) to (6) of the Act.
(2) Whether the scope of Coverage, etc. suits the needs and convenience ofpolicyholders, etc(3) Whether adequate deliberations have been conducted as to the presence orabsence of an insurance-like nature, such as whether the product incorporates
an appropriate mortality rate or an appropriate incidence rate of insured events
and whether it covers accidental incidents and compensates for losses.
(4) Regarding insurance products for which the amount of insurance claims isexcessive relative to the cause for payment, those for which there are
extremely few causes for exemption and those for which the amount of
insurance claims to be paid is in excess of the amount of actual losses,
whether adequate deliberations have been conducted as to whether they are
too speculative or liable to moral hazard.
(5) Whether the causes for payment are specified.

IV-1-3 Product Names (Names of general policy conditions and Special
Provisions)
Whether the contractual rights and obligations and other contents of theinsurance product that are suggested by the product name may cause
misunderstanding on the part of insurance policyholders, etc.

IV-1-4. Risk Selection(1) Whether the Insurance Company has taken measures to appropriately selectphysical risk related to the health condition, etc. of the insured person andenvironmental risk related to the occupation, etc. of the insured person.

440

(2) Whether the Insurance Company has taken measures to prevent moral
hazard.
(3) Regarding non-selection type products, whether the Insurance Company hastaken appropriate measures regarding the contents of the products, such as
the scope of Coverage, etc. and the level of the insurance claims so as toprevent adverse selection.
Non-selection type products: Insurance products which allow enrollment
without the notification of the health condition and the job, and healthexamination by doctors

IV-1-5 Notification Items
Whether the notification items required of policyholders and insured persons
are limited to a minimum necessary for the Insurance Company to make risk
selection. It should be kept in mind that ambiguous categorization such as“activities of interest” is not appropriate

IV-1-6 Cause for Exemption
Whether the causes for exemption are clear and appropriate from theviewpoint of fairness and reasonableness, such as causes that undermine publicorder and decency and causes related to the exclusion of huge risk that may
affect corporate management

IV-1-7 Period during Which Contract May be Cancelled due to Violation of
Notification Obligation
Whether the period during which the contract may be cancelled due to aviolation of the notification obligation is unduly long from the viewpoint of theprotection of policyholders, etc..

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IV-1-8 Insured Amount, Insurance Period and Scope of Eligible Age(1) Whether the insured amount, the insurance period and the scope of eligible
age for insurance contract are set within limits that are appropriate in light ofcommon sense.
(2) Whether the insured claims amount, the loss compensation ratio and theexemption amount are set based on appropriate verification conducted fromthe viewpoint of preventing moral hazard..

IV-1-9 Items to Be Explained to Policyholders, etc. (including customers)
Regarding low-cancellation-refund-type products, non-selection type products,
products that use market value adjustment and arrangements similar toconversion, etc., whether the Insurance Company adequately explains theircontents to policyholders, etc. Market value adjustment: Arrangement underwhich the cancellation refund is determined by the premium reserve (as specified
in Article 63 of the Insurance Act) and the adjustment based on the change inmarket value of the investment asset arising from the difference between theinterest rates at the time of the contract and the cancellation.

IV-1-10 Method of Disclosing Cancellation Refunds
Whether the Insurance Company takes measures to disclose the cancellation
refund clearly to policyholders, etc., such as indicating the refund amount on theinsurance certificate, etc. and describing the calculation method in the terms ofthe contract, etc.

IV-1-11 Points of Attention regarding designing insurance products forcorporations, etc.
Whether the products have contents that may lead to solicitation activities thatdeviate from the original purpose of the policy, such as a contract for the primary
purpose of corporate finance or other financial technology, or a contract, which is442

subject to a short-term revoke from the beginning.

IV-1-12 Matters related to Loans Based on Terms of Insurance Contracts(1) Regarding insurance products that incorporate a system of providing loans topolicyholders, whether the upper limit on the amount of loans to policyholders
is set at a reasonable level compared with the cancellation refund amount.
Whether appropriate measures have been taken to prevent so-called overloans such as by refraining from providing a new loan for a certain period
before the expiry of the insurance period.
(2) Regarding insurance products that incorporate an automatic premium loansystem, whether policyholders have an option to use the system. Whether aninsurance company takes measures, including giving a notice to policyholders
without delay, if an automatic premium loan is provided.
(Note) If an automatic premium loan is provided to policyholders with respect
to already-approved products, it is desirable for an insurance company togive a notice to policyholders without delay.

IV-1-13 Treatment of Product Sales via Internet
When conducting examinations in accordance with the provisions of Article
11(ii)-2-of the Regulation, attention shall be paid to the following points..
(1) Whether the Insurance Company makes sure, through a secure means, thatan applicant for an insurance contract is a legitimate party to sign a contract. A
check on the physical condition of the insured person shall be conducted incases where the notification of the physical condition of the insured person,
health examination thereof or consent thereof is required.
(2) Whether the Insurance Company has taken measures to prevent deficiencies
and alterations (referred to as the “Deficiencies, etc. hereinafter in (2)) of
information concerning applications for contracts and other information
concerning contracts and to ensure the protection of policyholders, etc. even if
Deficiencies, etc. occur.

443

(3) Whether the Insurance Company has taken security measures to prevent theuse of the procedures specified under the same article of the Regulation from
causing a leak of information concerning contracts and policyholders, etc.
(4) Whether the Insurance Company has taken measures to enable applicants tocheck the specifics of the procedures concerning applications for contracts
and other contract-related matters, the contents and important items of thecontract and stores these data through a secure means.
(5) Whether the Insurance Company has taken measures to prevent the use of
the above procedures from constituting a constraint on its future interactions
with the applicant in relation to the contract.

IV-1-14 Products with Special Account or Accumulation Account
Whether the Insurance Company has established a system for managing risks
related to overall asset investments in accordance with a clear and specificstrategic objective concerning asset investment that is based on a management
policy. Whether the Insurance Company ensures the exercise of the function ofchecks and balances, such as by keeping a division responsible for managing
risks related to overall asset investments independent from the investment andprofit management divisions. Whether it has specified the authorities andresponsibilities of the board of directors and the division responsible formanaging asset investment risk.

IV-1-15 Treatmentof group insurance or group contracts
Regarding examination related to group insurance and group contracts,
attention shall be paid to the following points.
(1) Whether the extent of the policyholder group and the insured group is
specified.
(2) In light of the product characteristics, solicitation management system,444

contract management system, underwriting and risk management status, etc.,
if it is necessary to set group requirements (e.g., minimum number of insured
persons per policy, maximum multiple of insurance amount, minimum
participation rate, etc.) for the purpose of eliminating moral risk and stabilizing
insurance balance, whether appropriate group requirements are set. If so,wether they are clearly defined according to the category of the insured group(full membership group, voluntary membership group) and the category of theorganization.
(3) Regarding group insurance and group contracts based on occupation type,whether the following criteria are met in cases where retirees, their spouses,
etc. (referred to as the “Retirees, etc.” hereinafter in this section) are kept in
the insured group.
(i) The policyholder group has sufficient administrative work processing
capability to properly keep track of the movements of the Retirees, etc. andmanage the collection of insurance premiums.
(ii) The level of insurance premiums and the type of the dividend payment
method, etc. are commensurate with the insurance underwriting risk in lightof the possible effects of the inclusion of Retirees, etc. in the insured group
and an ensuing rise in the ratio of Retirees, etc.that is expected to occur inthe future.

IV-1-16 Treatment of Group and Collective Insurance
Regarding examination related to insurance contracts for which a group or an
association centrally collects premiums and pays them to an Insurance Company,
attention shall be paid to the following points.
(1) Whether the scope of policyholders subject to handled is reasonable andappropriate.
(2) Consistency of the system is ensured in the insurance categories wheregroup and collective insurance are introduced.
(3) Regarding the introduction (or modification) of premium increases anddiscounts related to group and collective insurance, whether the increases and445

discounts determined according to the loss ratio take into consideration “IV-5-5
Premium Increase and Discount Systems, etc. (2).”IV-1-17 Confirmation of Consent of Insured Person Related to Insurance
Contract on the Life of Another
Regarding the confirmation of the consent of the insured person related to theinsurance contract on the life of another, whether it is specified that theconfirmation is made through the following methods, for example.
(1)Confirmation by means of having the insured person himself/herself record
the consent in the case of an insurance contract under which an individual or acompany is to be the policyholder and beneficiary of insurance claims andpersons other than the policyholder, or officers and employees are to be
insured.
(2) Confirmation by means of either of the following sets of documents in thecase of an insurance contract under which a company is to be the policyholder
and the beneficiary of insurance claims and all employees, etc. are to be
insured (an insurance contract which does not cover persons who have notconsented to be insured), which is not either an individual life insurance or an
all-employee-enrollment group term insurance contract and regarding which it
is difficult to make confirmation as described in (1).
(i) A. The Accident Compensation Rules, etc. and other documents related tothe insurance contract
B. Records of consent by all persons who have consented to be insured.
(ii) A. The Accident Compensation Rules, etc. and other documents related tothe insurance contract
B. Record of confirmation stating that the prospective policyholder has
notified all persons who are to be insured of the contents of the insurance
contract (the record must contain the record of confirmation by theprospective policyholder and the representative of the persons who are to be
insured)C. List of persons who have not consented to be insured(iii) A. The Accident Compensation Rules, etc. and other documents which
describe the contents of the insurance contract under which the company is446

to become the beneficiary of death benefits
B. Record of confirmation stating that a relevant administrative agency has
been notified of the Accident Compensation Rules, etc. in accordance withthe provision of Article 89 of the Labor Standards Act and that all persons
who are to be insured have been notified of said rules in accordance with theprovision of Article 106(1) of the same act (the record must contain the
Record record of confirmation by the prospective policyholder)
C. List of persons who have not consented to be insured.
(3) Confirmation by means of either of the following sets of documents by theprospective policyholder in the case of all-employee-enrollment fixed-term
insurance(i) A. The Survivor Compensation Rules, etc. and other documents related tothe insurance contract
B. Records of consent by all persons who have consented to be insured(ii) A. The Survivor Compensation Rules, etc. and other documents related tothe insurance contract
B. Record of confirmation stating that the prospective policyholder has
notified all persons who are to be insured of the contents of the insurance
contract (the record must contain the record of confirmation by theprospective policyholder and the representative of the persons who are to be
insured)C. List of persons who have not consented to be insured(4) Confirmation by means of having each person who is to be insured

recordhis/her consent to be insured or through the means described in (3)(i) above inthe case of an all-employee-enrollment fixed-term insurance contract to which
the human-value special provision is attached.

IV-1-18 Compliance with Insurance Law
As the Insurance Act contains a unilateral forcible provision that provides forthe annulment of the terms of contracts that are disadvantageous for insurance
policyholders, etc. in order to protect them, the examination shall be conductedwith attention paid to the following points to check whether the terms of thecontract contravene the said provision.

447

In the examination, attention should be paid to the possibility that althoughsome causes for the non-payment of insurance claims, such as annulment,cancellation, exemption and lapse, etc., are treated as discretionary provisions
under the Insurance Act, they may contravene the said unilateral forcible
provision in some cases (e.g., cases where exemption is applied to all causes forthe payment of insurance benefits that have arisen after an increase in risk)
depending on the terms of the contracts related to the said provision.
(1) Cancellation due to Violation of Notification Obligation(i) Whether the terms of the contract take into consideration the fact that the
obligation for policyholders, etc. to make voluntary notification was replacedby the obligation for them to reply to questions.
(ii) Whether there is a provision that stipulates that in cases where thenotification was obstructed by an insurance intermediary or where an
insurance intermediary suggested withholding of information that should be
disclosed, the Insurance Company cannot cancel the insurance contract.
However, this provision shall not apply in cases where it is deemed thatthe prospective policyholder or the person who is to be insured would have
withheld information that should be disclosed or made false notificationeven if the insurance intermediary had not made such asuggestion.
(2) Insurance Benefits Payment Period(i) Whether the Insurance Company has set a basic period of the payment of
insurance benefits under the terms of the contract in light of a reasonable
period necessary for the procedures related to insurance benefits, such as
the loss-assessment procedure, etc. Whether the period is unduly prolonged
compared with the basic period set under existing terms of contracts (e.g., afive-day period for life insurance and a 30-day period for non-life insurance
and accident and disease insurance with a fixed amount).
(ii) In cases where an exceptional benefits payment period is set, whether the
check items necessary for the payment of insurance benefits, including
those related to public agencies, medical institutions, etc. are specified withregard to each insurance type and whether the duration of the period is
objectively reasonable. In cases where an exceptional benefits payment
period is applied, whether the Insurance Company notifies the person
requesting the benefits of the check items and the number of days
necessary for the payment thereof.

448

(iii) Whether the Insurance Company has developed a control environment toensure that when it has received a notification of the occurrence of a cause
for the payment of insurance benefits from policyholders, etc., clear
explanations about the procedures for requesting the payment of insurance
claims, etc. are provided and the forms for making the request are quickly
delivered to the insurance policyholders, etc. in light of (2) (v) of “II-4-4-2
Control Environment for Managing the Payment of Insurance Proceeds, etc.”(3) Cancellation Due To SeriousCause
Whether the provision for the cancellation due to a serious cause stipulates, inorder to prevent the abuse of the right to cancellation, that in cases where theInsurance Company intends to adopt incidents other than the occurrence of acause for the payment of insurance benefits due to a deliberate intent ofpolicyholders, etc. (Article 30(i), Article 57(i) and Article 86(i) of the InsuranceAct) and fraudulent requests for the payment of insurance benefits bybeneficiaries of insurance claims, etc. (Article 30(ii), Article 57(ii) and Article 86(ii)of the same act) as serious causes, whether those incidents are equal thereto inseriousness.

IV-1-19 Treatment of cases where joint insurance contracts are underwritten(1) When an insurance company intends to stipulate in its statement of businessprocedures that it may establish or amend a rider without applying for productapproval for a joint insurance contract (hereinafter referred to as a "nonmanaging contract ") that it accepts as a non-managing contract at the requestof the policyholder, the following points shall be considered during theexamination(i) Whether the statement of operation specifies the insurance products forwhich special clauses can be newly established or modified without applying
for product approval.
(ii) With respect to non-managing

contracts, whether the company has

obtained approval or filed a notification for the same type of insurance as thenon-managing contract, and the company has established a system forunderwriting review and profit management. In addition, if the managing
company is unable to pay claims, whether the company have a system inplace to pay claims on behalf of the managing company for non-managing

449

contracts.
(iii) Wherther the company have a system to prevent the underwriting ofspecial clauses, which are newly established or modified without applying for
product approval in order to underwrite non-managing contracts, byattaching them to insurance contracts other than non-managing contracts.
(iv) Whether the following items are described in the statement of businessprocedures.
a. Only in cases where the managing company underwrites a non-managing
contract of a joint insurance contract in which the managing company is an
insurance company.
b. At the request of the policyholder, the company shall only accept a nonmanaging contract with the same contract terms and conditions as the
managing company, such as reasons for payment of claims, exclusion of
liability, scope of insured persons, and insurance period.
c. With respect to a joint insurance contract, the following items made by the
managing company shall be deemed to have been made by all
underwriting insurance companies, only in the case of underwriting a nonmanaging contract provided for in the general insurance clauses or special
clauses(a) Receipt of applications for insurance contracts and issuance anddelivery of insurance policies, etc.
(b) Collection and receipt or return of insurance premiums(c) Approval of changes in the content of the insurance contract orcancellation of the insurance contract(d) Receipt of documents, etc. pertaining to notice or notification pursuant
to the provisions of the insurance contract and approval of such notice ornotification(e) Receipt of documents, etc. pertaining to a notice of assignment of
insurance claim rights, etc. and approval of such assignment, or receiptof documents, etc. pertaining to a notice of establishment, assignment or
extinction of a pledge on insurance claim rights, etc. and approval ofsuch establishment, assignment or extinction(f) Issue and delivery of a written approval of change pertaining to an
insurance contract or endorsement, etc. of an insurance policy(g) Investigation of the subject matter of the insurance and other matterspertaining to the insurance contract(h) Receipt of documents, etc. pertaining to the notification of occurrence450

of accident or damage, or receipt of documents, etc. pertaining toinsurance claim(i) Investigation of damage, assessment of damage, payment of insurancemoney, etc., and preservation of the rights of the insurance company asstated in the insurance policy(j) Matters incidental to (a) through (i) above.
d. Notices and other acts made by policyholders, etc. to the managing
company shall be deemed to have been made to all underwriters only inthe case of underwriting a non-managing underwritten contract that isprovided for in the general insurance clauses or special clauses.
e． New establishment or modification of special clauses within the scope ofthe examination criteria of the statement of business procedures, etc. andthe purpose and objective of the insurance contract.
(v) In the case that the calculation method for insurance premiums, etc. can be
newly established or changed due to the establishment or change of a
specialcontract,

whetherthestatementofcalculation

procedures

corresponds to the following points, is actuarially reasonable and appropriate,
and is not unfairly discriminatory.
In addition, if the premium is to be adjusted in accordance with c., whether
it is reasonable and appropriate from an actuarial standpoint.

In addition,even if the premiums are adjusted in accordance with c., a., b., and c., thecalculation method shall not be unreasonably discriminatory. Even if
premium adjustment is made in accordance with c. above, it is necessary tofall under a. and b. above. Note that even if the premium adjustment is madein accordance with c. above, it must be in accordance with a. and b. above.
a. The insurance premiums of the insurance company shall be adjusted inaccordance with the following conditions.

It must correspond to thecontents of the special contract in question.
b. It must correspond to the contents of the relevant special agreement.

Itshould not change the standard premium rate stated in the statement ofcalculation method. In addition, it must be consistent with the calculation
method described in the calculation method sheet.
c.

In the case of adjusting premiums for each insurance contract to whichsuch rider is attached, the adjustment shall not be differentiated based on
the risk status of such insurance contract or the increased or decreased
costs due to the establishment or modification of various procedures.

451

(2) If any problem is found with respect to the system for underwriting
examination and profit management, etc. of a joint insurance contract, the statusof compliance with the examination standards for statement of businessprocedures, etc., or the accumulation of policy reserves, etc., a report shall be
requested pursuant to Article 128 of the Act, as necessary, and if any serious
problem is found, a report shall be submitted pursuant to Article 131 of the Act (inthe case of a foreign insurance company, etc.). Article 131 of the Act (Article 203of the Act in the case of foreign insurance companies, etc.). Article 131 of the Act(Article 203 of the Act in the case of a foreign insurance company, etc.; Article
229 of the Act in the case of a licensed specified corporation).
(3) With respect to a joint handling contract (meaning an insurance contract inwhich two or more insurance companies each underwrite an insurance contract
for the same policyholder, and one of them, as the managing company, isentrusted with the issuance of insurance policies and other administrative
matters by a non-secretary company) The same shall apply hereinafter) in thecase of a joint insurance contract (meaning an insurance contract in which two or
more insurance companies each underwrite an insurance contract for an
insurance policyholder, and one of these companies acts as the managing
company and is entrusted by a non-managing company with the issuance of
insurance policies, etc.), only if the managing company, upon request from thepolicyholder, underwrites the same contract terms and conditions as those
approved or notified by the managing company, such as the grounds for payment
of insurance claims, reasons for exemption, scope of insured, insurance period,
etc. (1) (excluding (4) (c) and (d)). (1) (excluding (4) c. and d.) and (2)).

IV-2 First-sector
In the examination of products in the First Sector, attention shall be paid to thefollowing points in particular.
IV-2-1 Fixed-Term Insurance with Gradually Increasing Insurance Claims
Whether the cancellation refund amount for each year is set at a level lower
than the insured amount for the same year.

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IV-2-2 Voluntary Enrollment Group Fixed-Term Insurance
Whether the product design and dividend payment method are such that theeffective insurance premium is commensurate with the insurance underwritingrisk.

IV-3 Second-sector
In the examination of products in the Second Sector, attention shall be paid tothe following points in particular.
IV-3-1 Automobile Insurance Contract Covering 10 or More Vehicles
Regarding an automobile insurance contract which covers 10 or more vehicles
as specified under Article 83(iii)(K) of the Regulation, whether the following
requirements are met.
(1) The insurance contract must cover vehicles owned by the insurance
policyholder (including vehicles purchased by the policyholder under apurchase contract with a provision for the reservation of the ownership right,
vehicles leased on a commercial basis from a person who engages in thebusiness of leasing vehicles on a commercial basis (referred to as the Leasing
Business Operator hereinafter in IV-3-1 and IV-3-2) under a leasing contract
with a period of one year or longer (in cases where the policyholder has
transferred vehicles he/she owned to the Leasing Business Operator andleases them back on a commercial basis under a leasing contract, the oneyear criteria is applied to the total of the ownership period and leasing period;
the same shall apply hereinafter in IV-3-1) or vehicles leased free-of-charge
from the government of Japan or other countries or local governments inJapan (including public organizations other than local governments in cases
where the insurance policyholder is a public-interest corporation)).
(2) Regarding the coverage of losses other than damage to vehicles, thepolicyholder must be the insured person under the insurance contract(including an insurance contract under which the insured person is a user of a453

vehicle leased from the Leasing Business Operator on a commercial basis
under a leasing contract with a period of one year or longer).
(3) The insurance contract must cover 10 or more vehicles (including vehicles
related to other insurance contracts that meet the requirements specified in (1)and (2)) regarding which the reference date for the renewal of the insurance
premium increase or discount (referred to as the Premium Rate Examination
Date hereinafter in (3)) is the same and the period from the starting date to the
expiry date of insurance obligation (referred to as the “Obligation Period”
hereinafter in (3)) is one year or longer (including cases where the Premium
Rate Examination Date falls on the last day of the insurance period and the
Obligation Period is shorter than one year or where the Obligation Period isshorter than one year under an insurance contract related to an all-vehicleinclusive special provision (which covers all vehicles owned and used by the
insurance policyholder))IV-3-2 Insurance Contracts for Vehicles for Sale, etc.
Whether the vehicles notified as the vehicles specified under Article
83(iii)(L)(2) of the Regulation meet the following criteria:(1) Vehicles transported or managed by automakers, auto dealers, coachbuilders
and business operators similar thereto for the purpose of sales, testing andcoach building, and vehicles transported or managed by automobile landtransporters, automobile auction companies and business operators similar
thereto on commission from others.
(2) Vehicles owned by policyholders who are Leasing Business Operators,
finance companies, automobile scrap yard operators and business operators
similar thereto (including vehicles consigned to an automobile scrap yard
operator for scrapping in cases where the automobile scrap yard operator is
the insurance policyholder) and which are taken over from customers,
transported or managed.
(3) Vehicles consigned to auto maintenance companies, oil suppliers, car park
operators, automobile auction companies, automotive electronics servicers,454

automobile-washing companies, automobile paint companies, tire replacers,
automobile management companies and business operators similar thereto forthe purpose of the execution of their businesses

IV-3-3 Treatment of Flexible Provision System, etc.
(1) In cases where an Insurance Company intends to state in the statement ofbusiness procedures that special provisions related to business insurance may
be established or modified without a notification, attention shall be paid to thefollowing points in the examination.
(i) Insurance contracts other than the ones specified in (ii) and (iii)
A. Whether insurance contracts related to special provisions to beestablished or modified are subject to the requirement for notification.
B. Whether the policyholders and insured persons are business operators(however, if the insurance contract falls under all of the following cases,
insured persons need not be business operators).
(a) An insurance contract which compensates for damage arising toinsured persons in connection with business activities of thepolicyholders(b) An insurance contract in which insured persons have no option toenter 13(c) An insurance contract for which it is explicit that insured persons haveno obligation to pay insurance premiums or amounts equivalent toinsurance premiums
C. Whether the statement of business procedures states that special
provisions shall be established or modified in line with the intent andpurpose of the Examination Standard prescribed in the statement ofbusiness procedures, etc. and the insurance contract.
D. Whether the statement of business procedures states that special
provisions related to expenses necessary for the payment of penalty andthe implementation of an agreement and expenses similar thereto may
be established or modified
E. Whether the special provision is related to a medical liability insurance
contract regarding which there is a particular need for examination inlight of the characteristics of the insurance and from the social
perspective.

455

(ii) Automobile insurance covering 10 or more vehicles as specified under
Article 83(iii)(K) of the Regulation
A. Whether the criteria in B. to D. in (i) are met.
B. In cases where the Insurance Company intends to state in the statementof business procedures that causes for the payment of insurance claims
may be modified through the establishment or modification of a special
provision, whether it is permitted to alter the function of providing relief tothe aggrieved parties related to bodily injury liability insurance in ways that
put the said parties or the insured persons at a disadvantage, such as bynarrowing the scope of coverage and establishing new causes for
exemption.
C. In cases where the Insurance Company intends to state in the statementof business procedures that various procedures, such as the proceduresfor the conclusion of a contract and the request for the payment of
insurance claims, etc., may be established or modified through theestablishment or modification of a special provision, whether the following
criteria are met.
(a) Regarding a special provision concerning the procedures for theconclusion of a contract, a modification that may cause failure to provide
insurance coverage to a vehicle to be covered or failure to collectpremiums related to a vehicle covered by insurance is not permitted. In
addition, a modification that may impede a check on the provision ofprotection to the vehicle involved in the insured accident is not permitted.
(b) Regarding a special provision related to the procedures for the
notification of an insured accident and the request for the payment of
insurance claims, etc., a modification that may put the aggrieved party or
the insured person at a disadvantage is not permitted.
D. In cases where the Insurance Company intends to state in the statementof calculation procedures that a calculation method of insurance premiums
may be established or modified through the establishment or modificationof a special provision, whether the calculation method is reasonable andappropriate from the actuarial viewpoint and is not unduly discriminatory.
It should be kept in mind that even in cases where the premiums areadjusted as described in (c), the criteria in (a) and (b) must be met.
(a) The calculation method must be suited to the contents of the special
provision(b) The standard insurance premium rate indicated in the Statement of the456Calculation Method is not altered because of the calculation method.
The calculation method must be consistent with the calculation method
described in the Statement of the Calculation Method. It must not entail
an alteration of an existing calculation method (including the definition of
the

scope

of

relevant

policyholders)

relatedtothepremiumincrease/discount system based on the actual loss ratio or the combined
conclusion of contracts with multiple policyholders.
(c) In cases where the insurance premium is adjusted with regard to each
insurance contract to which the special provision is attached, thecalculation method must make discrimination based on the risk level
related to the insurance contract in question or an increase or decreasein expenses due to the establishment or modification of procedures.
When the risk level is considered, attention should be paid to whether
the contract conforms to the matters related to the risk factors specified
under Article 12(iii) of the Regulation.
E. Whether a special provision is established or modified within limits that
ensure that the contents of the insurance contract after the establishment
or modification meet the requirements in IV-3-1.
(iii) Insurance contract for vehicles for sale, etc. as specified under Article
83(iii)L of the Regulation
A. Whether the criteria specified in C. and D. in (i) are met.
B. Whether the criteria specified in B. to D. in (ii) are met.
C. Regarding the establishment or modification of a special provision related
to vehicles specified in Article 83(iii)L(2) of the Regulation, whether
vehicles other than those regarding which a notification was made basedon IV-3-2 are covered(2) In cases where an Insurance Company intends to establish a special
provision that meets the criteria specified in (1) in relation to losses that may
arise mainly in business activities in a foreign country or international businessactivities in accordance with the business practices of the regions, etc. where
the relevant business activity is conducted (limited to cases where thestatement of business procedures states that a special provision may beestablished within limits 15 necessary for ensuring harmonization with foreign
or international business practices and that in this case, the insurancecompany may prepare a new written agreement on the contract so that thegeneral policy conditions incorporate the features of the special provision,457

instead of establishing the special provision), the insurance company may
prepare a new written agreement (including the said agreement as translated
into a foreign language) so that the general policy conditions incorporate thefeatures of the special provision and conclude the contract based thereon. In
this case, it shall be deemed that a special provision that meets the criteria
specified in (1) was established and a notification shall not be required.
(3) In cases where a problem is recognized in a special provision established or
modified or a new written agreement on the contract as described in (2) interms of compliance with the Examination Standard prescribed in thestatement of business procedures, etc., the submission of a report shall be
required as necessary under Article 128 of the Act. If a serious problem isrecognized, they shall take administrative actions under Article 131 of Act(under Article 203 of the Act in the case of a foreign insurance company, etc.
and Article 229 of the Act in the case of a licensed specified juridical person) or
Article 132 of the Act.

IV-3-4 Treatment of Business Activity Loss Compensation Insurance, etc.
Regarding insurance that provides compensation for losses incurred bybusiness operators as a result of business activity (excluding insurance contracts
specified in Article 83(iii)A to J and M to HH of the Regulation and insurance
contracts that cover the management and operation of vehicles but including
insurance contracts that cover expenditures arising from the physical condition,
treatment and death of persons), attention shall be paid to the following points inthe examination.
(1) In cases where an insurance product that covers expenditures arising fromthe physical condition, treatment or death of a person (including expenses
related to the implementation of an agreement) and loss of expected profits is
to be established or modified, whether an application for authorization has
been filed as specified in the provision in the parenthesis of Article 83(iii)(II) of
the Regulation (however, it should be kept in mind that an application forauthorization is not required in the case of insurance regarding which the loss
amount is clear irrespective of the physical condition, treatment and death of
persons, such as insurance for losses from the cancellation of events and458

insurance for the cost of product recalls, and insurance that provides
compensation for the payment of condolence money and expenses similar
thereto for death of persons due to accidents or diseases that occur during thebusiness hours and at the sites where business activity is conducted, such as
insurance for leisure and service facility operation costs).
(2) Whether the contents of the product are suited to First- and Third-Sector
products.
(3) Regarding insurance that provides compensation for losses due to causes
similar to the causes related to casualty and medical insurance, etc. that pays
insurance claims directly to the persons concerned or provides them withcompensation for losses, whether the insurance premium rate is reasonable
and consistent with the premium rate of the casualty and medical insurance,etc.
(4) Regarding insurance that covers the payment of condolence money andfuneral expenses, etc. by business operators to the survivors of employees,
etc. who died of disease, whether the insured amount is within limits that areappropriate in light of social common sense.
(5) In cases where there is the risk of moral hazard similar to the case of an
insurance contract on the life of another, whether the Insurance Company hastaken appropriate measures to prevent moral hazard with due consideration of“II-4-2-4 Life Insurance Contracts for Other Persons ” and “IV-1-17
Confirmation of Consent of Insured Person Related to Insurance Contract on
the Life of Another.”IV-3-5 Treatment of Insurance that Covers Expenses Due to Implementation of
Agreement
Attention shall be paid in the examination of business activity loss
compensation insurance which provides compensation for losses suffered bybusiness operators due to the implementation of an agreement concluded with athird-party person on the performance or exemption of the obligation for thepayment of a certain amount of money, etc. due to an accidental cause.

459

(1) Whether the insurance provides compensation for losses incurred due to theimplementation of an agreement that undermines public order and decency.
(2) Whether the rights and obligations under the agreement are evident for thethird-party person and the payment of insurance claims generates undue
profits to the business operator.

IV-4 Third Sector
In the examination of products in the Third Sector, attention shall be paid to thefollowing points in particular.
IV-4-1 Establishment of Right to Alter Actuarial Assumption Rates
In cases where the examination of the establishment of the right to alter
actuarial assumption rates related to Third-Sector insurance is conducted inaccordance with the Examination Standard specified under Article 11(1)(vii)A of
the Regulation, the attention shall be paid to the following points.
(1) “Other insurance contracts similar thereto” refer to insurance contracts underwhich benefits are paid for the condition, etc. of persons related to Type 1
infectious diseases, Type 2 infectious diseases, and Type 3 infectious
diseases as specified under the Act on Prevention of Infectious Diseases andMedical Care for Patients Suffering Infectious Diseases (Act No. 114, October
2, 1998).
(2) Whether the establishment of the standard for the exercise of the right to alter
actuarial assumption rates meets all of the following requirements.
(i) Whether the benchmark for the relationship between the expected incidence
rate and the actual incidence rate is the same as or similar to any of thefollowing ratios in accordance with the purpose of altering the premium rate
or insurance claims amount through a change in the expected incidence rate.
A. Ratio of the actual incidence rate to the expected incidence rate
B. Ratio of insurance claims paid to insurance premium revenues (total ofrisk premiums and loading premiums of the current year after adjustments

460

for the inclusion and reversion of policy reserves).
(ii) The benchmark in (i) is set at an appropriate level in light of the expected
profits or losses related to the insurance contract in the case of a rise in theactual incidence rate.
(iii) Whether the procedures for changing the insurance premium or the
insurance claims amount after the benchmark in (i) is reached are specified.
(3) Whether the insurance company has developed a control environment for
decision-making related to the management of the actual incidence rate andthe exercise of the right to alter actuarial assumption rates.

IV-4-2 Treatment of Application for Authorization of Exercise of Right to Alter
Actuarial Assumption Rates
In cases where an application for the exercise of the right to alter actuarial
assumption rates related to Third-Sector Insurance has been filed, attention shallbe paid to the following points in the examination thereof.
(1) Whether the rules concerning the right to alter actuarial assumptions rates
prescribed in the terms of the contract (e.g., standard for the exercise of theright to alter actuarial assumption rates, etc.) are observed.
(2) Whether the internally prescribed procedures for the exercise of the right toalter actuarial assumption rates are observed.
(3) Whether adequate explanations were provided to the policyholder at the timeof the contract conclusion and whether information disclosure as to whether
the standard for the exercise of the right to alter actuarial assumption rates
was met was made periodically thereafter.
(4) Whether the expected incidence rate after the alteration is a reasonable andappropriate based on the actuarial standards in light of the actual incidence
rate and other factors.

IV-4-3 Measures to Protect Policyholders, etc. at Time of Insurance Claims, etc.

461

Payment
With respect to products in the Third Sector, attention shall be paid to thefollowing points concerning measures for protecting policyholders, etc. at thetime of payment of insurance claims, etc.
(1) Regarding an insurance contract under which the insured person is thebeneficiary and which carries a high probability that the insured person cannot
physically request the payment of insurance claims when the cause for thepayment arises, whether the insurance company has taken adequate
measures to enable an agent of the insured person to request the payment
quickly.
(2) When determining the scope of benefit payment in the case of sickness,
unexpected accident, etc., whether the insurance company has usedclassification rules, etc. which policyholders, etc. find difficult to refer to.
(3) Regarding the fact that the number of days of payment of insurance benefit,
etc. in an insurance contract before renewal will be carried over after renewalof the insurance contract, whether the 19 insurance company has taken
measures to explain the fact to policyholders, etc. in a proper manner uponrenewal of the insurance contract.

IV-5 Actuarial Standards
When examining Statement of the Calculation Method, attention shall be paid tothe following points in particular.
IV-5-1 Insurance premiums(1) Whether the calculation method of premiums takes into consideration
sufficiency, fairness, etc. and is reasonable and appropriate.
(2) Whether the insurance premium is unduly discriminatory between different
groups of insured persons and between different insurance types, etc.

462

(3) Whether the expected incidence rate, loss amount and expected cancellation
rate are calculated in a reasonable manner based on basic data and correctedin accordance with the reliability of basic data.
(4) Whether the assumed interest rate is appropriately set from a reasonable andlong-term perspective based on the insurance type, insurance period, payment
method of insurance premiums, records of past investment performance,
expected future investment return, etc.
(5) Whether non-arbitrary and reasonable rules concerning the review of theassumed interest rate of products with a variable assumed interest rate are set
from the viewpoint of the protection of insurance policyholders, etc.
(6) Whether the loading premium (including an increase or decrease in business
expenses) operating costsoperating costsmeets the following conditions when
expressed in qualitative terms, rather than as a co-efficient.
(i) Whether it is specified that the loading premium should be set at an
appropriate level; for example, whether the fairness between different
insurance types is maintained and whether it is set at a reasonable level
relative to the expected amount of business expenses.
(ii) Whether the loading premium is specified by internal rules, etc. inaccordance with the intent of II-2-5-2(5)(iv).
(iii) Whether the insurance company submits monitoring materials with regard
to each insurance type and each sales channel as classified in accordancewith the loading premium rate and in light of the degree of importance basedon the viewpoints in (1) and (2). Whether data used as the basis of themonitoring materials are attached thereto.
(7) In cases where the insurance premium rate is not revised on the occasion ofa revision of the scope of coverage, etc., whether the insurance company has
adequately examined the need to revise the premium rateIV-5-2 Policy reserves(1) When examining policy reserves, attention shall be paid to the mattersspecified in “II-2-1-2 Accumulation Method” in particular.

463

(2) Whether it is ensured that when the product is designed so as to set theamount of benefits in the early part of the contract period at a high level, when
the amount of future benefits is reduced or when the insurance premium
payment is deferred, the value of the policy reserve does not become negative.
In cases where a negative value is deemed to be zero for the purpose of thecalculation of the policy reserve, attention shall be paid to whether anadequate study on maintaining the financial soundness is conducted.
(3) Regarding the policy reserve for insurance products with the arrangement ofmarket value adjustment, whether it is the larger amount of either the premium
reserve or the cancellation refunds.

IV-5-3 Policyholder value
Whether the cancellation refund is set at a reasonable and appropriate level inlight of the business expenses and investment losses as well as the insurance
product design, etc. so as to avoid putting insurance policyholders at an undue
disadvantage.

IV-5-4 Application of Premium Increase or Discount Based on Past Loss Ratio,etc.
In cases where an insurance company intends to stipulate in Statement of the
Calculation Method that a premium increase or discount may be applied basedon the past loss ratio (or the payment ratio) with regard to fixed-amount benefit
insurance contracts (including special provisions) related to diseases (e.g.,general medical treatment, cancer and nursing care insurance), attention shallbe paid to the following points in the examination.
(1) Whether insurance contracts (including special provisions) to which a
premium increase or discount is applicable are fixed-amount benefit insurance
contracts (including special provisions) related to diseases with an insurance
period of one year or shorter under which groups such as companies, etc. are
the insurance policyholders.

464

(2) Whether it is prescribed that regarding the past data used for the applicationof a premium increase or discount, the insurance performance of insurance
contracts that meet all of the following requirements over a period of one year
or longer must be checked.
(i) Contracts which cover the group in question(ii) Fixed-amount benefit group insurance contracts whose main coverage ofrisks overlap each other (excluding insurance contracts which mainly cover
injuries or the condition of being unable to work)(3) In cases where the underwriting insurance company in (2) is a different
insurance company from the insurance company in question, whether it isprescribed that only if all of the following requirements are met, the materials,
etc. prepared by the underwriting insurance company, etc. (hereinafter referred
to as the “Materials, etc.”) may be used for the calculation of the pure premium
amount in the case of insurance underwritten with the pure premium rate of
the insurance company in question and the premium amount thus calculated
may be applied.
(i) The Materials, etc. are reliable and objective.
(ii) The pure premium amount in the case of the application of the purepremium rate of the insurance company in question is calculated based on
the conditions of coverage and the past performance of the contract that
constitute the assumptions of the Materials, etc.
(iii) In cases where the conditions of coverage such as the period of exemption,etc. that constitute the assumptions of the Materials, etc. are different fromthose that constitute the assumptions of the pure premium rate of theinsurance company in question, a correction is made in a reasonable
manner in accordance with the calculation method of the pure premium rateof the insurance company in question.

IV-5-5 Premium Increase and Discount Systems, etc.
(1) Whether the establishment (or modification) of a premium discount system isreasonable from the actuarial viewpoint and has no problem from theviewpoint of consistency with other premium increase or discount systems, therevenue-expenditure balance after the introduction of the discount system and465

fairness, etc. among policyholders.
(2) Whether the premium increase or discount system based on the records of
insurance claims payments (including those involving premium adjustments)
takes into consideration past data available in a reasonable manner without
arbitrary selection. In particular, whether the insurance company uses highly
reliable and objective past data available and makes corrections in accordancewith the reliability of the past data.

IV-5-6 Adaptation to Revision of Advisory Pure Risk Premium Rate

In cases where an insurance company does not revise the pure risk premium
rate of insurance products whose pure risk premium rate is calculated on thebasis of the advisory pure risk premium rate in accordance with a revised
advisory pure risk premium rate within one year from the date when it was
notified of the revision as specified under Article 9-2(3) of the Act on Non-Life
Insurance Rating Organization of Japan, the company shall be required under
Article 128 of the Act to submit a report or materials concerning thereasonableness and appropriateness of the pure risk premium rate it iscontinuing to use, as it shall be deemed that the company is applying its own
premium rate without using the advisory pure risk premium rate as a basis.

IV-6 Examination procedures
When examining products, attention shall be paid to the following points inparticular.

IV-6-1 Treatment of Examination Period related to Authorization and Notificationof Insurance Products
While the standard examination period related to the authorization of
insurance products as specified under Article 246(1)(xii) of the Regulation is 90
days and that related to the notification of insurance products as specified under466

Article 125(1) of the Act is 90 days, efforts shall be made to shorten theexamination period from the viewpoint of contributing to the speed-up of productdevelopment. In particular, regarding the application for authorization andnotification of products that are 23 standardized and simple or products whose
contents are effectively the same as the contents of existing products of othercompanies (limited to products which can be examined efficiently based on theAssessment Statement, etc. specified in IV-6-2), the examination shall becompleted within 45 days in principle.

IV-6-2 Procedures for examination of insurance products
In cases where the statement of the assessment of the contents of notification
or application for authorization (Handbook for Formats and Reference Materials:
Formats for Other Reports, etc.: IV-6-2 Attachment 1, 2 or 3) or the written outline
thereof prepared by insurance companies in accordance with the legallyprescribed Examination Standard so as to describe the prescribed items is
attached to a notification or an application for authorization, the examination shallbe conducted with the use of either the said statement or the written outline(hereinafter referred to as the Assessment Statement, etc. in a prompt andefficient manner. In particular, it should be kept in mind that even if theAssessment Statement, etc. is attached, it shall not be deemed that theprescribed items are described as specified above in cases where thedescriptions in the Assessment Statement, etc. are deemed to be inadequate
andrequirecorrections,whereadequate

explanations

concerningthedescriptions thereof cannot be obtained from the insurance company, or where
not all materials deemed to be necessary are attached.

IV-6-3 Implementation of Efficient Examination of Insurance Products in View of
Product Selling Plans
Examination of insurance products shall be made efficiently with such efforts
as exchanging opinions in advance with insurance companies if requested
confirming the existence of a concrete product selling schedule, and giving
priority to the application with product selling plans.

467

IV-6-4 Implementation of insurance product examination based on product andcustomer characteristics, etc.
(1) In the process of product examination, the company shall confirm whether
appropriate measures are taken to address the issues of the product, such as
risks associated with the product and points to be noted in sales, inaccordance with the characteristics of customers and sales methods, basedon the examination status of the points to be appealed to customers of theapplied product, assumed main customer segments, and the sales promotion
system after approval, by using the "Customer Protection Related Information"(Handbook for Formats and Reference Materials: Formats for Other Reports,
etc.: IV-6-4 Attachment 1 or 2).
(2) In the event that a company is considering to provide a new service incidental
to a specific insurance product due to the expansion of services incidental toinsurance products, the company shall confirm in the process of productexamination whether the company is taking appropriate measures to ensurethat there is no lack of protection for policyholders, etc., based on the content
of the service, the contractual relationship between the insurance company,
etc., and the liability relationship between the insurance company, etc., using"Customer Protection Related Information" (Handbook for Formats andReference Materials: Formats for Other Reports, etc.: IV-6-4 Attachment 1 or
2).
(Note) The services referred to here are those that fall under the category ofmatters that should be referred to in deciding whether to enter into an
insurance contract (Article 227-2(3)(ii) of the Regulation).

468

V. Insurance Brokers
V-1 Registration Process
The registration process for insurance brokers shall be carried out in accordancewith the following interpretation, operation and procedures of the relevant laws andregulations.
V-1-1 Application form for registration(1) The scope of offices specified in Article 287(1) (ii) of the Act shall be all offices
related to the insurance solicitation business.
(2) The types of insurance contracts to be handled as prescribed in Article 287(1)(iii) of the Act shall be as follows(i) Insurance contracts in which a life insurance company (including foreign life
insurance companies, etc. and underwriters of specified corporations
licensed under Article 219 (4) of the Act) acts as the insurer (hereinafterreferred to as the “life insurance contract”)(ii) Insurance contracts in which non-life insurance companies (including
foreign non-life insurance companies, etc. and underwriters of specified
corporations licensed under Article 219 (5) of the Act) act as insurers(including an insurance contract in which a foreign insurer other than theseacts as an insurer and which is prescribed in Article 39-2 of the Order;
hereinafter referred to as "non-life insurance contracts").
(iii) Insurance contract in which a small-amount and short-term insurancecompany acts as an insurer (hereinafter referred to as "small-amount andshort-term insurance contract")(3) When an application for registration is filed pursuant to the provision of Article
287 of the Act or notification of changes, etc. is made pursuant to the provisionof Article 290 of the Act, the application form for registration and its attacheddocuments or the written notice of changes in registered matters, etc. shall be
submitted to the Finance Bureau, etc. having jurisdiction over the location of
the principal office of the insurance broker who intends to submit them.

V-1-2 Guidelines for filling out the application form for registration, etc.

469

The guidelines for filling out the application form for registration, etc.
prescribed in Form 20 of the Appendix to the Regulation shall be as follows(1) The information on the first page of the application form for registration shallbe as follows.
(i) In the case of an individual, the name shall be written in the applicant's own
handwriting.
(ii) In the case of a corporation (including an association or foundation that is
not a corporation; hereinafter the same shall apply), the name of therepresentative or manager shall be entered for the first person. In the caseof a corporation incorporated under the laws and regulations of a foreigncountry (hereinafter referred to as a "foreign corporation"), its representativein Japan shall also be indicated.
(2) The information on the second page and below of the application form forregistration shall be as follows(i) The date of registration and the registration number shall be entered at thefinancial bureau, etc. having jurisdiction over the location of the principal
office of the insurance broker.
(ii) In the "Trade Name, Name, or Full Name" column, the full name shall beentered in the case of an individual, and the trade name or name shall beentered in the case of a corporation. In the case of a foreign corporation, thetrade name or name in Japan should also be entered.
(iii) If there is more than one representative, the first person shall be entered inthe "Full Name of representative or manager" column, and the otherrepresentatives shall be entered in the "Representative or manager" column.
If the representative is not engaged in insurance solicitation and is not
qualified to pass the insurance brokerage examination as specified in V-1-7,
he/she should be listed in the "Remarks" column ("No solicitation" should be
written next to the full name of the first representative). In the case of aperson who is not qualified to pass the insurance brokerage examination,
the relevant information should be entered in the "Remarks" column (for the
first author, enter "not recruited" next to his/her name). However, in the caseof a foreign corporation, the representative in Japan should also be written in
the "Full Name of representative or manager" column.
(iv) In the "Date of Birth and Gender" column, the applicant's date of birth and470gender should be entered in the case of an individual, and the date of birthand gender of the person indicated in the "Full Name of Representative orManager" column should be entered in the case of a corporation.
(v) In the "Address" column, in the case of an individual, the applicant's current
address on the resident registration card should be entered. In the case of acorporation, the address of the head office in the commercial register should
be entered. In the case of a foreign corporation, the address of its principal
office in Japan should also be entered.
(vi) In the "Name and Address of Office" column, the office of the insurance
broker applying for registration should be entered.
In the case of an individual, if there is no name of the office, it isacceptable to omit the entry in the "Name of Office" column.
(vii) In the case where the applicant is engaged in other business, it shall be
sufficient to state the main business of the applicant.
(viii) If there is no representative or manager who conducts insurance
solicitation, the full name and title of the person in charge of insurance(which shall be a person qualified to pass the insurance brokerage
examination) shall be entered in the "Remarks" column.
(3) The same person shall not apply for more than one registration using morethan one trade name or name.

V-1-3 Documents to be attached to the application form for registration
The contents of the documents to be attached to the application form forregistration as prescribed in Article 219 of the Regulation shall be as follows(1) Documents required to be attached to the application form for registration thatare certified by government agencies shall be those issued within 3 months
prior to the date of application for registration.
(2) Documents proving competence
The "document certifying that the Registration Applicant has a capacity" asprescribed in Article 219(1)(i) of the Regulation shall be a copy of the
document certifying that the applicant has sufficient capacity to perform thebusiness of insurance solicitation in a precise manner as prescribed in V-1-7.

471

(3) Alternative documents
The "any other substitutive document" prescribed in the Article 219(1)(ii) of
the regulation and the " any other substitutive document" prescribed in the
Article 219(1)(iii)a. of the regulation refer to the following documents. If theapplicant is an association or foundation that is not a corporation, documents
equivalent thereto shall be included.
(i) The document in lieu of articles of incorporation or certificate of registeredmatters (hereinafter referred to as "articles of incorporation, etc." in V-1) inthe case of a corporation shall be a transcript or extract of the commercial
registry, etc.
The articles of incorporation, etc or any other substitutive document shallstipulate that the applicant may engage in the business of an insurance
broker.
A copy of the articles of incorporation, etc or any other substitutive
document shall be acceptable if it contains a statement to the effect that it isidentical to the original.
(Note) When the full name of the representative in the application form forregistration is accompanied by the former family name and the first namein parentheses, the "documents certifying the said former family name andfirst name" prescribed in the Article 219 (1) Item (iii)b. of the Regulation
shall be attached (except for the representative who has applied forregistration separately).
(ii) The document in lieu of an extract from the certificate of residence in thecase of an individual shall mean a certificate of matters stated in thecertificate of residence, a residence card or a special permanent resident
certificate, or a My Number Card.
(iii) "Documents certifying the said former family name and first name " asprescribed in Article 219 (1) Item (iii)b. of the Regulation shall mean atranscript or extract of the family register, etc.

V-1-4 Guidelines for Description of Attached Documents
The following are the guidelines for description of the documents to be
attached to the application form for registration as prescribed in Article 219 of theRegulation.

472

(1) With regard to the written oath (Form No. 21 attached to the Regulation), in
the case of a corporation with multiple representatives, the first person shallswear to this effect on behalf of the said corporation.
(2) With regard to the document specified in Article 287(2)(ii) of the Act, thedocument stating the full names and addresses of the officers shall be the listof full names and addresses of officers (hereinafter referred to as the "list of
officers") specified in attached form No.1 included in the attached collection ofreference forms (hereinafter referred to as the " attached form "). The full nameand address of each officer of the said corporation (excluding officers listed in
the notification form pertaining to officers and employees engaged in insurance
solicitation) shall be described in the attached form. In addition, the names andaddresses of the officers shall be listed in the "List of Officers". A document
stating the full names and addresses of the officers may be substituted for thelist of officers.

V-1-5 Handling after registration(1) A registration number shall be assigned to each director-general of the
Finance Bureau, etc. with jurisdiction by a series of numbers.
(2) As a notice of registration pursuant to the provision of Article 288(2) of the Act,the director-general of the Fnancial Bureau, etc. with jurisdiction shall, upon
approving registration, notify the applicant for registration without delay by awritten notice of registration (Attachment Form No. 2).
(3) After the registration, the applicant for registration shall deposit the guaranteemoney (including the conclusion of a contract set forth in Article 291(3) of the
Act (hereinafter referred to as "Guarantee Entrustment Contract")) without
delay and commence a business operation.

V-1-6 Refusal of registration(1) The extremely inappropriate conduct set forth in Article 289 (1) (vi) of the Act473

shall be conduct that falls short of protecting policyholders, etc., such as
misappropriation of an amount equivalent to insurance premiums or insurance
premiums deposited by customers, or unjustly taking advantage of theignorance of policyholders.
(2) "Sufficient capacity to appropriately perform business involving insurance
solicitation" as prescribed in Article 289(1)(x) of the Act shall be determined inaccordance with the provisions of Section V-1-7.
(3) When the director general of the Financial Bureau, etc. with jurisdiction
refuses registration as prescribed in Article 289 (1) to (3) inclusive of the Act,the director general of the Financial Bureau, etc. with jurisdiction shall, without
delay, give notice as prescribed in Article 289(4) of the Act by means of awritten notice of refusal of registration (Attachment Form No. 3).

V-1-7 Establishment of an appropriate insurance solicitation system
The "sufficient capacity to appropriately perform business involving insurance
solicitation" as prescribed in Article 289(1)(x) of the Act shall be determined by
the passing or failing of an examination on laws and regulations related toinsurance solicitation, knowledge of insurance contracts, and ability to performthe business of insurance solicitation, depending on the type of insurance,
handled by all officers and employees engaged in solicitation if the applicant forregistration is a corporation, or by any such individual or employee engaged insolicitation if the applicant for registration is an individual.

V-1-8 Notification of changes
Notification of changes as prescribed in Article 290(1) of the Act shall behandled as follows(1) Notification of changes shall be handled in the same manner as V-1-1 to V-15.
(2) Change of the name of the address or the location of the office474

If the name of the address or the location of the office of the insurance
broker is changed in accordance with the Act on Indication of Residential
Address (Act No. 119 of 1962), etc., the notification may be omitted.
(3) Changes in the organization of insurance broker that is a corpoation
If an insurance broker that is a corporation undergoes a change in its legalorganization, it may submit a written notification of change in registeredmatters prepared in accordance with Form No. 22 of the Appendix to theRegulation.
(4) In case of a change of trade name, name, or full name and address, an
extract from the certificate of residence or a document in lieu thereof in thecase of an individual, or the articles of incorporation, etc. or a document in lieu
thereof in the case of a corporation, shall be submitted to the director generalof the Finance Bureau, etc. of jurisdiction.

V-1-9 Guidelines for description of written notification of change, etc.
The following are the guidelines for description of the written notification ofchange, etc. as prescribed in Form No. 22 of the Appendix to the Regulation.
(1) "Matters to be changed" shall describe the matters listed in each item of
Article 287(1) of the Act pertaining to the change.
If there is an error in the information stated in the application form forregistration, the written notification of change shall be changed to a written
notification of correction of registered matters, and a correction and the error
shall be stated in the notification.
(2) "Details of change" shall describe the matters before and after the change foreach change.
(i) In the case of an insurance broker whose address has been changed inaccordance with laws and regulations such as the Act on Indication of
Residential Address, and who subsequently changes the address or thelocation of the office, the address before the change shall be the address or
the location of the office in the application for registration form, and theaddress after the change shall be the address or the location of the office475

after the change.
(ii) Change of representative or manager (in the case of a corporation)a. The date of birth and gender of the new representative or manager shallbe added in the "After Change" column.
b. For changes in the head of the company, "head of the company" shall be
written in the "Changes" column.
c. For changes other than the head of the company, "Those other than thehead of the company" shall be written in the "Changes" column. Forchanges other than those of the first author, "Other than first author"
should be indicated in the "Changes" column.
In this case, a separate table of representatives or managers (Appendix
Form No. 4) shall be prepared based on the details of the change andattached to the written notification of change.
d. Notification of a change as to whether the representative or manager isengaged in insurance solicitation or not shall also be made.
(iii) In the case where the applicant is engaged in other business and the typeof business is changed, only the type of business that has been changed
shall be described.
(3) A written notification of change for change in the address (location of theprincipal office) of an insurance broker to the jurisdiction of the Financial
Bureau, etc. with other shall be accompanied by a copy of the current "Written
Registration Notice" as described in V-1-5(2).

V-1-10 Notification of discontinuation of business, etc.
The following are the guidelines for filling out the written notification of
discontinuation of business, etc., as specified in Form No. 23 attached to theRegulation.
(1) "Relationship with the person related to the notification" shall describe thequalifications of the notifier (e.g., heir, etc.) when the notifier as specified in
Article 290 (1) (ii) to (vi) of the Act makes the notification.
(2) When the Director General of Financial Bureau, etc. of jurisdiction receives awritten notification of discontinuance of business, etc., he/she shall promptly476

cancel the registration of the insurance broker concerned pursuant to theprovision of Article 308(1)(ii) of the Act.

V-1-11 Handling of notification of officers or employees engaged in insurance
solicitation
The handling of notification of officers or employees prescribed in Article 302of the Act shall be as follows(1) Officers or employees who are required to be notified pursuant to theprovision of Article 302 of the Act shall mean those who engage in insurance
solicitation by receiving appropriate education, management and guidance on
insurance solicitation from registered insurance brokers.
(2) It should be noted that, in addition to (1) above, an employee must be a
person who works at the office of the said insurance broker in Japan andconducts insurance solicitation under the direction and supervision of the said
insurance broker.
(3) It should be noted that an officer or employee engaged in insurance
solicitation cannot be an officer or employee engaged in insurance solicitation
for another insurance broker.
(4) Notification shall be required in the event of any change in the full name orposition of an officer or employee.
(5) In the application of Article 302 of the Act, the date of registration shall be thedate of notification if the notification is made at the same time as theregistration as an insurance broker, or the date of submission to the Director
General of the Financial Bureau, etc. of jurisdiction (or the day following thedate of dispatch if the notification is sent by mail) shall be the date of written
notification if the date differs from the date of registration.

V-1-12 Guidelines for Description of Written Notification of Officers andEmployees

477

The guidelines for description of the written notification of officers andemployees as prescribed in Form No. 25 of the Appendix to the Regulation shallbe as follows(1) "Date"
If the date of notification is the same as the date of registration as aninsurance broker, the date of the application form for registration shall be
indicated. If the date differs from the date of registration, it shall be the date ofsubmission to the Director General of the Finance Bureau, etc. of jurisdiction. If
the notification form is sent by mail, it shall be the day after the date of sending.
(2) "Registration Number"If the notification is made at the same time as the registration as aninsurance broker, it need not be stated.
(3) "Trade name, name or full name"For a corporation, the trade name or name shall be stated in the "Trade
Name or Name" column, and for an individual, the full name shall be stated inthe "Full Name" column.
(4) " Full Name"
The full name of the person who gave rise to the reason for notification shallbe stated.
(5) "Date of birth"
The date of birth of the person whogave rise to the reason for notification
shall be stated.
(6) "Date of occurrence"
If the reason for notification is "new," the date of registration; if the reason for
notification is "addition," the date of notification to the Finance Bureau; if thereason for notification is "abolition" or "change of family name," the date ofoccurrence shall be stated.
(7) "Reason"
The applicable reason shall be marked with a circle.

478

(8) "Remarks(i) In the case of a change of family name, the family name before the change
shall be stated.
(ii) The name of the office to which the officer/employee belongs and the typesof insurance contracts that the officer/employee can handle.

V-1-13 Attachment to the Notification of Officers or Employees
If the reason for notification in the written notification of officers or employees
as prescribed in Form No. 25 of the Appendix to the Regulation falls under the
category of "new" or "addition," a "Document certifying that the Registration
Applicant has a capacity" as prescribed in Article 219(1)(i) of the Regulation shallbe attached.

V-2 Security Deposit
The administration of the security deposit of insurance brokers shall be
conducted in accordance with the following interpretation, operation andprocedures related to the relevant laws and regulations.

V-2-1 Notification of deposit of security deposit, etc.
(1) In case of a notification of deposit pursuant to the provision of Article 221(1)(i)of the Regulation, the insurance broker shall submit to the Director General of
the Finance Bureau, etc. with jurisdiction, a written notification of deposit of
security deposit prepared in accordance with Attachment Form No. 5, together
with the document prescribed in Article 221(2)(i).
(2) In the case of making a notification pertaining to the conclusion of aguarantee consignment contract pursuant to the provision of Article 221(1) (iv)of the Regulation, the insurance broker shall submit a written notification of
conclusion of a guarantee consignment contract prepared in accordance with
Attachment Form No. 6, with the document prescribed in Article 221(2)(iii) of479

the Regulation attached, to the Director General of the Finance Bureau, etc.
with jurisdiction.
(3) The certificate of deposit prescribed in Article 221(4), Article 222(3) of theRegulation, and Article 13(5) of the Regulation on Security Deposits by
Insurance Brokers (hereinafter referred to as the "Security Deposit
Regulation") shall be made in accordance with Attachment Form No. 7.

V-2-2 Recovery of Security Deposit(1) The designation of the period and amount as prescribed in Article 291(11) of
the Act shall be made by taking into consideration the following matterspertaining to the relevant insurance broker.
(i) The status of the offer of the right by public notice as prescribed in Article
12(2) of the Security Deposit Regulation.
(ii) Whether or not there are any debts (including those in dispute, etc.)
incurred in relation to the mediation of the conclusion of an insurance
contract(iii) Status of any remaining insurance contracts that the insurance broker has
mediated.
(2) The designation of the period prescribed in Article 291(11) of the Act shall, in
principle, be made within a period not exceeding five years from the date ofsuch designation, and such designation shall not be made with regard to theapplication for approval of the recovery of the security deposit pursuant to theprovision of Article 291(10) (iii) of the Act. However, this shall not apply in thecase where there is a risk of failure to secure the repayment of debts incurredby the said insurance broker with respect to the mediation of the conclusion of
insurance contracts.
(3) Any person who intends to apply for the recovery of the security deposit
pursuant to the provision of Article 12(1) of the Security Deposit Regulations
shall submit the following documents to the Director General of the Finance
Bureau, etc. having jurisdiction.
(i) A written application for approval prepared in accordance with Attachment
Form No. 3 prescribed in Article 12(1) of the Security Deposit Regulations

480

(ii) A document certifying that all or a part of the said security deposit can berecovered.
(iii) A document describing the situation in (ii) and (iii) of (1).
(4) When intending to make a notification pursuant to the provision of Article 221(1) (iii) of the Regulation, the insurance broker shall submit a written
notification of recov ery of the security deposit prepared in accordance with
attached Form No. 8, together with the document prescribed in paragraph (2)of the said Article, to the Director General of the Finance Bureau, etc. withjurisdiction.

V-2-3 Cancellation or change of contract in lieu of all or part of the security
depositCancellation or modification of a guarantee consignment contract pursuant to
the provisions of Article 42(ii) of the Order shall be handled as follows(1) In the case of canceling or changing the contents of a guarantee
consignment contract, the insurance broker (including a person who
represents the insurance broker in accordance with the provisions of theguarantee consignment contract; the same shall apply in (3) below)shallsubmit a written application for approval of cancellation (change) of aguarantee consignment contract prepared in accordance with Attachment
Form No. 9 to the Director General of the Finance Bureau, etc. with jurisdiction,
attaching a document stating whether or not there are any allowances thatshould be required due to the cancellation of the contract or change of its
contents.
(2) When the Director General of the Finance Bureau, etc. with jurisdiction
approves the cancellation or change of a guarantee consignment contract
pursuant to the provision of Article 42 (ii) of the Order, he/she shall deliver tothe applicant a written approval for cancellation of a guarantee consignment
contract prepared in accordance with Attachment Form No. 10 or a written
approval for change of a guarantee consignment contract prepared inaccordance with Attachment Form No. 11.

481

(3) In the case of cancellation of the guarantee consignment contract or change
thereof with the approval pursuant to the provision of Article 42(ii) of the Order,
the insurance broker shall submit a written notification of cancellation (change)of the guarantee consignment contract prepared in accordance with
Attachment Form No. 12 to the Director General of the Finance Bureau, etc.
with the document prescribed in Article 221(2) (iii) of the Regulation attached.

V-2-4 Change of custody of security deposit, etc.
(1) When notifying a change of the nearest depository pursuant to the provisionsof Article 13(1) of the Security Deposit Regulation, the depositor shall submit awritten notification of change of depository prepared in accordance with
Attachment Form No. 13 to the Director General of the Finance Bureau, etc.
with jurisdiction.
(2) When receiving an authenticated copy of the certificate for the security
depositpursuant to the provision of Article 13(2) of the Security Deposit

Regulation, the depositor shall submit a receipt prepared in accordance with
attached Form No. 14 to the Director General of the Finance Bureau, etc. withjurisdiction with a certificate of deposit related to the said authenticated copy ofthe certificate for the security deposit attached.

V-2-5 Types of securities that can be used as security deposit, etc.
The approval of corporate bonds and other bonds that can be used for security
deposit as prescribed in Article 226(1)(iv) of the Regulation, and the designationof the value of such approved bonds and other bonds as prescribed in Article
226(1)(iv) or Article 132(1) (iv) of the Regulation as applied mutatis mutandis
pursuant to Article 226(3) of the Regulation, shall be as follows(1) Corporate bonds and other bonds that may be approved by the Director
General of Finance Bureau, etc. having jurisdiction pursuant to the provision of
Article 226(1)(iv) of the Regulation shall be, for example, those listed below
a. National Life Bondb. Development Bank of Japan Bond482

c. Road Bondd. Metropolitan Expressway Bonde. Housing and Urban Development Bondf. Hanshin Expressway Bondg. Water Resources Development Bondh. Railway Construction Bondi. Green Resources Bondj. Small and Medium Enterprise Corporation Bondk.

New Tokyo International Airport Bondl. Honshu-Shikoku Bridge Bondm. Public Enterprise Bondn. Hokkaido Tohoku Development Bondo. Small and Medium Enterprise Bondp. Regional Development Bondq. Petroleum Bondr. Employment Promotion Bonds. Airport Area Maintenance Bondt. Housing Loan Corporation Bondu. Power Development Bondv. Kansai International Airport Bondw. Tokyo Transportation Bondx. Broadcasting Bondy. Long-term credit bank bonds issued under the Long-Term Credit Bank Act
z. Bonds of the Deposit Insurance Corporation of Japanaa. Shoko Chukin Bank Bondbb. Norinchukin Bank Bond
cc．Shinkin Bank Bond issued under the Shinkin Bank Act
dd. In addition to those listed above, secured corporate bond certificatesissued under the Secured Corporate Bond Trust Act (Act No. 52 of 1905),
corporate bond certificates for which the right to receive preferential
repayment is guaranteed under laws and regulations, and unsecured
corporate bond certificates issued under the Companies Act that are offeredin Japan (offered under the provisions of the main clause of Article 4(1) of
the Financial Instruments and Exchange Act (Act No. 25 of 1948)) (excluding
corporate bond certificates issued by itself, corporate bond certificatesissued by a company for which the order of commencement of liquidation
under the Commercial Code (Act No. 48 of 1899) before the revision has

483been made and the order of finalization of liquidation has not been made,corporate bond certificates issued by a company for which an order ofcommencement of special liquidation under the Companies Act has been
made and the order of termination of special liquidation has not been
finalized, corporate bond certificates issued by a company for which an orderof commencement of bankruptcy proceedings under the Bankruptcy Act (ActNo. 75 of 2004) has been made and an order of termination of bankruptcy
proceedings or the order of abolition of bankruptcy proceedings has notbeen finalized, corporate bond certificates issued by a company for which
the order of commencement of corporate rehabilitation proceedings under
the Corporate Rehabilitation Act (Act No. 225 of 1999) has been made andthe order of termination of rehabilitation proceedings or the order of abolitionof rehabilitation proceedings has not been finalized or corporate bondcertificates issued by a company for which the order of commencement ofcorporate reorganization proceedings under the Corporate Reorganization
Act (Act No. 154 of 2002) has been made and the order of termination ofreorganization proceedings or the order of abolition of reorganization
proceedings has not been finalized.
(2) In the case where the corporate bond certificates or other bonds mentioned in(1) above are used as security deposit, the value of such bond certificates orother bonds shall be the amount calculated as 80 yen per 100 yen of facevalue.
(3) In the case where an insurance broker intends to deposit corporate bonds orother bonds as security deposit, the insurance broker shall submit a written
application form for approval prepared in accordance with Attachment Form No.
15, together with other documents for reference, to the Director General of the
Finance Bureau, etc. having jurisdiction.
(4) When the Director-General of Local Finance Bureau, etc. having jurisdiction
approves the application as described in (3) above, he/she shall issue to theapplicant a written approval prepared in accordance with Attachment Form No.
16.

V-2-6 Notice of Order for Additional Deposit of Security Deposit484

When the Director-General of the Local Finance Bureau, etc. having
jurisdiction delivers a copy of a payment consignment form to the insurance
broker pertaining to the payment consignment form pursuant to the provision of
Article 225 of the Regulation, he/she shall deliver a written notice prepared inaccordance with Attachment Form No. 17 with a copy of the payment
consignment form attached.

V-3 Insurance Broker’s Liability Insurance Contract
The insurance broker’s liability insurance contract shall be administered asfollows
V-3-1 Insurance Broker’s Liability Insurance Contract in Lieu of a Part of the
Security Deposit
Replacement of a part of the security deposit by the Insurance Broker’s
Liability Insurance Contract prescribed in Article 292(1) of the Act (hereinafterreferred to as "liability insurance contract") shall be treated as follows.
(1) When an insurance broker concludes a liability insurance contract prescribedin Article 292 (1) of the Act and submits a notification pertaining to theconclusion of such contract pursuant to the provision of Article 221 (1) (v) of
the Regulation, the insurance broker shall submit to the Director-General of
the Local Finance Bureau, etc. having jurisdiction a written notification of theconclusion of the liability insurance contract prepared in accordance with
Attachment Form No. 18, with the document prescribed in Article 221 (2) (iii) of
the Regulation attached. However, in the case where an application for
approval of the replacement of a part of the security deposit is filed pursuant to
the provision of Article 227(1) of the Regulation at the same time as the said
notification, the submission of the said written notification shall not be required.
(2) In the case where an insurance broker intends to obtain approval for the
replacement of a part of the security deposit by a liability insurance contract
pursuant to Article 292(1) of the Act, the insurance broker shall submit awritten application for approval prepared in accordance with Attachment Form485

No. 19 to the Director-General of the Local Finance Bureau, etc. having
jurisdiction, attaching a document concerning the replacement of a part of the
security deposit by the said liability insurance contract.
(3) Contents of Ministry of Finance Notice No. 228 of 1998(i) The "case where it is deemed that there is no shortage of protection forpolicyholders, etc." prescribed in Article 2 (2), pillar of the Notice No. 228 of
the Ministry of Finance in 1998 means a case where the period forconcluding a liability insurance contract after the insurance broker hascommenced business does not exceed three years and a prior guarantee
clause is attached for such period.
(ii) "Existence or non-existence of liabilities to policyholders, etc." as prescribedin Article 2(2)(vi) of the Notification No. 228 issued by the Ministry of Financein 1998 shall include the following
a. Obligations to policyholders, etc. due to the unlawful acts of insurance
brokersb. Lawsuits pertaining to the obligations of the insurance brokerage topolicyholders, etc. that are pending in a court of law.
c. The number, content, and resolution of complaints, including all complaints
received by the Commissioner of the FSA and the Director-General of the
Local Finance Bureau with jurisdiction, etc., complaints written in business
reports, and complaints received by organizations that have insurance
brokers as members.
(4) When the Director-General of the Local Finance Bureau with jurisdiction, etc.
approves the substitution of a part of the security deposit by the liability
insurance contract pursuant to Article 292 (1) of the Act, he/she shall deliver tothe applicant a written approval prepared in accordance with attached Form
No. 20.
(5) The amount of the security deposit that may not be deposited by the
insurance broker pursuant to the provision of Article 292(1) of the Act shall belimited to the amount specified in the relevant liability insurance contract as the
maximum amount of compensation for losses due to certain events arisingfrom the same act, in addition to the amount specified in Article 44 (2) of theOrder for Enforcement.

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V-3-2 Cancellation or modification of Liability Insurance Contract
The cancellation or modification of a liability insurance contract pursuant to theprovision of Article 44, paragraph 1, item 4 of the Regulation shall be handled asfollows.
(1) When a person intends to cancel or modify a liability insurance contract, theinsurance broker shall submit a written application for approval prepared inaccordance with attached Form No. 21 to the Director-General of the Local
Finance Bureau with jurisdiction, etc., attaching a document stating whether or
not there are any allowances that should be required due to the cancellation or
modification of the contract.
(2) The Director-General of the Local Finance Bureau with jurisdiction, etc., upon
approving the cancellation or modification of the liability insurance contract,shall deliver to the applicant a written approval of the cancellation of theliability insurance contract prepared in accordance with attached Form No.
22 or a written approval of the modification of the liability insurance contract
prepared in accordance with attached Form No. 23.
(3) When a liability insurance contract is cancelled or its contents are modified
with the approval of the Director-General of the Local Finance Bureau withjurisdiction, etc., the insurance broker shall submit a notification form preparedin accordance with attached Form No. 24 to the Director-General of the Local
Finance Bureau with jurisdiction, etc., attaching the document prescribed in
Article 221 (2) (iii) of the Regulation.

V-4 Relationship with other solicitors, etc.
In light of the prohibition of concurrent operation, etc. of insurance brokers andinsurance solicitors (meaning "insurance solicitors" as prescribed in Article 2(23),Article 2(25), Article 275(1) (iv), Article 279(1) (vii), (x), and (xi), and Article 289(1)(vii) through (ix) of the Act) and the obligation of good faith of insurance brokers(Article 299 of the Act), and in order to ensure appropriate business operation of
insurance brokers, special attention shall be paid to the following matters.

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V-4-1 Relationship with other insurance brokers(1) Entrustment of insurance solicitation(i) Whether the insurance broker or its officers or employees who conduct theinsurance solicitation has not entrusted the insurance solicitation to an
insurance company or a small amount and short term insurance company(hereinafter referred to as "insurance company, etc." in V-4 and V-5), or its
officers who represent it, an insurance solicitor or other insurance broker, or
whether the insurance company, etc. has not paid commissions, remunerationor other consideration for mediation of conclusion of insurance contracts(hereinafter referred to as "commissions, etc.") to them.
(ii) Whether the insurance solicitor has not entrusted insurance solicitation to
insurance brokers or their officers or employees who conduct insurance
solicitation or whether the insurance solicitor has not paid commissions, etc.
for insurance solicitation.
(iii) Whether the insurance company, etc. or its officers who represents it has not
entrusted insurance solicitation to the insurance broker, or its officers or
employees who conduct the insurance solicitation.
(2) Joint acts(i) Whether the insurance broker, or its officer or employee who conducts
insurance solicitation, has not jointly handled the same contract with theinsurance company, etc. or the insurance solicitor.
(ii) Whether the insurance broker, or its officer or employee who conducts
insurance solicitation, in principle, has not allowed an insurance company,
etc. or an insurance solicitor to take over or act as an agent for any part ofthe insurance solicitation operations.
(3) Shared use of stores
Whether the office where the insurance broker conducts its insurance
solicitation is not located in the same building as the office where the insurance
solicitation is conducted by the insurance solicitors or other insurance brokers?
However, if sufficient measures are taken to prevent confusion amongcustomers, such as separate exclusive use areas and common use areas fromthe entrance to each office, it shall be deemed that there is basically no
problem.

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(4) Provision of information
Whether the insurance broker or its officers or employees has not provided
undisclosed information obtained by them from their clients to insurance
solicitors or other insurance brokers. In addition, whether the insurance broker
or its officers or employees has not been provided with any undisclosed
information obtained by the insurance solicitor or other insurance brokers fromtheir clients. However, if the client has given prior individual consent to theprovision of such information, it shall be deemed that there is basically no
problem.

V-4-2 Relationships with related solicitors
In the case where there is an insurance solicitor who has a certain capital
relationship with the insurance broker (i.e., an insurance solicitor who effectively
holds or held 25% or more of the voting rights of the insurance broker) whether
the system has been designed to prevent access to the information of the otherfrom the terminals of both the insurance broker and the related solicitor withrespect to computer sharing?

V-4-3 Relationship with insurance companies, etc.
Because insurance brokers are required to act as an intermediary for theconclusion of insurance contracts in an independent position from insurancecompanies, etc. according to Article 2(25) and Article 299 of the Act, special
attention should be paid to the following points regarding the relationship withinsurance companies, etc.
(1) Shared use of stores
Whether the office for soliciting insurance is not located in the same building
as the office of the insurance company, etc.? However, if sufficient measures
are taken to prevent confusion among customers, such as separate exclusive
use areas and common use areas from the entrance to each office, it shall bedeemed that there is basically no problem.
(2) Investment
Whether, in principle, insurance brokers whose main business is insurance489

solicitation

have not received investments from insurance companies, etc.

(3) Benefit provision
Whether the insurance broker has not received a loan from an insurancecompany, etc. on terms that are significantly different from normal terms, or
has not requested or received benefits such as the provision of money, goods,
or services, regardless of the name under which such benefits are provided.
(4) Personnel exchange
Whether the insurance broker has not accepted seconded officers or
employees from insurance companies, etc. as its officers or employees
engaged in solicitation? In addition, whether the insurance company, etc. has
not seconded its officers or employees to the insurance broker as officers or
employees engaged in solicitation.

V-4-4 Relationship with customers(1) Commission, etc. for the mediation of the conclusion of insurance contracts
Whether the insurance broker has billed the insurance company, etc. for allcommissions, etc. related to the mediation of the conclusion of insurance
contracts, instead of billing the customer?
(2) Commissions, etc., other than for the mediation of the conclusion of
insurance contracts
Insurance brokers may receive remuneration for services rendered forclients other than the mediation of insurance contracts if the client agrees inadvance to the payment of such remuneration. In this case, whether the
insurance broker has disclosed the details of such remuneration to the client inwriting or by other appropriate means prior to the provision of such services.

V-5 Business relationship
The supervision of the business of insurance brokers shall be conducted inaccordance with the following interpretations, practices and procedures related to
the relevant laws and regulations490

V-5-1 Disclosure of commission, etc. of insurance brokers(1) The major insurers which has a business relationship with the insurance
broker in relation to the mediation of insurance contracts, as prescribed in
Article 231(i) of the Regulation, are the top four insurers in terms of the amountof commissions, etc. received among the insurers with which the insurance
broker has mediated the conclusion of insurance contracts in the most recent
multiple fiscal years.
(2) With respect to the information listed in Article 231(i) of the Regulation,
insurance brokers shall disclose the information by insurance company, etc. foreach business year.

V-5-2 Conclusion statement
The model of the conclusion statement prescribed in Article 298 of the Act
shall be as prescribed in attached Form No. 25.

V-5-3 Obligation of Good Faith
As part of the obligation of good faith of an insurance broker as prescribed in
Article 299 of the Act, an insurance broker shall comply with the following items(1) The insurance broker shall act in good faith in accordance with the purpose of
the commission from the client.
(2) In carrying out their duties and selecting insurance companies, insurance
brokers shall take into consideration the situation of the client's assets, andshall advise the client on the most appropriate insurance products that they
are aware of, with clear reasons.
(3) Insurance brokers shall not change the quality of their services based on theamount of commission, etc. they receive from their duties. They shall not491

unfairly discriminate between clients with similar risk requirements.
(4) Insurance brokers shall objectively and sincerely convey to their clients theinsurance information they have obtained from insurance companies, etc. fortheir clients. In particular, when the client is an individual, the brokers shall
explain important matters and reasons for recommendations in writing, etc., soas to make the information as easy to understand as possible for the client andavoid any misunderstanding.
Insurance brokers shall objectively and sincerely convey to insurance companies,
etc. the requests and information on insurance obtained from clients.
(5) Undisclosed information obtained by an insurance broker from a client shallnot be used or disclosed except in the ordinary course of negotiating,
maintaining or renewing an insurance contract or processing the client's
insurance claim. However, this shall not apply if the consent of the client forsuch use or disclosure is obtained.
(6) Information obtained by an insurance broker from an insurance company, etc.
on behalf of a client shall not be used or disclosed to any third party other thansuch client. However, this shall not apply if the consent of the insurancecompany, etc. for such use or disclosure is obtained.

V-5-4 Proprietary Contracts
The handling of proprietary contracts by insurance brokers shall be the sameas the handling by non-life insurance agents (II-4-2-2 (2) (i)) (replace "non-life
insurance agent" with "insurance broker" in the same paragraph and apply
mutatis mutandis).

V-5-5 Specified contracts
The handling of specified contracts by insurance brokers shall be the same as
the handling by non-life insurance agents (II-4-2-2(2)(ii)) (replace "non-life
insurance agent" with "insurance broker" in the same paragraph and apply
mutatis mutandis) and the insurance broker shall properly manage and strictly492

enforce the insurance solicitation of specified contracts.

V-5-6 Points to keep in mind when soliciting insurance contracts
Insurance brokers shall, depending on the nature of their business, takeappropriate measures for the conclusion of insurance contracts and insurance
solicitation in accordance with the handling of insurance solicitors (II-4-2), and in
the case of small-amount and short-term insurance contracts, in accordance withthe handling of small-amount and short-term insurance solicitors (Supervisory
Guidelines for Small Amount and Short Term Insurance Companies II-3-3-2).

V-5-7 Obligation of insurance brokers to maintain a system
With respect to the business related to insurance solicitation, whether
insurance brokers have taken measures to ensure the sound and appropriate
operation of their business, referring to II-4-2-9.

V-5-8 Response to complaints, etc. (including response to the financial ADR
system)The handling of complaints, etc. by insurance brokers (including responses tothe financial ADR system) should be done in accordance with the handling byinsurance companies (II-4-3).

V-5-9 Accounting books
Accounting books describing the matters prescribed in Article 237-2(2)(vi) of
the Regulation shall be as follows(1) Questionnaires and answer sheets when used to investigate the purpose of
the customer, the status of its property, etc.
(2) Written intermediary agreements in cases where such agreements have been493

exchanged with customers(3) Copies of important documents delivered or presented in the course ofsoliciting insurance.

V-6 Business Report
The guidelines for description of the business report prescribed in Article 304 of
the Act shall be as follows. In the case of a foreign corporation, the business reportshall be prepared for the operations in Japan.
(1) Form No. 26 attached to the regulations(i) Page 1
a. In the "1. Date of commencement of business" column, the date of
notification to the Commissioner of the FSA as prescribed in Article 291(5) of
the Act shall be entered.
b. In the "3. Summary of Resolutions of General Meeting of Shareholders, etc."
column, the date of the General Meeting of Shareholders, etc. for the
relevant fiscal year and the summary of the resolutions shall be etered.
c. In the "4. Status of Officers and Employees" column, the status at the end of
the fiscal year shall be entered.
d. In the "5. Office Status" column, the status at the end of the fiscal year of theoffice related to insurance solicitation shall be entered.
(ii) Page 2 to 3
a. In the "6. Status of Insurance Solicitation Business" column, the total numberof insurance contracts brokered or concluded during the fiscal year shall beentered. In the case of foreign currencies, the figures should be converted
into Japanese yen using the foreign exchange rate at the end of the fiscal
year.
b. In the "7. Breakdown of Insurance Contracts Handled" column, the total
number of insurance contracts brokered or concluded during the fiscal year
shall be entered. In the case of foreign currencies, the figures should be
converted into Japanese yen using the foreign exchange rate at the end of
the fiscal year.
(iii) Page 4
In the "11. Others" column, the following items should be entered.

494

a. That the company pledges that it has not experienced any of the events
listed in each item of Article 307(1) of the Act during the fiscal year.
b. If it is necessary to increase the security deposit for the following year, thatfact.
c. If there is a specific contract as specified in V-5-5, the ratio of the specificcontract (including the basis for calculation).
d. The trade name or name of the designated ADR organization that will be thecounterparty to the basic agreement for implementation of the procedure (ifthere is no designated ADR organization, the details of the complainthandling and dispute resolution measures).
(iv) Page 5 to 7
a. In the "II Status of Accounting," column, the details approved at the general
meeting of shareholders, etc. for the relevant fiscal year shall be stated.
b. If there is a foreign currency portion, the foreign exchange rate at the time of
conversion into Japanese currency shall be stated outside the column.
(2) Form No. 27 attached to the Regulations to be handled in accordance with (1)above.
(3) The business report shall be submitted to the Director-General of the Local
Finance Bureau, etc. with jurisdiction.

V-7 Response to written notification form regarding insurance brokers
The Local Finance Bureaus which received the written notification form
regarding insurance brokers shall send its copy to the Insurance Division without
delay.
(1) Written application form for registration prescribed in Article 287 (1) of the Act(2) Written notification form prescribed in Article 220 of the Regulation(3) Breakdown of deposit, etc. prescribed in Article 221 (2) of the Regulation(4) Business report as prescribed in Article 304 of the Act

495

VI Relationship with the Institute of Actuaries of Japan
VI-1 Basic Approach to Supervision(1) SignificanceThe Institute of Actuaries of Japan (IAJ) is a professional association of
actuaries, a general incorporated association different from insurance companies,
which are private enterprises, and a designated corporation pursuant to theprovisions of Article 122-2,(1) of the Act. In the insurance market, which isundergoing a major transformation, with each insurance company making its own
management decisions on product design and strategic business development,
actuaries are responsible for assessing policy reserve accumulation to ensure
the soundness of management of insurance companies, ensuring fairness andequity in dividends, etc., providing diverse and high-quality products that meetthe needs of users, and preparing and analyzing various statistical data. The
advanced expertise and skills of actuaries are utilized in various fields, such as
the preparation and analysis of various statistical data, and it is essential that
actuaries continue to fulfill their functions in the future. From this perspective, wewill clarify the supervisory guidelines to ensure that the Society, as a professional
association of these personnel and a designated legal entity, properly manages
its business as stipulated in the law.
(2) Ensuring sufficient communication with the IAJ
In supervising the IAJ, it is important to accurately grasp and analyze
information regarding the business of the IAJ, and to take timely and appropriate
supervisory actions as necessary. Therefore, in addition to the reports from theIAJ, supervisory departments need to maintain sufficient communication with the
IAJ on a daily basis and proactively collect information under a sound andconstructive tension. Specifically, it is necessary to ensure daily communication
with the IAJ through regular meetings and exchange of opinions with the IAJ,
and to endeavor to understand various information related to the business.
(3) Respect for the voluntary efforts of the IAJ
The supervisory authority is in a position to verify the business operations
conducted by the IAJ based on its autonomous decision-making, in accordancewith laws and regulations, and to encourage the improvement of problems. In
supervising the IAJ, consideration must be given to respecting the IAJ's

496

autonomous efforts in its business operations, fully taking into account thisposition.

VI-2 Appropriate operation of the the Institute(1) In supervision, in addition to what is provided for in laws and regulations andthe Administrative Rules for the Supervision of Specially Designated Private Law
Corporations, and what is provided for in the Cabinet Decision and the Executive
Committee Meeting of the Relevant Ministerial Council on the Guidance andSupervision of Public Interest Corporations, etc. (Administrative Guidelines)(2) Securing of secretariat, etc.
In order to handle the administrative work of the IAJ, whether a secretariat isestablished in consideration of the size and content of the business, etc., and thenecessary staff (full-time staff in addition to one secretary general, as far as
possible) is assigned. In addition, whether the organization has secured thenecessary office and other facilities, goods, etc. to carry out these administrative
tasks.
(3) Institution(i) Whether personnel who can independently exercise authority are appointed
as auditors. In addition, whether the auditors are conducting the audit inconsideration of the fact that the purpose of the audit is not only to uncoverillegalities and irregularities but also to broaden the scope to include the public
interest relevance of the operations.
(ii) Whether personnel who can independently perform their duties are appointed
as councilors. In addition, from the perspective of ensuring fairness andappropriate business operations, whether the trustees actively participate inchecks to prevent self-righteous management of the IAJ.
(4) Whether measures are taken to ensure that the business and activities of the
IAJ are conducted as a professional organization in which members are
independent of their organizations and clients and act only as professionals.
(5) Disclosure of information(i) Whether the items of information are disclosed by the IAJ on its Internet

497

website, pamphlets, etc. presented in an appropriate and easy-to-understandmanner from the viewpoint of users. In addition, whether the disclosure items
are updated to the latest version.
(ii) When disclosure is conducted via the Internet, Whether the IAJ's information
are posted on the website promptly and proactively, and the website isoperated efficiently and smoothly, for example, by establishing guidelines forwebsite operation. Whether the IAJ have a website.
(iii) It should be noted that there is nothing wrong with voluntary and proactive
disclosure of information other than the mandatory disclosure items stipulated
in the standards for licensing the establishment and guidance and supervisionof public interest corporations.

VI-3 Commissioned work
(1) Coefficients to be used as the basis for the calculation of the policy reserve
pursuant to the provision of Article 116(2) of the Act and the matters listed ineach item of Article 121(1) of the Act to be confirmed by the Responsible
Actuaries in each fiscal period, which are formulated by the IAJ in accordancewith the entrustment pursuant to the provision of Article 122-2(2)(iii)of the Act(hereinafter referred to as "Coefficients and Standards"). C shall be treated asfollows(2) Publication of coefficients and standards
Whether the coefficients and criteria are continuously posted on the website sothat the public can easily access them. In addition, whether materials related tothe coefficients and standards are kept up-to-date at the main office andavailable for public access in principle?.
(3) Rules on procedures for formulating coefficients and standards(i) Whether the procedures for formulating coefficients and standards are clearly
defined. In particular, from the perspective of ensuring transparency, whether
attention are given to, for example, procedures for soliciting opinions frommembers, publication of the progress of studies and reference materials, andimplementation of revisions, abolition, and other reviews of coefficients andcriteria. In addition, whether the opinions of academic experts, certified public
accountants, and other specialists are taken into account as necessary.

498

(ii) Whether the coefficients and criteria have been approved by the board of
directors.
(4) Review mechanism of coefficients and standards
Whether the coefficients and standards are reviewed in response to changes
in the insurance business environment and other circumstances. In addition,
whether the coefficients are checked annually for appropriateness of their levels,and are the results made public.
(Note) For the procedures to revise or abolish the coefficients and standards,
please refer to the above provisions on formulation procedures.

VI-4 Surveys and research, preparation of statistics, collection of materials, andprovision of information(1) Implementation of surveys and research, etc.
In order to promote the progress of actuarial science and dissemination ofadvanced actuarial science, whether the organization conducts in-depth
research and study, including analysis of the results of advanced research
conducted by actuarial societies and related organizations in other countries.
(2) Promotion of research and study activities
Whether the organization takes measures to promote active participation of its
members in research and study activities.

VI-5 Improvement of Qualification examination and qualifications of actuaries(1) High standard code of conduct and measures to ensure its effectiveness(i) Whether the company has established a code of conduct not only for
Responsible Actuaries in performing their legally required duties, but also for
actuaries in performing their professional duties, so that they can always fully
demonstrate their functions as professional experts, fulfill their responsibilities,
and enhance public trust. Whether the code of conduct is more than just acode of ethics, and does it provide specific guidelines and standards ofconduct, together with supplementary guidance and case studies.
(ii) In order to ensure the effectiveness of the code of conduct, whether

499

measures are taken such as the implementation of extensive training and thedevelopment of disciplinary rules, including effective, strict and fair procedural
rules.
(2) Actuarial qualification examination system(i) Whether actuarial qualification examinations appropriately measure theexistence of specialized knowledge required for actuarial practice, such asprobability and statistics, life and non-life insurance actuarial science, andpension actuarial science. In addition, whether the contents of the examinationand textbooks are reviewed in a timely and appropriate manner in response toadvances in actuarial science.
(ii) Whether the actuarial qualification examinations is administered in a fair andappropriate manner.
(iii) In response to changes in the environment, such as the need to provide
advanced insurance functions in response to diversifying user needs, etc., andthe fact that actuaries' work is becoming increasingly complex and wideranging in its scope of activities, whether the necessary reviews are conductedin a timely and appropriate manner to further enhance the qualification
examination system.
(3) Continuous maintenance and improvement of members' qualifications(i) In order to maintain and improve the ability of actuaries to carry out theirprofessional duties in accordance with the policies established by the board of
directors, etc., whether the training system are in place, including therequirement of minimum training to qualify for full membership.
(ii) Whether the organization take measures, such as requiring certain training, toensure that members maintain and improve their professional knowledge andskills. In addition, whether the organization reviews the contents of educationand training in a timely and appropriate manner in response to advances in
actuarial science.

500

VII. Group-wide Supervision, etc.
VII-1 Basic Concept for Supervision
Forming an insurance group while expanding foreign business operations could
help to improve management efficiency and enhance the quality of services
through risk diversification and mitigation and business synergy within the group,for example. On the other hand, attention should also be paid to the need for agovernance suited to deal with the possible materialization of new risks associatedwith forming a group, including risk transmission and concentration within thegroup, and the increased complexity of the business and organizational structures.
In light of these points, insurance groups: regardless of whether or not they are
IAIGs in Japan, should enhance not only individual entities' respective control
environments for governance and risk management but also group-wide control
environments for governance and risk management.
There is no universal way of enhancing group-wide control environments forgovernance and risk management. Rather, there are various possible ways, fromdeveloping centralized control environments under a management company todeveloping decentralized control environments that respect group companies'
autonomous management suited to the institutional systems and market
environments in the jurisdictions where they are located and their respective
business activities. Rather than judging the relative merits of the various
governance models, it is important to ensure that effective control environments
are developed considering how to respond to risks associated with theestablishment of an insurance group and the complexity of the business andorganizational structures.
VII-2Group-wide GovernanceVII-2-1

SignificanceIn order to ensure the soundness and appropriateness of an entire insurancegroup, it is first and foremost important that the management team of each groupcompany fully understands its role, and develops and appropriately operates
control environments for effective and responsible governance, including
enforcement of management discipline.
Moreover, the management company should play a responsible role indeveloping and implementing an appropriate group-wide control environment for501

governance. To that end, the representative director, directors/the board of
directors, the representative executive officer, executive officers, auditors (audit
committee members in the case of a company with a nominating committee, etc.
and audit and supervisory committee members in the case of a company withaudit and supervisory committees), the board of auditors (the audit committee inthe case of a company with a nominating committee, etc. and the audit andsupervisory committees in the case of a company with audit and supervisorycommittees), managers and the internal audit division have significant
responsibilities to perform.
In case where internal control operations are implemented by the same
directors and/or employees within a group, it is necessary that the control
environment for such concurrent engagement in multiple positions be functioning
in a sound and appropriate manner.
In light of the above points, when monitoring the governance of an insurancegroup, the supervisory authority should check whether the governance function
is appropriately exercised based on the following viewpoints, for example, in
addition to the viewpoints listed in II-1-2.
VII-2-2

Major Supervisory Viewpoints(1) Governance of the management company(i) Whether the representative director, directors, the representative executive
officer, executive officers, auditors and managers have the knowledge andexperience necessary for performing their respective roles in light of thescale, complexity, internationality and the risks held by the insurance group.
(ii) Whether directors and the board of directors, etc. of the managementcompany have specified in documentation the group structure and themutual relationship between group companies in order to help understandthe group structure and identify risks and enhance risk management, andwhether they have also clarified the line of command and the control
environment for reporting between group companies and the managementcompany.
(iii) Whether directors and the board of directors, etc. of the managementcompanyhave

developed

anappropriate

controlenvironment

forgovernance to enable more effective supervision of the business
management of the entire insurance group based on full understanding of
the group-wide structure and the businesses and risks of group companies.

502

(iv) Whether the board of directors, etc. of the management company pays
attention to the following points when setting group-wide goals and abusiness strategy for achieving the goals or when they supervise
implementation.
A. Risks attributable to laws, regulations, and the conduct of business in thejurisdictions where foreign subsidiaries, etc. conduct business in the caseof insurance groups promoting the foreign business operations.
B. The medium- to long-term financial soundness of the group
C. The relationship between the interests of policy holders and the interestsof other interested persons
D. Fair treatment of customers
E. Profits and goals of group companies(v) Whether the board of directors, etc. of the management company hasprescribed the processes for identifying, avoiding and managing potential
conflicts of interest between group companies and between businessdivisions and departments.
(2) Audit functions of the management company (Note)
Whether the following functions appropriately exercise wide-ranging
authorities granted to them and implement audit and supervision of business
operations, considering the viewpoint of group governance as well.

・Auditors at a company with auditors
・The board of auditors at a company with the board of auditors
・The audit committee at a company with a nominating committee, etc.
・ The audit and supervisory committees at a company with audit andsupervisory committees(Note) "Functions" refers to entities to which authorities to conduct specificactivities have been granted. The functions may take the form of either
individual persons or divisions, and authorities allocated across multiple
divisions as a whole may form a function.
(3) Group-wide internal audit functions
The supervisory authority should verify the group-wide control environment
for internal audit at insurance groups based on the following viewpoints.
(i) Whether the board of directors of the management company has developeda policy for group-wide internal audit, and whether the internal audit divisionof the management company evaluates the control environment for internal503

audit within the group based on the policy.
(ii) Whether the internal audit division of the management company reports to
the representative director and the board of directors, etc. without delay on
important matters pointed out in the internal audit process. Regarding
matters pointed out in the internal audit process, whether there is a control
environment to appropriately identify the status of improvement at audited
divisions.
(iii) Whether the internal auditor division of the management company
evaluates group-wide policies, processes and governance. Whether theinternal audit division has the independence to fully exercise the checks andcontrol function over audited divisions and has a control environment toenable implementation of effective internal audits.
(iv) Whether the internal audit division of the management company has
formulated efficient and effective internal audit plans considering thefrequency and depth of audit in accordance with the types and levels of risksof audited divisions within the group and implements internal audits basedon the plans.
(v) Whether the internal audit division of the management company cooperates
with other internal audit divisions within the group.
(4) Group-wide actuarial functions
In order to secure and maintain the financial soundness of an entire
insurance group, it is necessary that the control environment secure
appropriateness regarding actuarial matters in an effective manner at groupcompanies. Therefore, it is important for the management company to possess
the function of supervising group companies and to secure appropriatenessregarding actuarial matters on a group-wide basis (group-wide actuarial
function). In light of the above, the supervisory authority should conduct checks
on the group-wide actuarial function based on the following viewpoints:(i) Whether the management company has formulated a group-wide policy
regarding actuarial matters. Whether the actuarial function conducts
evaluation regarding methodology on a group-wide basis and at individual
group companies in light of the policy in cooperation with divisions in charge
within the group.
(ii) Whether the actuarial function reports to the board of directors, etc. of the
management company on matters related to group-wide actuarial mattersand potential risks related thereto at least once a year and gives advice504

based on an independent standpoint.
(iii) In cases where problems concerning actuarial matters has beenrecognized at group companies or on a group-wide basis, whether theactuarial function appropriately points it out. Whether the actuarial function is
fully involved in considering and implementing measures to correct the
problem.
(iv) Whether the actuarial function is appropriately involved in the evaluation of
the fulfillment of the regulatory capital requirements applicable to the entire
group and group companies, the evaluation of group-wide economic capital,and stress testing.

VII-3

Group-wide Enterprise Risk Management

VII-3-1

SignificanceInsurance groups may hold more diverse inherent risks than individual
insurance companies. Even if individual group companies conduct appropriate
risk management, risks may be concentrated in particular assets or sectors whenlooked at on a group-wide basis. On the other hand, as a result of risk
diversification within the group, group-wide risks may be mitigated. Therefore, itis necessary to manage all important risks at the group level in terms of bothbusiness strategy and day-to-day business operations, and it becomes evenmore important to secure group-wide financial soundness and conduct groupwide risk management.

VII-3-2

Major Supervisory Viewpoints(1) Whether attention is paid to the possibility that the effects of risks on groupcompanies may change depending on the mutual relationship between thosecompanies. For example, whether consideration is given to such matters as
risk transfer, intra-group transactions, risk concentration, entry into new
businesses and exit from existing businesses, guarantee and risk transfer,liquidity,

andexposures

tooff-balance

sheettransactions.

consideration is also given to double- and multiple-gearing of capital.

505

Whether(2) When using a risk measurement model, whether the insurance group is fully
aware that the model can serve as a tool to support and check decisionmaking concerning important group-wide strategic and business matters andhas developed a control environment to accurately measure the quantity ofgroup-wide enterprise risk, for example by using a common internal model
within the group. In the case of an insurance group with foreign offices or aforeign insurance group (Note), whether the group has developed an
appropriate control environment to quantify risks, for example by adjusting thegroup's common internal model as necessary in accordance with thecharacteristics of the regions where the group conducts business.
(Note) An insurance group with foreign offices refers to an insurance groupwhich has foreign branches or subsidiaries. A foreign insurance group refers
to a group of companies similar to an insurance group whose headquarters
or main office is located abroad and which has an insurance company(companies) as a subsidiary (subsidiaries) in Japan, or a foreign insurancecompany.
(3) Whether the group-wide framework for enterprise risk management is asconsistent as possible throughout the group. In cases where there areimportant differences based on the viewpoint of enterprise risk management
according to the laws and regulations in the jurisdictions where groupcompanies conduct business, whether there is clear awareness concerning
the differences.
(4) In cases where there are group-wide risks that arise because an insurancegroup or an insurance company constitutes part of a larger group, whether
those risks are considered.
(5) Whether the management company appropriately conducts enterprise risk
management, including the identification ofrisks, risk profiling, risk

measurement, implementation of the risk management policy, and own risk
and solvency assessment on a group-wide basis in accordance with the
management strategy and the risk profiles.
(6) Whether the management company reviews and revises the group-wide
control environment for risk management periodically (at least once a year) or
as necessary when strategic goals are revised or on other occasions.

506

Whether the management company periodically conducts internal evaluation
or external independent evaluation of the group-wide control environment forenterprise risk management.
(7) Whether the management company has established and maintained
processes for conveying and communicating quantitative or qualitative risk
appetites within the group and as necessary, externally.
(8) Whether the management company strives to foster a group-wide risk culture
through measures such as developing and communicating group-wide
management principles, implementing various training programs, developing
an appropriate remuneration system, identifying emerging risks (risks which
are at present not recognized or very unlikely to materialize or whose effects
are negligible at present but which may become important due to changes inthe environment), and developing a control environment for sharing awarenessconcerning such risks.
(9) Intra-group transactions help to minimize cost and maximize profit, enhancerisk management, and manage equity capital and fund procurement in an
effective manner by generating synergy effects between group companies. On
the other hand, as intra-group transactions involve risk transfer or transmission
within groups, they may have material effects on the financial soundness. In
addition, if intra-group transactions are not appropriately handled inaccordance with laws and regulations, the fairness of transactions may be
distorted or the appropriateness of business operations may be underminedwithin the group.
Therefore, it is important for management companies and group companies
to develop an appropriate control environment regarding compliance with laws
and regulations and risk management with respect to the following types of
intra-group transactions:・Dividend payments/receipts between group companies
・ Capital transactions (including the issuance of letters of credit) between
group companies
・ Liquidity enhancement transactions, including loans and borrowings
between group companies
・Investment transactions between group companies
・Reinsurance between group companies

507

・Transactions for the provision of services between group companies
・Transactions conducted jointly by multiple group companies
・Outsourcing transactions between group companies

VII-3-3

Group-wide Control Environment for ReportingVII-3-3-1

SignificanceAlthough group companies are independent legal entities, there is thepossibility that risks that have been materialized at a certain group company
are transmitted to other group companies, causing group-wide damage. In
consideration of this possibility, the management company needs to fully grasp
and understand group-wide risk management and solvency positions. In order
to appropriately monitor and manage risks and solvency positions, themanagement company is required to report to the board of directors, etc.
concerning the most recent status of risk management on a quarterly basis, forexample, in addition to periodically conducting own risk and solvency
assessment on a group-wide basis.

VII-3-3-2

Scope of the Group Subject to the Reporting Requirement(1) Regarding the scope of the group subject to the reporting requirement, not
all legal entities within a group should necessarily be subject to therequirement. However, in consideration of the possibility that risks involvedin transactions conducted by any of the following: the insurance holding
company (including an intermediate holding company), sister companies,
subsidiaries, and affiliates, may be transmitted to insurance companies,
whether the management company has defined the scope of the group inlight of substantial relationship (e.g., capital participation, influence,
contractual binding power, mutual relationship, risk exposures, risk
concentration, risk transfer and intra-group transactions) between groupcompanies, including non-insurance business entities.
It should be kept in mind that the "group" as referred to here may bedifferent from a group defined for other purposes, such as accounting or
taxation.

508

(2) Whether the management company checks the appropriateness of thescope of the group as necessary in light of such factors as restructuring,entry into new businesses, exit from existing businesses, and changes in themarket environment, among other factors.

Vii-3-3-3 Reporting System and Roles(1) Whether the management company has defined the roles of the division in
charge of group-wide enterprise risk management, the chief of the division,and the officer in charge in accordance with the business and risk profiles,
and the scale and complexity of businesses and then specified the divisionof roles among group companies and relevant divisions. Whether thedivision in charge of enterprise risk management secures the checks andcontrol function over group companies and relevant divisions.
(2) Whether the board of directors, etc. of the management company refers tocollected information for the execution of business operations and thedevelopment of management systems. For example, whether it makes
necessary decisions based on reports on the status of adequacy ofnecessary economic capital and the status of capital adequacy based on thesolvency margin regulation on a group basis.

VII-3-4

Comprehensive Management of Group-wide Assets and Liabilities

It is important for management companies to formulate a policy forcomprehensive management of group-wide assets and liabilities, exercise aneffective governance function, and appropriately develop a control environment
for comprehensive management of assets and liabilities of the group and groupcompanies that is consistent with the above policy.

VII-3-5

Group-wide Control Environment for Managing Underwriting Risk

VII-3-5-1

Significance509

It is important for insurance groups with foreign offices to conduct groupmanagement in ways that give due consideration to differences in insurancerelated laws, regulations and practices between countries. On the other hand,
it is important for management companies to appropriately develop a groupwide control environment for managing underwriting risk with respect to suchmatters as underwriting, setting of premium rates, booking of reserves, andreinsurance processes from the viewpoint of exercising practical and effective
governance over group companies. It is also important for group companies toappropriately develop a control environment for managing underwriting riskthat is consistent with the group-wide control environment for managing
underwriting risk.

VII-3-5-2

Major Supervisory Viewpoints(1) Whether the management company has developed a group-wide policy for
managing underwriting risk from the viewpoint of exercising practical andeffective governance over group companies, and whether group companies
have developed and apply regulations regarding underwriting that is
consistent with the above policy.
(2) Whether the management company has appropriately developed a control
environment to monitor the development of a control environment for
managing underwriting risk on a group basis and within group companies.
(3) Although laws, regulations, and practices related to actuarial matters differ
from country to country, there is the risk that an insurance group could
misrecognize the current financial position and make incorrect decisions
based on the misrecognition unless group-wide financial information can be
grasped based on actuarial standards consistent between group companies.
Therefore, the supervisory authority should check whether the managementcompany has developed a group-wide policy concerning actuarial mattersand standards concerning actuarial practices, including the following items,
for example.

・Assumptions of calculation of insurance liabilities
・Calculation method of insurance liabilities

510

・The contents of data used for the calculation of insurance liabilities
・The calculation method of insurance liabilities that gives consideration toreinsurance
・Process of checking the validity of the above items and of the models used
for the calculation of the above items
・ Model risk management concerning actuarial models used for theforecasting of future cash flows necessary for financial solvency evaluation
・ A control environment to conduct monitoring as to whether the above
policy and the standards concerning actuarial practices are appropriately
observed on a group-wide basis(4)Regarding the analysis of the current and future financial positions based ongroup-wide actuarial standards, whether information on such matters as themost recent results, underwriting, and reinsurance strategy is appropriately
reported to the board of directors, etc. of the management company in order
to appropriately identify and analyze the group-wide financial position andsecure financial soundness. Whether the validity of the evaluation of
insurance liabilities and reinsurance recoverable assets, which are importantfactors of the above analysis, is checked and whether the results arereported to the board of directors, etc. of the management company at thesame time.

VII-3-6

Group-wide Reinsurance Risk Management

VII-3-6-1

Significance

While reinsurance contributes to the optimization of group-wide underwriting
risk, reinsurance transactions and risk management are complex in manycases. It is important for management companies to give sufficientconsideration to these characteristics of reinsurance and appropriately develop
a group-wide control environment for managing reinsurance risk from theviewpoint of exercising practical and effective governance over groupcompanies. It is also important for group companies to appropriately develop acontrol environment for managing reinsurance risk that is consistent with thegroup-wide control environment for managing reinsurance risk.

511

VII-3-6-2

Major Supervisory Viewpoints(1) Whether the management company has developed a group-wide policy forreinsurance from the viewpoint of exercising practical and effective
governance over group companies and whether group companies havedeveloped and apply regulations concerning reinsurance that are consistent
with the above policy.
(2) When developing a group-wide control environment for managing
reinsurance risk, whether the management company gives consideration to
the following points:

・Correlation between the group-wide amount of risk and the risk appetite orcapital management strategy
・ Groupwide reinsurance strategy and the conduct of practical affairs atgroup companies
・Laws, regulations and practices applicable to group companies
・Limits on or risk appetites for the credit risk of counterparties involved inreinsurance transactions
・ The use of alternative risk transfer methods, including risk transfer
products, and the effectiveness of risk transfer through reinsurance understress situations(3) Whether the management company has appropriately developed a control
environment to monitor the development of a control environment for
managing reinsurance risk on a group basis and at group companies.

VII-3-7 Group-wide Control Environment for Managing Asset Investment Risk
VII-3-7-1

SignificanceFinancial products in which insurance companies may invest include
relatively risky products, such as products with high volatility, a complex
structure, or low liquidity. Therefore, it may be assumed that as a result ofinvestment in high-risk products by a group company, the soundness of theentire insurance group will decline. From the viewpoint of exercising practical512

and effective governance over group companies in order to avoid such asituation, it is important for management companies to appropriately develop agroup-wide control environment for managing asset investment risk (including
a control environment to avoid excessive dependance on external ratings withrespect to credit assets, such as securitized products). It is also important forgroup companies to develop a control environment for managing asset
investment risk that is consistent with the group-wide control environment for
managing asset investment risk.

VII-3-7-2

Major Supervisory Viewpoints(1) Whether the management company has developed a group-wide policy for
asset investment from the viewpoint of exercising practical and effective
governance over group companies, and whether group companies havedeveloped and apply regulations concerning asset investment that areconsistent with the above policy.
(2) When developing a group-wide control environment for managing asset
investment risk, whether due consideration is given to legal systems in thejurisdictions where foreign offices are located.
(3) Whether the management company has developed a control environment
to appropriately manage the concentration risk of exposures (including thoserelated to off-balance sheet items) by setting risk appetites and limits forindividual group companies and on a group-wide basis, for example. In
particular, whether due consideration is given to the possibility that
exposures to financial institutions could amplify risks at times of financial
market turmoil.
(4) Whether the management company has appropriately developed a control
environment to monitor the development of a control environment for asset
investment risk management on a group basis and at group companies.

VII-3-8

Group-wide Control Environment for Managing Liquidity Risk

513

VII-3-8-1

SignificanceEven if the group-wide solvency margin is sufficient, there is the possibility
that the entire insurance group may face a liquidity crisis as a result of the
failure of a group company due to insolvency caused by the depletion of fundliquidity or as a result of investments by a group company in products with low
market liquidity. Therefore, liquidity risk management is very important. Fromthe viewpoint of exercising practical and effective governance over groupcompanies, it is important for management companies to appropriately develop
a group-wide control environment for liquidity risk management. It is also
important for group companies to appropriately develop a control environment
for managing liquidity risk that is consistent with the group-wide control
environment for managing liquidity risk.

VII-3-8-2

Major Supervisory Viewpoints(1) Whether the management company has developed a group-wide policy for
managing liquidity risk from the viewpoint of exercising practical andeffective governance over group companies, and whether group companies
have developed and apply regulations concerning liquidity risk managementthat are consistent with the above policy.
(2) Whether the management company has set risk appetites, risk tolerancesand risk limits regarding liquidity risk on a group basis and checks the statusof compliance therewith. Whether the management company conducts
stress tests regarding liquidity.
(3) In the implementation of a stress test regarding liquidity, whether
consideration is appropriately given to a situation in which the stress is
amplified as a result of multiple entities behaving in the same way when it isnecessary to assume such a situation.
(4) In the implementation of stress test regarding liquidity, whether
consideration is given to the following matters as necessary.

・Status of ownership of liquid assets and the possibility of using them understress situations

514

・Write-down of the value of liquid assets under stress situations (haircut)
・Insurance premium and interest incomes under stress situations
・Massive cancellations and claims for insurance benefits associated withthe occurrence of a catastrophe
・Downgrading of the credit rating of the insurance group
・The possibility of fund transfer between the management company andgroup companies
・Exchange market liquidity related to foreign currencies
・Correlation between owned assets and fund-raising instruments and thestatus of distribution
・Possibility of additional margins and collateral being required
・The possibility of using credit lines and secured or unsecured short-term
funding instruments.
(5) In cases where it has been found as a result of a stress test regarding
liquidity that the value of fund outflows under a stress situation exceeds thevalue of fund inflows and liquid assets, whether liquid assets with a sufficientvalue are prepared after a feasible and appropriate haircut has been set.
Whether attention is paid to the point that in cases where liquid assets
become necessary for a short period of time (e.g., for a period of days or
weeks), higher liquidity may become necessary for the assets than in cases
where liquid assets become necessary for a long period of time.
(6) Whether the management company has developed countermeasuresagainst a liquidity crisis on a group basis and reviews and revises them in atimely manner.
(7)Whether the management company periodically reports to the board of
directors, etc. on the status of group-wide liquidity risk management, forexample at the same time as the report on the own risk and solvency
assessment.

VII-3-9Group-wide Control Environment for Managing Operational Risk

From the viewpoint of exercising practical and effective governance over groupcompanies, it is important for management companies to appropriately develop a515

group-wide control environment for managing operational risk. It is also importantfor group companies to develop a control environment for managing operationalrisk that is consistent with the group-wide control environment for managing
operational risk.

VII-4

Appropriateness of Group-wide Business Operations

VII-4-1

Group-wide Control Environment for Compliance

The supervisory authority should conduct checks on the development of agroup-wide control environment for compliance from the following viewpoints:(i) Whether the board of directors, etc. of the management company regards
compliance as an important matter concerning group-wide management andexercises leadership in developing a control environment for compliance at the
management company and at group companies.
(ii) Whether the board of directors, etc. of the management company has
developed a basic policy for compliance and communicated it among groupcompanies. Whether the basic policy prescribes not only a code of ethics but
also specific guidelines and standards for behavior.
(iii) Whether a division in charge of overseeing compliance-related matters(hereinafter referred to as the "compliance oversight division") has been
established at the management company in accordance with the scale andcharacteristics of the group and the business activities of group companies inorder to ensure that the status of compliance of the group and groupcompanies is appropriately managed.
(iv) Whether the compliance oversight division grasps the status of compliancewithin the group in a timely and appropriate manner and reports to the board of
directors, etc. of the management company at least once every quarter.
(v) Whether the board of directors, etc. of the management company refers to
obtained information for improving business operations and developing acontrol environment for compliance within the group, for example by making
necessary decisions based on reports on the status of compliance.
(vi) Whether the compliance oversight division has clarified the conflicts ofinterest between group companies and between business divisions anddepartments, communicated them among officers and employees, clarified therisk of potential conflict of interest, and prescribed specific measures to deal516

with or avoid the risk.

VII-4-2 Group-wide Control Environment for Outsourcing of Business Operations
When outsourcing business operations, whether the management company
gives consideration to the effects of transmission of various potential risks
associated with outsourcing and develops a policy for outsourcing that takes into
consideration the viewpoints of protecting customers and securing thesoundness of management. At the same time, regarding outsourcing of importantbusiness operations, for example, whether the management company develops
a necessary control environment (including requiring outsourcing contractors todevelop the control environment under an outsourcing contract) by establishing
the process of approval by the management company from the viewpoint of
securing the soundness of management. When doing this, whether the
management company pays attention to the following points.
(i) Selection of an outsourcing contractor
Whether the management company selects an outsourcing contractor fromthe viewpoint of whether or not there is a problem with respect to the rationalityof the management of the insurance group and the reputation of the group.
(ii) Specifics of the contract
Whether the contract clearly prescribes the following matters and isotherwise sufficient. Whether the provisions of the outsourcing contract are
secured in writing.
A. The specifics and level of services to be provided, and the procedures forcancellation
B. The responsibilities that should be fulfilled by the outsourcing contractor
when services are not provided in accordance with the outsourcing contract.
Matters related to the bearing of losses that may arise in association with theoutsourcing (including: as necessary, ways of ensuring the fulfillment of the
responsibility to bear losses, such as the provision of collateral).
C. The specifics of reports to be received by group companies from theoutsourcing contractor with respect to the status of the outsourced business
operations and the business situation of the outsourcing contractor.
(iii) Control environment for management
Whether the management company has appointed a manager in charge ofoutsourced business operations and has developed a control environment for517

monitoring and conducting checks (including setting a contractual provision to
the effect that checks may be conducted on the outsourcing contractor withrespect to the appropriateness of business operations).
(iv) Provision of information
Regarding the status of implementation of outsourced administrative
processes, whether there is a control environment to ensure the prompt
collection of appropriate information as necessary on a group-wide basis, inaddition to requiring the submission of periodic reports from the outsourcing
contractor to the management company or group companies.
(v) Audit
Whether the management company or group companies subject outsourced
business operations to audit.
(vi) Response to emergencies
Whether the management company considers how to prevent major
disruptions to the business operations of the entire insurance group in cases
where services are not provided in accordance with the outsourcing contract.
Whether consideration is given to the possible effect on the reputation of theentire insurance group.
(vii) Outsourcing to group companies
When an outsourcing contract is concluded between the managementcompany and a group company, whether or not the contract violates the arms'
length rule by providing support to the outsourcing contractor practically.

VII-5

OthersVII-5-1

Development of Recovery and Resolution Plans

VII-5-1-1

SignificanceIf an insurance group engaging in large-scale, complex business operations(including international activities) faces a crisis, it may be assumed that thecrisiswill seriously affect theprotectionof

insurance policyholders.

Furthermore, depending on the business structure, the effects could affect not
only the insurance group but also the entire financial system. As it is importantfrom the supervisory viewpoint to make every possible effort to prevent asituation like this as part of crisis management, Japan should promote activities518

related to recovery and resolution plans in light of the scale and characteristics
of insurance groups.

VII-5-1-2

Supervisory Viewpoints, Methods and Actions(1) A recovery plan is intended to be a normal time preparation of some options
and processes for making an effective response when a serious stress has
arisen and significantly undermined the soundness of an insurance group.
This is expected to make it possible to more accurately understand thepotential risks in normal times and make a prompt response when a stresshas arisen.
On the other hand, as risks surrounding an insurance group are diverse, it
is not necessarily realistic to exhaustively cover all possible stress scenarios.
In addition, in an actual stress situation, the stress may not necessarily beconsistent with the preconceived assumptions under the recovery plan, so it
may become necessary to investigate what optimal options are in thatparticular situation. When developing a recovery plan, it is important toensure that the plan is effective while paying attention to this point.
In light of the above supervisory viewpoints, based on Article 128 or Article
271-27 of the Act, the supervisory authority should require the managementcompanies of IAIGs in Japan and, as necessary, of other insurance groups
engaging in large-scale, complex business operations (including international
activities) to develop and submit recovery plans once a year or when an
important change has been made to their business or group structures.
While the specifics of a recovery plan may vary across insurance groups
according to their business structures and business models, the supervisory
authority should check whether the following items, are covered by the planin light of the discussions at the IAIS, for example.

・Outline of the recovery plan
・Analysis of the structure of the insurance group
・Triggers for the implementation of the recovery plan・Stress scenario analysis
・Recovery option analysis
・Intra-group and external communication strategy
・Governance related to the recovery plan (including control environments
and systems necessary for obtaining and managing information necessary519

for the recovery plan)(2) Regarding IAIG in Japan, the supervisory authority should develop a
resolution plan in cooperation with foreign authorities in cases where it isdeemed necessary to do so in light of the purpose of ComFrame. The
necessity of a recovery plan for an IAIG should be judged comprehensively,
with due consideration given to such factors as the number of jurisdictions
where the IAIG is active, the complexity of the business and organizational
structures of the entire group, and the effects that a failure of the IAIG may
have on the financial and economic systems.
In cases where a recovery plan is developed, the supervisory authority
should review it and evaluate the feasibility of a resolution once a year orwhen an important change has been made to the business or groupstructures of the insurance group.

VII-5-2

Conducting Group-wide Supervision in Cooperation with Foreign

Authorities
The supervisory authority should provide to foreign authorities information that
contributes to their supervision of insurance groups and proactively promoteexchange of opinions with them. Specifically, the supervisory authority should
ensure cooperation by taking the following measures:(1) In the case of insurance groups with foreign offices
With respect to insurance groups with foreign offices, the supervisory
authority should promote cooperation with foreign authorities by taking thefollowing measures:(i) When conducting monitoring in accordance with the provisions of III-1-2"Specific Methods of Inspection and Supervisory Administrative Processes,"
the supervisory authority should give special consideration to cooperation
with foreign authorities and proactively exchange information with themregarding the financial soundness and appropriateness of business
operations of the groups' management companies and the groups.
(ii) Regarding policies for the supervision of insurance groups that may havematerial effects on the business operations of foreign offices, the supervisory
authority should strive to notify the authorities of the host jurisdictions. In

520

cases where measures that could affect foreign offices are taken, thesupervisory authority should strive to hold prior consultations with theauthorities of the host jurisdictions.
(iii) In cases where a foreign authority has inquired about an opinion regarding
the permission or authorization concerning the establishment of a foreign
office or other matters, the supervisory authority should proactively andappropriately respond to the inquiry.
(2) In the case of foreign insurance groups:
With respect to foreign insurance groups, the supervisory authority should
promote cooperation with foreign authorities by taking the following measures:(i) In cases where the supervisory authority grants a permission or
authorization concerning the establishment of an office in Japan by a foreign
insurance group or other matters, the authority should strive to obtain theconsent of the authority of the foreign jurisdiction where the managementcompany of the foreign insurance group is located. In cases where theforeign authority does not proactively or appropriately respond, thesupervisory authority should request correction or attach conditions to thepermission or authorization as necessary.
(ii) In cases where a supervisory issue that is considered to be subject toreporting to a foreign authority has been found at a Japanese office of aforeign insurance group, or where an inaccurate communication of
information from the Japanese office to the management company of theforeign insurance group has been found, the supervisory authority should
proactively notify the foreign authority.
(iii) In cases where it is deemed necessary to take a measure against a foreign
management company of the above foreign insurance group with respect tothe supervisory viewpoints listed in this Guidelines, the supervisory authority
should strive to notify the foreign authority in advance and seek cooperation.
(iv) In cases where an administrative action is taken against companies locatedin Japan that constitute the above foreign insurance group, the supervisory
authority should make every possible effort to notify the foreign supervisory
authority in advance and strive to strengthen cooperation.

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