Japan’s
Insurance
Market2016

Japan’s Insurance Market 2016
ContentsPage

To Our Clients
		 Tomoatsu Noguchi
		 President and Chief Executive, The Toa Reinsurance Company, Limited

1

1. The Property and Casualty Insurance Market in Japan and the Business Strategy of		 Sompo Japan Nipponkoa Insurance Inc.
Keiji Nishizawa
		 President
		 Sompo Japan Nipponkoa Insurance Inc.		

2

2.	Trends in the Cooperative Insurance Business in Japan
		 Toshihiro Takeda
		 Director
		 Japan Cooperative Insurance Association Incorporated

8

3.	Typhoon Flood Risk in Japan
		 Margaret Joseph
		 Model Product Manager
		 RMS		12

4.	Storm Surge Risk in Japan
		
		
		
		

Rikito Hisamatsu
Researcher
Risk Assessment Section, Corporate Planning Department
InterRisk Research Institute & Consulting Inc.

19

5. Trends in Japan’s Non-Life Insurance Industry
		 Underwriting & Planning Department
		 The Toa Reinsurance Company, Limited		

25

6.	Trends in Japan’s Life Insurance Industry
		 Life Underwriting & Planning Department
		 The Toa Reinsurance Company, Limited		

30

		 Supplemental Data: Results of Japanese Major Non-Life Insurance Companies
for Fiscal 2015, Ended March 31, 2016 (Non-Consolidated Basis)

36©2016 The Toa Reinsurance Company, Limited. All rights reserved. The contents may be reproduced only with the written permission of
The Toa Reinsurance Company, Limited.

To Our Clients
It gives me great pleasure to have the opportunity to welcome you to our brochure, Japan’s
Insurance Market 2016. It is encouraging to know that over the years our brochures have been wellreceived even beyond our own industry’s boundaries as a source of useful, up-to-date information about
Japan’s insurance market, as well as contributing to a wider interest in and understanding of ourdomestic market.
During fiscal 2015, the year ended March 31, 2016, the world economy initially remained on amoderate recovery track centering on the U.S. and other developed countries. However, vigor
diminished from the New Year onward because of the economic slowdown of China and certain otheremerging economies as well as the impact of declining oil prices.
Although the moderate recovery of the Japanese economy continued, as indicated by the upward
trend of corporate earnings, growth stalled toward the second half of the year under review, affected
mainly by the slowing down of emerging economies.
In the non-life insurance industry in Japan, net premiums written trended upward, primarily
because of the impact of the revision of the mainstay automobile insurance products and theirpremium rates and last-minute demand before the revision of fire insurance products.
In the life insurance industry in Japan, the amount of new policies and the amount of policies inforce both increased steadily, reflecting brisk sales of single-premium insurance products and an increasein group pension insurance contracts. Toward the end of the fiscal year, however, sales of certain
products were suspended following the introduction of negative interest rates by the Bank of Japan.
The large amount of capital flowing from financial markets into the reinsurance market and the
profitable performance of reinsurance companies contributed to further softening of reinsurance
premium rates and conditions, and competition among reinsurers continued to intensify.
Softening of reinsurance premium rates and conditions, as well as mounting competition to win
contracts, is expected to continue in the future. In addition, the need to respond to climate change, theincreasing complexity of risks, and strengthened international regulations and frameworks for reinsurance
are becoming more pronounced. Thus, a challenging business environment is expected to persist.
By endeavoring to act as an exemplary reinsurance company, we are resolved to fulfill our mission:“Providing Peace of Mind.”
In conclusion, I hope that our brochure will provide a greater insight into the Japanese insurance
market and I would like to express my gratitude to all who kindly contributed so much time and effort
towards its making.

Tomoatsu Noguchi
President and Chief Executive
The Toa Reinsurance Company, Limited

1

1.

The Property and Casualty Insurance Market
in Japan and the Business Strategy of Sompo
Japan Nipponkoa Insurance Inc.
Keiji Nishizawa
President
Sompo Japan Nipponkoa Insurance Inc.

Net premiums written for Japan’s property and casualty (P&C) insurance companies totaled 7,957.0 billion yen1 for fiscal 2014, making Japan the world’s fifth largest
P&C insurance market2 after the United States, China, Germany and the United
Kingdom. Forty-five P&C primary insurance companies currently operate in Japan.
However, the market is actually an oligopoly of three large groups, known as the megaP&C insurance groups, that have a dominant market share of about 90%. It is one of
the features of Japan’s P&C insurance market.
Net premiums written have increased for four consecutive years, even though the
4.5% year-on-year increase for fiscal 2014 was below the year-on-year increase of
5.8% for fiscal 2013. Net premiums written increased in all the major classes of business in automobile, fire, liability and personal accident insurance.
By class of business, automobile-related insurance accounted for the largest sharewith 61.6% of net premiums written, of which automobile insurance totaled 48.8%
and compulsory automobile liability insurance totaled 12.8%. Fire insurance
accounted for 13.7%, miscellaneous casualty insurance including liability insurance
accounted for 11.6%, accident insurance accounted for 9.8%, and marine insurance
accounted for 3.2%.
Net claims paid totaled 4,965.2 billion yen. Underwriting was profitable for the
first time in five years, with a loss ratio of 62.4%, and a combined ratio of 95.1%.
Overall, results in the P&C insurance market show a recovery trend, with a pronounced contribution by automobile insurance which is a core product and its profit
structure reforms were in place including rate revisions to the classification rating system for non-fleet automobile insurance.
Insurance agencies are the main sales channel, and accounted for 91.4% of net
premiums written for the primary insurance business. In addition, the ratio of direct
sales that bypass agencies (such as internet or telephone), primarily through insurancecompanies solely with direct sales channels, increased by 0.1% from the previous year
to 8.1%. While the increase was marginal, the ratio of direct underwriting has been
increasing each year.

1. Overview ofJapan’s P&C
Insurance Market

Figure 2: Underwriting‌Profit, Ordinary
Profit and Net Income

Figure 1: Net Premiums Written(Trillions of (Trillions
yen)of yen)(%)(%)(Billions of yen)(Billions of yen)

8.0

8.0

10

10800

800

600

600

7.5

7.5

5

5
400

400

7.0

7.0

0

0 200

200

0

0

6.5

6.5

-5

-5
-200

-200

-10
-400

-400
2010

6.0

6.0
2010

2011
2010

2012
2011

2013
2012

Net premiums(left written
scale) (left scale)
Netwritten
premiums
Year-on-yearYear-on-year
growth ratiogrowth(right scale)ratio (right scale)

2

2014
2013

2014

-10

2011
2010

2012
2011

2013
2012

2014
2013

Underwriting Underwriting
profit (left column)
profit (left column)
Net income (rightNet income
column)(right column)
Ordinary profit
Ordinary(center column)
profit (center column)

2014The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

2. P
 &C Insurance
Operating
Environment andthe SOMPO
Holdings Group’s
Initiatives(1) Operating Environment
The operating environment of Japan’s P&C insurance industry may well change
significantly in the future. Along with concerns that the occurrence of major natural
disasters will become the norm, other disruptive and drastic changes are expected
including Japan’s declining population and the rapid aging of society, and the exponential innovation of digital technologies and related changes in customer behavior.
Looking at demographic change in Japan, the population is forecast to decrease
0.3% to 0.5% annually through 2020. Population decline will further accelerate andwill decrease to 75% of the 2010 level by 2050. Over the medium-to-long term,aging and the decline in the working population will be a major issue confronting
Japan. At the same time, the size of the digital native generation (the population thatgrew up with the Internet and personal computers) will increase rapidly. Customer
behavior is forecast to change as Generation Y, born from 1980 to 1994, andGeneration Z, born from 1995 onward, become core consumers.
Figure 3: Trends of Japan’s Population and the Digital Native Generation
Improving profitability of P&C insurance
business and strategic moves for growth

Transformation for the future

VUCA world

Tokyo Olympic Games

Improving safe driving technologies

Exponential innovation of digital technologies
0.3 to 0.5% annual decrease in population(estimation)

Potential accelerationof decrease in population

100

(%)
100

75

75

50

50

25

25

0

2010

2011

2012

2013

2014

2015

Previous mid-term management plan
Population index (left scale)1

2016

2017

2018

2019

2020

2030

2040

2050

0

New mid-term management plan
Weight of digital native generation (right scale)2Notes: 1. Indexed with the FY2010 population set to 100 (source: National Institute of Populationand Social Security Research)
2. Sum of Generation Y born from 1980 to 1994, and Generation Z born from 1995

The social significance of the P&C insurance industry is large in this time ofchange. Sompo Japan Nipponkoa Insurance is a Group that has focused on the insurance business for more than 120 years, and our goal is to contribute to society by supporting “globally active Japanese companies” and “the security, health, and wellbeingof our customers” by providing insurance and related services of the highest quality
possible in periods of change. Acutely aware that we need transformation with an eye
focused on the uncertainties of the future, we are working to realize sustainable corporate value over the medium and long term.
31. The Property and Casualty Insurance Market in Japan and
the Business Strategy of Sompo Japan Nipponkoa Insurance Inc.

(2) New Mid-Term Management Plan (FY2016 to FY2020)
In May 2016, Sompo Japan Nipponkoa Holdings, Inc., which plans to change its
company name to SOMPO Holdings, Inc. on October 1, 2016, formulated a new
five-year mid-term management plan as its growth strategy through fiscal 2020. The
goal of the plan is realizing the Group Management Philosophy aimed at contributing
to the security, health and wellbeing of customers and society as a whole by providing
insurance and related services of the highest quality possible. Under the new MidTerm Management Plan, SOMPO Holdings will seek to evolve into a Group that isable to respond firmly and rapidly to disruptive changes in the environment, based on
the growth cycle achieved in the previous Mid-Term Management Plan ended fiscal
2015. Aiming to contribute to society by realizing its Group Management
Philosophy, SOMPO Holdings will achieve a structural transformation into the best
customer service provider based on the theme of “security, health and wellbeing.” At
the same time, the Group will steer a course to establish a position where it is able tocompete effectively against global players.

(3) Introduction of the Business Owner System and Enhancement ofGroup Cross-Segment Functions
From April 1, 2016, SOMPO Holdings adopted a new Group management system based on our four core businesses – Domestic P&C Business, Domestic Life
Business, Nursing Care & Healthcare Business, and Overseas Insurance Business –and positioned a president/executive officer as the business owner for each of thesebusinesses. We have delegated authority to the business owners for business strategy
proposals, investment decisions, and talent development. Under this system, the business segments, which are closer to customers, will cope with major environmental
changes through agile decision-making and business execution. Each business will
establish and enhance its competitive presence and realize sustainable growth.
SOMPO Holdings will realize its centralizing power by establishing a system thatstrengthens its response to the key challenges the entire Group faces, such as digitalstrategies, as well as the links among business segments. This will enable the Group to
create total support services that contribute to “security, health and wellbeing” and todevelop new business, and to expand the scope of its existing business.
Figure 4: Overview of Business Owner System
SOMPO HoldingsGroup CEO

CFO
CRO
CIO
CDO

4

Cross-segment function

Delegation of authority
Domestic P&C
Business owner(President of SJNK)
Sompo Japan
Nipponkoa
Saison Automobile &Fire

Domestic Life
Business owner(President of HL)

Nursing Care &Healthcare
Business owner(Executive officer in charge)

Himawari LifeSOMPO Care Message
SOMPO Care Next

Sonpo 24

Cedar

DC Securities

Risk management& Healthcare

Overseas Insurance
Business owner(Executive officer incharge)Overseassubsidiaries

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

(4) Digital Strategy
To enhance the quality of existing businesses, the Group will harness digital technologies to upgrade and expand its customer contact, in addition to providing services
that are focused on customers through people.
As one of several measures aimed at strengthening cross-functions, the Company
established SOMPO Digital Lab in Tokyo and Silicon Valley in the United States in
April 2016, as bases for research and development in the field of digital technology.
Through this measure, the Company aims to stay ahead of exponential advances intechnology and to consolidate the Group’s competitive advantages. Furthermore, toswiftly execute the Company’s strategies for digital technology, the position of Chief
Digital Officer (CDO) was established in the Group in May 2016, and the Company
recruited new talent with strong backgrounds in the field of digital technology. The
Lab also welcomed Thomas H. Davenport, the world’s top expert on analyzing big
data, and other leaders from various industries on board as senior advisors. The goal is
not only to streamline operations in each business segment, but to use advanced digital technologies to create new customer contact points, market products to digital
natives, research and develop completely new business models, and so forth.
Figure 5: Expected Digital Innovation in the Future
Exponential innovation of digital technologies is game-changing opportunity
Expected innovation in the future

Example of innovation of digital technologies in the past
HDD

In the past 30 years,
capacity became 4,000 times larger
while price came down to one-millionth.

Improved predictionof natural disasters(satellite, radar)1980 1GB = about ¥40 billion (US$0.4 billion)

Fullyautonomous car(sensor)2013 4TB = about ¥40 thousand (US$400)
Mobilecommunication speed
About 380 Kbps
(2001)

850 times

Advanced health careby wearable devices

Time needed to send a photo(2 megabyte) reduced from 40 seconds
to 0.05 seconds.
About 330 Mbps
(2015)

Innovationin digitaltechnologies

Use of
Artificial Intelligence(AI) in call centers

2015

2020

Innovation of
preventive medical care(genetic analysis)

Cloud computing
for driving information(big data)(5) Business Portfolio Transformation
We are transforming our businesses as follows to build a well-balanced businessportfolio that enables us to maximize risk diversification effect. We expect to achieve
our target of adjusted consolidated profit of 300 billion yen from 2020 onward by
reducing the share of the Domestic P&C Business in our business portfolio from 68%
for fiscal 2015 to 50% or less when the Group has achieved the target above. Sompo
Japan Nipponkoa Insurance, which has the Group’s largest customer base, scale andearnings, will lead the Group in connecting business segments and continuing to create new value for customers to build total support for “security, health and wellbeing.”

5

1. The Property and Casualty Insurance Market in Japan and
the Business Strategy of Sompo Japan Nipponkoa Insurance Inc.

Figure 6: Transition of Business Portfolio
From Fiscal 2020 onward
Nursing care &Healthcare, etc
Over
5%Fiscal 2018

Fiscal 2015

1%

19%

Adjusted
consolidated
12% profit¥164.3 bn.

About
About 5%15%
Adjusted
consolidated
profitAbout¥180 to ¥220 bn.
15%
About
65%

DomesticLife

Domestic
P&C

Over
20%

When achieving adjusted
consolidated profit of¥300 bn.
(assumed portfolio)
Over
25%

Below
50%

Overseas

68%

ERM (Strategic Risk Management)

3. Sompo Japan
Nipponkoa
Insurance’s Growth
Initiatives

Based on the Group’s vision, we will be the most evaluated P&C insurance company and achieve growth accompanied by quality. The Domestic P&C Business, ourcore business in our home market of Japan, will earn the trust of customers andenhance its profile by growing to contribute to a bright future for the Group.
Under the theme for the Domestic P&C Business’s growth strategy of “Valuegenerating innovation – the most evaluated P&C insurance company”, we will implement initiatives for growth.

(1) Future Innovation Project
We will implement a fundamental review of all business processes and improve
productivity by reforming and slimming our business processes and system infrastructure to achieve a global top-level company expense ratio when the project is complete.
A. Business process reform
We aim to realize services innovation in our claims payment procedure, whichmeans automating payment of insurance benefits by using a Business Rule
Management System (BRMS) and artificial intelligence (AI). In addition, we will
eliminate administrative work in sales offices to enable us to reduce sales headcountby about 12%.

6

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

B. System and information platform reform
We will create a simple system with advanced technologies and reduce the number of steps to less than half the current level to increase capabilities and speed ofdevelopment. As a result, we will enable agile product development and shorten product development from seven to two months.

(2) Digital Strategy
We will focus on four important themes in rapidly researching, developing andintroducing the latest digital technologies to energetically identify digital technology
evolution and related changes in customer behavior.
・・・・Marketing to digital natives (Generations Y and Z)
Creating digital customer contact points (connected service)
Improving productivity and business efficiency (cognitive computing)
Structuring new business models using digital technology(3) Product Strategy
We will use leading-edge digital technologies. For instance, Sompo Japan
Nipponkoa Insurance has launched “Portable Smiling Road” which is a telematics
service for individual users with a "Security" function for giving notification of an
accident to us with a single button push in the unlikely event of an accident occurring, and a "Safety" function that performs a driving analysis and provides information in real time to help prevent accidents. These are provided together with a"Comfort" car navigation function.
We will also aggressively invest in R&D (Research and Development) in areas
including products and services that address changing customer needs and lifestyles,
and take advantage of the individual features of each Group company’s business foundation and model to continue to take on the challenge of creating a new businessmodel for the entire Group.
Notes: 1. Figures based on 28 domestic primary P&C insurance companies (Source: Insurance
Research Institute, The Statistics of Japanese Non-Life Insurance Business, 2014)
2. Source: Swiss Re, Sigma No. 4/2015
3. Source: The General Insurance Association of Japan, Factbook 2015

7

2.
1. Overview of the
Cooperative
Insurance Business

Trends in the Cooperative Insurance Businessin JapanToshihiro Takeda
Director
Japan Cooperative Insurance Association Incorporated

With regard to the legal form of entities, Japan’s Insurance Business Act, which
regulates insurance companies, only allows joint stock corporations and mutual companies to conduct insurance business. Therefore, cooperative societies were not able toconduct insurance business directly until the enactment of various cooperative laws
after World War II, from 1947 to 1949. With authorization under these cooperativelaws, cooperative societies have been allowed to provide insurance for their members.
Each cooperative provides insurance coverage that is structured and priced according
to the features and demands of its members, such as farmers, fishermen, office workers, consumers, the self-employed and small and medium-sized business owners.
These cooperatives have grown steadily with the understanding and support of theirmembers.
In addition, regulations other than cooperative laws also authorize organizationsof farmers and fishermen to operate in the cooperative insurance business.

List of Cooperative Insurers According to Applicable Laws
Applicable Laws

Agricultural Cooperative
Society Law
Fisheries Cooperative
Association Law

Cooperative Law

Consumers’ Livelihood
Cooperative Society Law

Small and Medium-Sized
Enterprise Cooperatives Act

Regulators

Ministry of Agriculture,
Forestry and Fisheries

Ministry of Health,
Labor and Welfare

Ministry of Economy,
Trade and Industry,and others

Fisheries Disaster Indemnity Law

Ministry of Agriculture,
Forestry and Fisheries

Act on Compensation of Damages
Related to Fishing Vessels
Notes: 1. Regulated at prefectural levels.
2. Regulated by the Ministry of Land, Infrastructure, Transport and Tourism.

8

Zenkyoren & Agricultural Cooperatives at Prefectural andRegional Level (1)Kyosuiren & Fisheries Cooperatives at Prefectural andRegional Level (1)RegionCO-OP Kyosairen,
Zenkokuseikyoren,
Seikyo Zenkyoren,
Kanagawa Kenmin Kyosai (1)Industry

Daigaku Seikyo Kyosairen,
Boeisho Seikyo, and others

Region/Industry

Zenrosai,Nihon Saikyosairen

Nikkaren & Fire Insurance Cooperatives at Prefectural
and Regional Level
Zenjikyo & Automobile Insurance Cooperatives at
Prefectural and Regional Level
Chusairen & Welfare insurance cooperatives at
Prefectural and Regional Level
Kokyoren (2) & Truck transport insurancecooperatives (1), and others
Agricultural Disaster Indemnity Associations (1),NOSAI Zenkoku

Agricultural Disaster Indemnity Law
Special Indemnity Law

Major Organizations (JCIA members are underlined)

Fisheries Disaster Indemnity Associations (1), Gyosairen
Hull Damage Indemnity Associations (1), Gyohocyu

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

2. S tatus of the
Cooperative
Insurance Business

3. K ey Recent Trends
in the Cooperative
Insurance Business

The Japan Cooperative Insurance Association Incorporated (JCIA) publishes the
Cooperative Insurance Yearbook in collaboration with 42 cooperative societies and federations that operate in the cooperative insurance business. According to the 2016
edition of the Cooperative Insurance Yearbook, issued in December 2015, the number ofmembers was 75.58 million in fiscal 2014, an increase of 8.19 million during the 10 years
from fiscal 2004, with pronounced growth in consumer cooperative membership.
The total assets of cooperative insurers was 62.0518 trillion yen, an increase of
13.7 trillion yen during the 10 years from fiscal 2004. Cooperative insurers had
154.28 million policies in force, an increase of 7.54 million policies over the past 10
years. Gross premium income in fiscal 2014 totaled 7,806.7 billion yen, which is281.0 billion more than the 2004 figure. Claims paid totaled 4,565.6 billion yen in
fiscal 2014, an increase of 85.5 billion yen compared to 2004.
While the results of individual cooperative insurers reflect particular features andthe operating circumstances of each entity, as a whole the cooperative insurance business involves a large number of people and cooperative insurance policies. Therefore,
it is certain that the roles expected of cooperative insurers and the responsibilities
assigned to them in providing security in the lives of cooperative society members will
be even greater over the medium-to-long term.

(1) Enforcement and Application of the Insurance Act
The Insurance Act was newly enacted in 2010. Until then, the Commercial Codestipulated the basic rules for contractual elements of insurance policies, but cooperative insurers were not subject to the Commercial Code because of their not-for-profit
status. Each cooperative insurer independently formulated its own cooperative insurance contracts with the approval of its own supervisory authority.
The Insurance Act now applies to not only insurance contracts but also to cooperative insurance contracts because the social roles and responsibilities of cooperative
insurers have evolved. The Insurance Act revised the section on insurance in the former
Commercial Code with a view to modernizing the rules and strengthening policyholder protections. With the enactment of the Insurance Act, legally required protections
for cooperative insurance policyholders’ interests became the same as those forcommercial insurance policyholders. This is an important advantage for cooperative
members who are or will be cooperative insurance policyholders.

(2) The Great East Japan Earthquake
The Great East Japan Earthquake occurred on March 11, 2011, and exacted aterrible toll on the lives and assets of many people over a wide area. JCIA’s member
societies paid a total of 1,000 billion yen for 935 thousand claims resulting from theearthquake damage. These figures were comparable to the benefits paid by life insurance and earthquake insurance of commercial insurance companies, and demonstratethat cooperative insurance as well as commercial insurance is an indispensable component of the system that protects the lives of Japanese citizens who are exposed tothe threat of earthquakes, tsunami and volcanic eruptions.
In addition to the benefits that cooperative insurance paid, many cooperatives
9

2. Trends in the Cooperative Insurance Business in Japansupported victims of the earthquake in accordance with the founding spirit and scopeof operations of each entity, and contributed to reconstruction in afflicted areas.
These actions enhanced understanding and appreciation of the fact that these functions and roles of cooperatives that aim for voluntary mutual aid among cooperative
members are a requisite for sustainable communities.
The response to the Great Kumamoto Earthquake of April 2016 has drawn on
experience gained in the Great East Japan Earthquake.

(3) International Year of Cooperatives
The United Nations designated 2012 as the International Year of Cooperatives(IYC). The United Nations did so in recognition of the durability and resilience
cooperatives demonstrated during the worldwide food crisis of 2007 and the financial
and economic crises from 2008 onward. The aim of the United Nations was to raise
the public’s awareness of the role of cooperatives in reducing poverty, creating jobs
and bringing society together, to encourage the establishment and development ofcooperatives and to lobby governments and related institutions for the aims above.
Under the globally shared theme of “Co-operative Enterprises Build a Better World,”
many related events and public relations programs also took place in Japan.
The International Co-operative Alliance (ICA) announced the “Blueprint for a
Cooperative Decade” in February 2013 to carry on the work after the close of IYC.
The ideal it propounds for cooperatives worldwide through 2020 is for them to be“the acknowledged leader in economic, social, and environmental sustainability,” “themodel preferred by people,” and “the fastest growing form of enterprise.”
Cooperatives in Japan engaged in the cooperative insurance business share these goals
and strategies for cooperative action with other cooperatives around the world.

4. The Future of the
Cooperative
Insurance Business10

All cooperative laws regulating different types of cooperatives stipulate that cooperatives should be not-for-profit entities that operate to serve their members.
Cooperatives have a history of creating cooperative insurance businesses for members
in regions where the spread of commercial insurance coverage lagged and for members with needs not satisfied by other commercial insurance options. Each of thesecooperative insurers has its own philosophy and scope of business. They must continue to demonstrate their purpose, responsibility and roles by addressing contemporaryneeds and expectations through their daily interaction with members. In this way,
they will demonstrate their uniqueness and strength, complementing commercial
insurance. The continuation of this system will be beneficial to the security of all citizens of Japan.
In the cooperative life insurance business, the aging of Japanese society has
increased demand for cooperative insurance coverage associated with post-retirement
medical care, annuities and nursing care, and the number of members purchasing
cooperative insurance policies for asset management and inheritance has increased.
In the cooperative non-life insurance business, it should be pointed out thatcooperatives need to encourage more members to purchase cooperative insurance pol-The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

icies that cover the natural disasters common in Japan including earthquakes, tsunami, volcanic eruptions and typhoons. In the cooperative automobile insurance business, it is important to address contemporary issues including the rising number ofaccidents involving elderly people and the evolution of autonomous driving technologies. Moreover, regardless of the type of cooperative insurance, it has become more
important than ever to explain coverage and policy procedures so that members caneasily understand them and agree to them with confidence, in addition to rigorouscompliance with laws and regulations, and the protection of personal information.
Given the changes in the operating environment, cooperatives that are involved in thecooperative insurance business must accurately identify and address the respective
needs and expectations of their members.
Many years have passed since the launch of the cooperative insurance business.
The business has grown, however, giving rise to the question of whether the contents
and activities are similar to the commercial insurance business, and whether the identity of each cooperative and the unique features compared with commercial insurance
have become diluted. Cooperative insurance used to be recognized as superior tocommercial insurance because the premiums were low, but the liberalization of premium rates and the diversification of sales channels have blurred that competitive advantage. Furthermore, during the past several years neo-liberals in Japan and abroad havebeen advocating an equal regulatory footing for commercial insurance and cooperative insurance.
Under these circumstances, each cooperative involved in the cooperative insurance business needs to earn the understanding and support of its members and the
public by adopting a contemporary view of its philosophy, goals, purpose and roles,
and by sharing that view within and outside the cooperative. This issue is one of thepriorities of the “Blueprint for a Cooperative Decade” mentioned above.
Cooperatives must therefore educate and train employees involved in the cooperative insurance business and enhance the information they provide to members who
are or will be policyholders.

Conclusion

Modern Japan is confronted by various social issues that threaten people’s lives andfuture, including the aging of society and numerous natural disasters mentioned above,
employment instability, widening income disparities and poverty, the disintegration ofcommunities, the hard-pressed social security system, and environment and energy problems. Today more than ever, international society has high expectations for the role andpotential of not-for-profit cooperatives that are democratically managed based on theprinciple of mutual aid. Japan’s cooperatives must also address an array of changes intheir operating environment to contribute to a sustainable society. The cooperative
insurance business is also required to serve as a part of the operations of cooperatives by
ensuring sound management and providing insurance coverage aligned with the needs ofeven more members to eliminate the risks and anxieties they face.

11

3.
Foreword

1. C hallenges of
Typhoon Flood
Modeling in Japan12

Typhoon Flood Risk in Japan
Margaret Joseph
Model Product Manager
RMS

Ten years ago, a video game was released in Japan, the second in the Zettai
Zetsumei Toshi (絶体絶命都市) series of action adventure games, that saw the imaginary Japanese underground city of Tomisakashi flooded from torrential rain and riverlevee failure. It’s not clear what was driving the heavy rain in the video game, thoughwith typhoons delivering some of the most intense precipitation observed in Japan, in
this scenario it’s reasonable to imagine that a typhoon was behind this fictional flooding. The game was set in the year 2010, but what of the typhoon flood risk in ‘real’
Japanese cities in 2016, beyond those of the realm of anime (Japanese computer animation). What is the risk of typhoon flood in present day Japan? And how can this risk
be managed from an insured exposure perspective, compared to securing your survivalin the video game?
In Tokyo Prefecture in the Kanto region of Japan, around 35 percent of the 200year return period typhoon loss is driven by flood. This represents a loss ten times the2015 operating profits of Sony Corporation, who created the Zettai games series.
650km southwest of Tokyo Prefecture, in the Chugoku region lies Hiroshima
Prefecture. Flood at the 200-year return period loss here is just over 40 percent of thetotal typhoon loss, which increases to 80 percent when 1,000-year return period loss.
The drivers of typhoon flood for Tokyo compared to Hiroshima are different, withtyphoon inland flood driving the flood figures in Tokyo and typhoon coastal floodingfor Hiroshima, but what is important is the significance of this water peril to typhoon
loss for both areas, and highlights the impacts of typhoon flood at the 200-year regulatory level in Japan and at longer return periods. (Figures from the RMS® Japan
Typhoon HD Model, using the 2016 Japan Typhoon Insured Exposure Database. Analysis
over all lines of business, and loss return period figures presented for the aggregate exceedance probability).
We have considered examples at the prefecture level, but nationwide, typhoon
flood contribution is not negligible and is approximately 13 percent at the 200-year
return period considered above, and for average annual loss it is approximately 15
percent. In terms of recent examples of typhoon flood events you only have to consider
last year’s Tropical Storm Etau, which caused insured losses of 40 billion yen, andalthough not split by peril, the losses can be considered driven by flood given thedamage reports. In addition, it seems reasonable to assume that the significance offlood to typhoon flood risk in Japan will increase, as the market observes an increasein (typhoon) flood that is being covered by insurance policies in Japan ‒ with the
expansion of water coverage, separate water policies, and the liberalization of policy
conditions which allow for more water to be covered.

It is clear then that the flood component of typhoon risk cannot be ignored, andproper typhoon flood risk assessment is required, though there are many challenges
for modeling typhoon flood in Japan as there are challenges in modeling flood risk
more generally. These challenges include the fact that typhoon flood hazard is frommultiple sources, from both inland and coastal flooding. For inland flooding, thiscomprises fluvial flooding (from rivers overflowing their banks/defenses) and pluvial
flooding (driven by surface water from intense precipitation). For coastal flooding,The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

this includes storm surge, waves, and associated tides. In the video game, the sourceof flooding for Tomisakashi is inland only (in the central city setting), but as in theexample of Hiroshima, above coastal flooding can be driving the flood loss for somelocalities. The contribution of coastal flooding as a proportion of the flood loss isaround 60 percent increasing to over 95 percent for Hiroshima Prefecture at the 200and 1,000- year return period loss respectively. And Japan events such as Typhoon
Isewan/Vera (1959) and the more recent Tokage (2004) and Melor (2009) all highlight the contribution of coastal flood for individual events. A comprehensive assessment of Japan typhoon flood risk thus requires inclusion of both typhoon coastal andtyphoon inland flood.
Beyond this, for both of these flood perils, Japan’s geographical position, its latitude and location in relation to the ‘average’ typhoon track, have implications for theflood hazard through changes in the anatomy of a storm brought about from the phenomenon of extra-tropical transitioning. As a typhoon tracks north, into the subtropics and mid-latitude, it can interact with the jet stream which in many cases canchange the typhoon into a cross between a tropical cyclone and a full extra-tropical
cyclone. Storms that are transitioning or have transitioned when they impact Japanchange the (wind field and the) shape and intensity of the precipitation field, and thestorm surge and significant wave height. For Japan, such storms account for over 50
percent of those that make landfall (according to the historical record). Considering
flood purely from tropical cyclones only for Japan is not suitable or accurate.
A further challenge and a principle source of uncertainty for flood modeling in
general is flood management which includes flood defenses. Japan has one of theworld’s most advanced flood protection systems, with the government investing inflood management on an annual basis. However, a significant proportion of exposurein Japan is below the level of river and coastal defenses, indeed it is below sea level,
and if defenses are breached or overtopped then widespread and severe flooding canresult. Sophisticated defense modeling, including detailed defense inundation, andhighly resolvable inundation modeling is required of the most physical methodology
for Japan. (Further information on flood management and defense modeling inTokyo below).
This certainly is not an exhaustive list of challenges faced in accounting for
typhoon flood in Japan. Nor does it completely address the challenges faced in modeling flood ‒ any type of flood ‒ globally. There is also the consideration for antecedent conditions, the complexity of Japan’s coastline and bathymetry in simulation ofstorm surge, wave and tide, and that flood is a high gradient peril, meaning that locations close together can have very different flood levels. And separate to the predominantly hazard orientated challenges discussed (determining the extent and depth of
the flooding) there are challenges in the approach to flood vulnerability, limitations
on flood data (both hazard and loss), accounting for policy structures for flood andmixed perils, and the list goes on. But it shows some of the challenges of flood modeling and of accurately capturing the components of typhoon flood risk.
Catastrophe modeling can be employed to understand this risk, providing probabilistic physical modeling at each component of the flood process ‒ for inland flood
through the full hydrological cycle from precipitation to inundation, and for coastal
13

3. Typhoon Flood Risk in Japan

flooding the simulation through the entire lifecycle of the storm to inundation
beyond the defenses. Detailed component modeling provides a realistic representationof the risk, addresses the challenges in assessing the risk, whilst presents opportunities
through enhanced understanding of the risk.
Model development is complete on the RMS® Japan Typhoon HD Model, which
will be released in 2017. The model is a fully coupled typhoon wind, typhoon inland
flood and typhoon coastal flood model, with explicit modeling of the perils allowing
for differentiation of loss by peril. It incorporates the latest RMS innovations in windand flood modeling, including the most scientifically advanced extra-tropical transitioning model on the market. The model was developed with scientific leaders inJapan and internationally, and in collaboration with industry partners in Japan
including Tokio Marine and Sompo Japan.
We will now show two examples using the RMS model to address the typhoon
flood challenges and provide insight into typhoon flood risk in Japan, with context
behind the loss figures presenting in the opening paragraphs.

2. I nland Flooding inTokyo Prefecture

14Rivers in Japan, as compared to rivers in Europe and North America, are shortand steep, a result of the mountainous topography. Indeed in reference to Japaneserivers the Dutch civil engineer Johannis de Rijke commented that “rivers in Japan arelike waterfalls”. Such channel topography with intense typhoon precipitation leads tohigh peak ratios as compared to mean flow, that is steep flood hydrographs, and aneed to defend against these peaks. But what marks many of the rivers in Japan compared to their global counterparts, and notably here in Tokyo, is that the river elevation, through high exposure areas, is higher than the adjacent floodplain where theexposures are located. This heightens the risk from a hazard perspective, and contributes to the need for defenses. A cross section of Tokyo as compared to New Yorkshows this feature in Japan – Figure 1.
Tokyo has a comprehensive flood protection system, which includes a complex
system of river levees, super-levees, dedicated undeveloped flood plains, retention reservoirs both above and below ground, (and coastal sea walls up to five meters).
According to the Japanese Ministry of Land, Infrastructure, Transport and Tourism(MLIT) river levees in Tokyo are built up to a 200-year return period. Added to thisare the super levees – see figure 2 – such as those along the Arakawa River (the lower
reaches of which itself were created as a flood diversion). Super levees are river defenses that are significantly wider than normal levees, around five to seven times as wide,
and are approximately 30 times as wide as they are high, so that if the defense is overtopped it does not breach, and are in place where defense failure has the potential forsignificant damage, i.e. in areas of high exposure. Super levees have, as of mid-2016,
been constructed at sites along the six major rivers in Tokyo and Osaka.
Tokyo Prefecture has the largest exposure concentration in Japan. With significant
exposure below the height of the river levees, even below sea level, despite comprehensive
flood protection, significant typhoon driven inland flood events are possible when defenses
are overtopped and/or breached there is the potential for serious flooding propagating.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

Musashino Line

Shin-sakagawa River
Joban Line

Sakagawa River

Edogawa River

20

Obagawa River

Elevation (m)25Nakagawa RiverTokyo Kitahama Line

Ayasegawa River

30

Tokyo and the Edogawa, Arakawa and Sumidagawa Rivers

Arakawa River

35

Sumidagawa River40

National
Highway No. 6

Figure 1: Cross section of Tokyo, and cross section of New York (River Bureau, Ministry of Land, Infrastructure, Transport
and Tourism, Japan).

15
10
5
0

-50

Misato City

Matsudo City

New Jersey Turnpike

New Jersey Turnpike

Hackensack River

Central Park

Manhattan Island

Wood Ridge

Long IslandWest
New York

Ridgewood

Empire State Building

New York

443m

HudsonRiver

0

Katsushika Ward

Note: The correct name for the “Tokyo Kitahama Line” is the “Keihin-Tohoku Line”.

East RiverUN Headquarters

50

Adachi WardLong Island City

100

Arakawa Ward

Calvary Cemetery

Elevation (m)150Kita WardLong Island-5-10

Figure 2: RMS Japan Typhoon model development team field surveying the levee (left) andsuper levee (right) defenses along the Arakawa River, with industry collaboration partners

The inland flood model of the RMS Japan Typhoon HD Model is a precipitation
driven hydrological simulation, which has advantages over other approaches to floodmodeling to include that it captures antecedent conditions, captures the correlation offlood events in space and time, and allows for the modeling of fluvial and pluvial
flooding. The latter is important for accurately modeling typhoons as by their very
nature they are typically short lived, very intense, precipitation events, and in capturing both ensures the majority of inland flood risk is explicitly modeled, to optimize15

3. Typhoon Flood Risk in Japanthe accuracy of both the flood extents and flood depths.
The typhoon precipitation fields account for the transitioning phase of thetyphoons – the asymmetry and frontal precipitation synonymous with extratropicaltransitioning or transitioned storms – which is important for Japan. Within the RMS
Japan Typhoon Model more than a hundred rivers are explicitly modelled acrossJapan (including all Class A rivers in Japan – as defined by the MLIT) – equating to
20,000km of river channel. Using information provided by the Japanese government,
RMS models defenses, modelling both defense overtopping and defense breaching.
The model also makes assumptions about drainage and other flood control urban
infrastructure. A physical inundation model is used, as there is the need for a highlevel of accuracy given the location of exposure in relation to the river channels.
Whilst the flood hazard is modelled on a high gradient grid in Tokyo, and acrossJapan, of around 35 meters due to the high peril gradient of flood.
The potential for significant typhoon-induced inland flooding in Tokyo wasshown in 1947 when heavy precipitation from Typhoon Kathleen resulted in widespread and significant flooding.

3. C oastal Flooding in
Osaka and Hiroshima
Bays (Osaka andHiroshima
Prefectures)

16

Seriously damaging typhoon-driven coastal flood events have occurred in Japan’s
history, such as Typhoon Isewan (Vera) in 1959. As a consequence of Vera, (and toprotect against earthquake-generated tsunami) much of Japan is well defended against
coastal flooding. However, coastal flooding still presents a potential risk, with recent
losses from events such as Typhoon Tokage (2004), Melor (2009), and Chaba (2010).
To evaluate the coastal flooding from typhoons in Japan, RMS uses advanced ocean
modeling, physically realistic storm surge and wave modeling, and sophisticated defense
modeling (including detailed defense information) and, as with inland flood, the use of an
in-house shallow water model for inundation modeling. The simulation of storm surge andwave over the path of the typhoons use both the hydrodynamic MIKE21 Flow Model (FM)and MIKE21 Spectral Waves (SW). Hydrodynamic modeling is necessary to account for thecomplex coastline and bathymetry of Japan in storm surge and wave modeling. Tide is alsomodeled which reflects the complex waterflows offshore Japan, particularly complex in the
Seta Inland Sea and Ariake Sea. For Japan, accounting for wave in addition to storm surge isimportant given the height of the coastal defenses, with wave presenting a significant factor
affecting defense performance, particularly where deep waters abut the defenses. Both storm
surge and wave are driven by the track and windfield of the typhoons, which importantly
includes information on the transitioning of the typhoon. As previously noted this change
in the anatomy of the storm impacts the storm surge and wave ‒ RMS research has shownthat modeling transitioning historical typhoons as tropical cyclones could lead to inaccuracies of storm surge height up to 1.8 meters. RMS obtained detailed coastal flood defense
information from MLIT (with local authority information for Hiroshima), and performed
quality control through inspection of the terrain model, satellite imagery and on-site personal inspections. The model considers both overtopping and breaching scenarios, as withinland flood the importance of the performance of defenses is highlighted in the level of
exposure below the defenses and below sea level – more than four million people live in

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

areas below sea level in the three large Pacific Coast bays of Tokyo, Ise and Osaka. RMS
built the breaching model in collaboration with Prof. Jentsje van der Meer, Professor of
Coastal Structures and Ports at UNESCO IHE in Delft, The Netherlands - a world
renowned expert in the appraisal, design and testing of coastal structures. RMS also collaborated with the Port and Airport Research Institute (PARI), Japan, in relation to storm surge.
And for coastal flooding, and the entire Japan Typhoon model, benefited from RMS modelers locally in Japan through RMS Japan.
Comparing the coastal flood risk in Osaka Bay to Hiroshima Bay (250km along
the southern coast of Japan) you can see considerable differences between the inundation extent for the two bays – see Figure 3. The driver of the loss differential in thisparticular example has been shown through component analysis in the coastal flood
module of the RMS Japan Typhoon Model to be a consequence of differences in
defenses. Osaka Bay coastal defenses are built to the government defense height standard, as set by Typhoon Vera, as they are in Tokyo Bay and Ise Bay. In Hiroshima Bay,coastal defenses are not built to this level, and are considerably lower than in Osaka.
The inundations shown in Figure 3 are for long return period hazard- the 1,000year. As noted above, at the 1,000-year typhoon flood loss is 80 percent for
Hiroshima of which 77 percent is from coastal flooding. For such a tail event the
ground up loss for Hiroshima is 30 times that of Osaka. Of the nationwide figures,contribution from coastal flooding is not a large proportion of Average Annual Loss,but it can have a large impact on tail risk locally and for particular lines of business.
(It is noted that coastal flood modeling is accounted for in Tokyo Prefecture, as isinland flood in Osaka and Hiroshima Prefectures in the RMS Japan Typhoon Model.
However in terms of coastal flooding in Tokyo Bay modelled coastal flood inundation
occurs only at the very extreme tail and in isolated areas).

173. Typhoon Flood Risk in Japan

Figure 3: Coastal flood inundation in Osaka Bay (left) and Hiroshima Bay (right) at the 1,000 year hazard return period

Water depth (m)Summary

0.0

0.5

1.0

2.0

5.0

The flood component of typhoon risk in Japan is important to quantify for acomprehensive view of typhoon flood risk, and the RMS Japan Typhoon HD Modelcan provide such an insight into this water peril through sophisticated probabilistic
modelling of all components of typhoon flood. With an understanding of the complete typhoon risk, users can then continue to develop their (re)insurance activities, as
one might advance in levels of a video game.

About RMS: RMS models and software help insurers, financial markets, corporations, and public agencies evaluate and manage catastrophe risks throughout the world. We leadan industry that we helped to pioneer-catastrophe risk modeling-and are the innovators of the RMS (one)® platform, which is transforming the world’s
understanding and quantification of risk through open, real-time exposure and risk management. More than 400 insurers, reinsurers, trading companies, andother financial institutions trust RMS models and SaaS solutions to better understand and manage the risks of natural and human-made catastrophes, including
hurricanes, earthquakes, floods, terrorism, and pandemics. For more information, visit www.rms.com

18

4.
Foreword

1. H
 istorical Storm
Surge Disasters inJapan

Storm Surge Risk in Japan
Rikito Hisamatsu
Researcher
Risk Assessment Section, Corporate Planning Department
InterRisk Research Institute & Consulting Inc.

The Muroto Typhoon and Typhoon Vera (Isewan Typhoon) exemplify the damage
due to typhoons in Japan, but in recent years low-pressure systems have also frequently caused storm surge that does not result from a typhoon. Storm surge is aphenomenon in which a rise in sea level is caused by strong storm-driven winds aswell as air-pressure differentials. One feature of storm surge is the striking localized
rise in sea level that extends deep into the inner part of a bay compared to a tsunami,
the mechanism of which differs from that of a storm surge. As many typhoons thatstrike Japan pass from south to north, bays that face south are particularly susceptible
to storm surge danger. The three large bays of Tokyo Bay, Ise Bay and Osaka Bay, allof which are near major urban areas with accumulated insurance exposure, are recognized as bays that are at high risk to storm surge. In fact, serious damage has occurredin these bays in the past.
While Japan has experienced many cases of severe storm surge damage in thepast, many people nationwide are currently more concerned with tsunami damage
than storm surge damage. This is due to factors such as the tsunami damage from theGreat East Japan Earthquake in 2011, the focus on modeling of the likelihood of afuture earthquake, as well as the promotion of countermeasures by the Japanese government. Japan’s national and local governments are estimating storm surge damage
and designing coastal revetments based on these models. At the same time, companies
and residents in areas at risk of storm surge seem little concerned about the danger,
leading me to think there is quite a gap between the government’s perception of risk
from storm surge and that of ordinary people.
This report discusses storm surge risk in Japan using historical storm surge dataand government scenarios. It also presents InterRisk Research Institute & Consulting,Inc.’s research into evaluating storm surge risk in the three large bays mentioned
above in light of global warming.

The best known storm surge disaster in Japan occurred at Ise Bay during
Typhoon Vera in September 1959. Central pressure of the typhoon was 895hPa, maximum wind speed was 75m/s, and the diameter of the typhoon was estimated at up to2,500km. Storm surge was measured at about 3.5m in Nagoya City, Aichi Prefectureand 2.9m in Yokkaichi City, Mie Prefecture, and more than 5,000 people werereported dead or missing. More than 360 thousand homes were flooded, and thepresent value of total economic damage caused by Typhoon Vera is estimated at 4.5
trillion yen. Tokyo Bay suffered extensive storm surge damage from Typhoon Kitty in
1949. The occurrence of 1.4m storm surge at high tide inflicted further damage. In
the end, 160 people either died or went missing, and 16,497 homes were totally or
partially destroyed. Storm surge in Osaka Bay due to the Muroto Typhoon in 1934
was 3.1m. More than 3,000 people either died or went missing and 90 thousandhomes were totally or partially destroyed.
In recent years, storm surge associated with the Typhoon No.18th (Melor) in2009, at Mikawa Port in the eastern part of Ise Bay led to damage from numerous
drifting containers. In addition, homes were flooded in 2014 and then again in 2015
in Nemuro City, Hokkaido due to storm surge associated with a low-pressure system.
19

4. Storm Surge Risk in Japan

2. S torm Surge Riskin the Three Large
Bays

In 2012, the Japanese government stunned the world by announcing a sensationalmodel based on a tsunami of up to 34m generated by a Nankai Trough earthquake.
In 2010, the government issued a model of a storm surge with an inundation depth
of 5m. Comparing the two scenarios, most people would think that the damage fromstorm surge would be less. However, when we look at the characteristics of tsunami
and storm surges, then evaluate the estimates, we can see in fact that it is not simply astory of a tsunami being more harmful than a storm surge.
Why? Consider the results of the government’s inundation models for the innerpart of Tokyo Bay, around which companies and population are concentrated.
Estimates show damage from a storm surge with an inundation depth of 5m exceeds
damage from either a 3m high tsunami from an earthquake in the Nankai Trough or
a 4m high tsunami from an inland earthquake beneath the Tokyo Metropolitan Area.
A feature of storm surge is its striking rise in the sea level of the inner part of a bay.
Therefore, storm surge could potentially raise sea level higher than a tsunami inJapan’s three large bays around which population and structures are concentrated.
Estimates show that some areas where flooding from storm surge is expected show nodamage in the event of a tsunami. This means that tsunami countermeasures do notcompletely protect against storm surge.
		 Estimates showing that storm surge risk exceeds tsunami risk are not limited
to Tokyo Bay. Ise Bay near Nagoya City is another example, as it is exposed to the riskof both tsunami from earthquakes in the Nankai Trough and storm surge fromtyphoons. Aichi Prefectural Government is analyzing potential water levels fromstorm surge and comparing them to those of a tsunami caused by an earthquake in
the Nankai Trough expected in the not-too-distant future. Results clearly indicate thatstorm surge risk exceeds tsunami risk for the inner part of the bay bordering the population centers of Nagoya, Kinuura Port and Mikawa Port.
A historical comparison of water levels in Osaka Bay from major tsunami andstorm surge shows that average water levels from storm surge are higher than thosefrom tsunami. The comparison does not account for return period, but that in noway suggests that storm surge risk is less than tsunami risk.
Figure 1: Comparative Rise in Sea Level due to Tsunami and Storm Surge

Rise in Sea Level(m)

3

2

1

0

TsunamiStorm surge

Source: Ministry of Land, Infrastructure, Transport and Tourism

Of course, both tsunami and storm surge are phenomena that cause the sea levelto rise; however, in the case of storm surge, it is accompanied by the strong winds thatdrive the high waves. In other words, during storm surge there is not only inundating
20

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

flood caused by the rise in water level but also inundating waves accompanied by thehigh seas. Caution is therefore necessary, because there are cases in which facilities
behind a seawall are damaged even when the storm surge does not overrun the seawall.
Let’s consider the impact of global warming on storm surge damage. Observations
show that the sea level on the coast of Japan is still rising, having risen by 7cm from1980 to 2000. Hiroshima Bay is not one of the three large bays discussed earlier but it
is also an area in which storm surge risk is high. One of the islands in this bay is home
to Itsukushima Shrine, a world cultural heritage site. This shrine was first built in the
6th Century, and took on its current form in the 12th Century. Covered with primitive religious relics, the entire island was revered as an island of the gods. Many of theshrine’s cloisters were constructed in the intertidal zone of this site, avoiding construction on the island due to its sacred nature. Consequently, the shrine’s cloisters haveexperienced frequent storm surge damage and have recorded many flood events inrecent years. Itsukushima Shrine’s cloisters were flooded up to four times annually during the 1990s, and even more frequently during the 2000s; flooding occurred 22 times
in 2006. Global warming is likely one of the factors.
Figure 2: Instances of Flooding at Itsukushima Shrine’s Cloisters(times)
25
22
20
17
15
12
10

10

11
7

5

4
1

0

0

1

1

2
0

0

0

3
1

0

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Ministry of Land, Infrastructure, Transport and Tourism

Given that the Intergovernmental Panel on Climate Change (IPCC) Fourth
Assessment Report projects that sea level will rise by a maximum of 59cm in 100 years,
it is estimated that zero-meter zones around Japan’s three large bays will increase by
50% due to the rise in sea level. More than 4 million people now live in zero-meterzones, and this number is estimated to increase to around 6 million. The IPCC Fifth
Assessment Report indicates the possibility that sea level will rise by a maximum of
82cm by the end of the century due to global warming. This estimate exceeds the 59cm
in the IPCC Fourth Assessment Report, leading to concern that rising sea levels in the
future will increase storm surge risk.

21

4. Storm Surge Risk in Japan

3. H
 azardous Effectsof Global Warming

The policyholders of non-life insurance companies tend to be concentrated in large
cities such as Tokyo, Osaka and Nagoya, which are all located beside the inner part ofbays, so increased storm surge risk due to global warming will significantly impact
insurance losses. IPCC forecasts that radiative forcing will increase from 3.0W/m2 in2011 to 8.5W/m2 in 2100. Applying this forecast to formulas presented by researchover the past several years suggests that the central pressure of a typhoon may rise by
18%. Future forecasts for typhoons must therefore take both the rise in water level andthe increase in typhoon intensity into account.
The storm surge models of the three large bays created by Japan’s national and local
governments are based on incidents of extensive damage in the past from typhoons
with intensity in the same class as Typhoon Vera and the Muroto Typhoon, and take
into account the changes in sea level due to global warming described by the IPCC
Fourth Assessment Report. At the same time, the scenario for Osaka Bay uses the pressure of Typhoon Nancy (the Second Muroto Typhoon), which made landfall near
Okinawa, to account for climate change. The models for Tokyo Bay and Osaka Bay use
the respective worst-case scenario path for each model, while the models for Ise Bay
make assumptions about the path of the typhoon by area because of the complex shapeof the bay.
InterRisk Research Institute & Consulting quantitatively analyzed risk of storm
surge in Japan’s three large bays using the Japanese government’s hazard mapping methodology, while also reflecting the impact of global warming on typhoon intensity andsea level. Case 1 is the worst-case scenario given current weather. Case 2 is a scenariothat applies the effect of global warming on sea level as described in the IPCC Fifth
Assessment Report to Case 1. Case 3 also considers greater typhoon intensity resulting
from increased radiative forcing in addition to the higher sea level in Case 2.
Table 1: Case Study Parameters
Case Study
Tokyo BayIse Bay

Osaka Bay

Sea Level Used

Typhoon Intensity

Case 1

H.W.L.

Muroto Typhoon class

Case 2

H.W.L.+0.82m

Muroto Typhoon class

Case 3

H.W.L.+0.82m

Muroto Typhoon class +Impact of radiative forcing

Case 1

H.W.L.

Muroto Typhoon class

Case 2

H.W.L.+0.82m

Muroto Typhoon class

Case 3

H.W.L.+0.82m

Muroto Typhoon class +Impact of radiative forcing

Case 1

H.W.L.

Typhoon Vera class

Case 2

H.W.L.+0.82m

Typhoon Vera class

Case 3

H.W.L.+0.82m

Typhoon Vera class +Impact of radiative forcing

H.W.L.− High Water Level

We evaluated the impact of global warming on storm surge risk based on inundation area. Global warming increased inundation in all three large bays, and the increasein Ise Bay was the most striking. The rate of increase in inundation area compared withcases that did not take global warming into account was greatest for Tokyo Bay.
Comparing the increase in inundation area as a result of global warming to the preglobal warming cases, the rate was over 50% higher for Tokyo Bay and about 40%
higher for the three large bays overall. The rate of increase in inundation area was greater

22

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

with the impact of increased radiative force (variance between Case 2 and Case 3) thanwith the impact of higher sea level (variance between Case 1 and Case 2), which elucidated the need to calculate for radiative forcing in evaluating storm surge risk thatreflects the impact of global warming.
This analysis does not take seawall breaches into consideration. It is obvious thatdamage would be even more serious in the event of a seawall breach.
Figure 3: Result of Storm Surge Analysis for Each Case Study
Tokyo BayIse Bay

Osaka Bay

Case 1Case 2

Case 3Inundation
depth (m)High: 3

Low: 0Figure 5: Increase Ratio of Inundation
Area for Each Case Study800(%) 180

700

170

Increase ratio of inundation area

Inundation area (km2)

Figure 4: Inundation Area for Each
Case Study

600
500
400
300
200
100
0

Case 1
Tokyo Bay

Case 2Ise Bay

Case 3
Osaka Bay

160
150
140
130
120
110
100

Case 1
Tokyo Bay

Case 2Ise Bay

Osaka Bay

Case 3Three bays23

4. Storm Surge Risk in Japan

4. The Impact ofGlobal Warming
on Cargo
Containers

Cargo owners can transfer storm surge risk on cargo because non-life insurancecompanies provide insurance products that cover damage from seawater inundation.
Many container yards are located in the inner part of bays where storm surge risk is particularly high, and historically have suffered storm surge damage. Sophisticated methods
to evaluate storm surge risk for cargo containers and risk map databases are therefore
required. InterRisk Research Institute & Consulting has developed a tool for estimatingcargo container damage rates from depths of storm surge inundation in order to evaluate
the vulnerability of cargo containers to storm surge risk. Variations in mean damage ratio(MDR) for cargo containers at container terminals in each of the cases in Figure 4 above
were analyzed using this tool. The results indicate that storm surge risk for containers at
Osaka Bay was highest among the three large bays regarding the impact of global warming. MDR for the three large bays as a whole was about 0.44 for Case 1 and rose to 0.6
for Case 3. In other words, storm surge risk increased 37% as a result of global warming.
Figure 6: C ontainer Storm Surge Risk for Each Case
1.0

Tokyo Bay

0.9

Ise Bay

0.8

Osaka Bay

MDR

0.7

Three bays

0.6
0.5
0.4
0.3
0.2
0.1
0

Conclusion

24

Case 1Case 2

Case 3This report discusses public awareness and actual status of storm surge risk in Japan.
Japan seems to be safe because it is ringed with seawalls. Many large cities, however, arelocated in broad zero-meter zones, and flood damage will be extensive if seawalls are
swamped or breached. The report also discusses phenomena considered to be the impact
of global warming, which have become more apparent over the past several years. Global
warming does not just involve rising sea level; it also triggers increased storm surge risk
because it increases the intrinsic typhoon intensity. We are likely to experience more frequent and more powerful storm surges in the near future. Therefore, in the opinion of
the author, non-life insurance companies need to prepare reflecting the impact of global
warming in calculating typhoon risk on their own portfolios.
Several issues are impacting public awareness of storm surge risk. The modelingmethodologies for storm surge hazard maps that Japan’s national and local governments
are preparing are not consistent. Therefore, the increase in the intrinsic typhoon intensity and recent rises in sea level are not always incorporated in global warming assumptions in each modeling methodology. The Japanese national and local governments
need to be more consistent in their modeling methodologies and need to promote
greater public awareness and understanding of the risk of storm surge.
Concern of Japanese people has heavily focused on tsunami risk since the Great
East Japan Earthquake, but hopefully will turn at least slightly to storm surge risk. We
must not forget that we are exposed to storm surge risk, and we must recognize thattsunami countermeasures alone do not sufficiently address storm surge risk.

5.
1. Trends in BusinessResults of Non-Life
Insurance
Companies for
Fiscal 2015

2. Trends in the NonLife Insurance
Industry

Trends in Japan’s Non-Life Insurance Industry
Underwriting & Planning Department
The Toa Reinsurance Company, Limited

Fiscal 2015 results for Japan’s non-life insurance companies were solid. An overview of the results of the 26 non-life insurers is as follows:
Net premium income in all lines of business increased to 8,359.7 billion yen, up
276.6 billion yen from the previous fiscal year, due to factors including measures toincrease the profitability of automobile insurance and a surge in demand prior to fire
insurance product revisions in October 2015.
In addition, net claims paid decreased by 36.6 billion yen to 4,568.9 billion yen.
This was because significant claims had been paid in the previous fiscal year due tothe heavy snowfall in February 2014. As a result, the loss ratio for fiscal 2015
improved by 2.4 percentage points to 59.9%.
Expenses rose by 80.4 billion yen to 2,681.5 billion yen year on year because
higher premium income increased agency commissions. Net expense ratio decreasedslightly by 0.1 percentage points to 32.1%.
On the other hand, underwriting profit (earned incurred basis) decreased by 28.5
billion yen to 114.8 billion yen because of the increase in underwriting reserve.
Ordinary profits, calculated as the sum of underwriting profit and investment
profit, increased 47.9 billion yen to 794.7 billion yen.
After deducting tax expense of 164.6 billion, net income increased 191.1 billion
yen year on year to 569.9 billion yen.

(1) Overview of the Non-Life Insurance Industry
Japan’s non-life insurance industry comprises 26 Japanese non-life insurancecompanies that are members of the General Insurance Association of Japan (GIAJ)
and 21 companies that are members of the Foreign Non-Life Insurance Association ofJapan, Inc. (FNLIA). Currently, Japan’s non-life insurance market is an oligopoly inwhich the top three non-life insurance groups (MS&AD Insurance Group Holdings,
Inc., Sompo Japan Nipponkoa Holdings, Inc. (hereinafter abbreviated to “SOMPOHOLDINGS”) and Tokio Marine Holdings, Inc.)1 account for more than 85% of net
premium income of GIAJ member companies as a whole.
Note: 1. Presented in alphabetical orderJapan’s non-life insurance companies have increased operating efficiency since liberalization in 1996, and have conducted mergers and business integration since 2000.
As a result, the average underwriting expense ratio (other than commission and brokerage) for GIAJ member companies has decreased to 14% for fiscal 2015, comparedwith 21% for all companies in the industry for fiscal 1995, prior to liberalization.
Recent trends among the top three non-life insurance groups are as follows.
MS&AD Holdings operates under a framework of two core non-life insurancecompanies consisting of Mitsui Sumitomo Insurance Co., Ltd. and Aioi Nissay Dowa
Insurance Co., Ltd., which was created through the merger of Aioi Insurance Co.,
Ltd. and Nissay Dowa General Insurance Co., Ltd. in October 2010.
With respect to SOMPO HOLDINGS, Sompo Japan Insurance Inc. and
NIPPONKOA Insurance Co. Ltd., were merged into Sompo Japan Nipponkoa
Insurance Inc. in September 2014, forming the largest non-life insurance company inJapan in terms of non-consolidated premium income.
25

5. Trends in Japan’s Non-Life Insurance Industry

With respect to Tokio Marine Holdings, Tokio Marine & Nichido Fire InsuranceCo., Ltd was created through the 2004 merger of Tokio Marine and Fire InsuranceCo., Ltd. and Nichido Fire and Marine Insurance Co., Ltd. Tokio Marine Holdings
subsequently integrated its management with Nisshin Fire & Marine Insurance Co.,
Ltd. in 2006.

(2) Expansion of Overseas Business
Organic growth in the Japanese non-life insurance market is not likely due to factors such as the low birth rate and aging of society. The top three non-life insurancegroups have all positioned overseas business as a growth driver, and are aggressively
implementing initiatives such as forming business alliances with local insurance companies and engaging in M&A.
Figure 1 shows overseas premium income for each of the top three non-life insurance groups. Over the past several years, overseas net premium income2 for the top
three non-life insurance groups has been trending upward, and fiscal 2015 overseas
net premium income was about three times that of fiscal 2011. As a result, the overseas businesses of the top three groups now represent about 15% of total net premium income.
Note: 2. The total of net premium income from non-life insurance and life insurance premiums.

Figure 1: Overseas Net Premium Income for the Top Three Non-Life Insurance Groups(Billions of yen)

2,000

1,500

1,000

500

0

2011

2012

2013

2014

2015

(Fiscal)Key overseas business developments among the top three non-life insurancegroups and recent trends are as follows:
MS&AD Holdings acquired the general insurance operations in Asia of U.K.
company Aviva plc in 2004, and used it as its base for advancing into the ASEAN
region. Moreover, in February 2016 MS&AD Group completed its acquisition of
Amlin plc of the United Kingdom, thus strengthening its reinsurance business.
SOMPO HOLDINGS acquired leading U.K. specialty (re)insurer CanopiusGroup Limited in May 2014, thus expanding its international business significantly.
In addition, it restructured its reinsurance business in November 2015 by consolidating group reinsurance operations within Sompo Canopius AG.
Tokio Marine Holdings has developed its overseas operations particularly inEurope and the United States. It acquired U.K. company Kiln Ltd. and U.S. company
26

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

Philadelphia Consolidated Holding Corporation in 2008, then acquired U.S.
company Delphi Financial Group, Inc. in 2012. Moreover, in October 2015 it
acquired U.S. specialty insurer HCC Insurance Holdings, Inc.
Table 1: Overseas Business Development among Japan’s Top Three Non-Life		
Insurance Groups(2015-2016)
Month/Year

Name of Company

Contents

February 2015

Tokio Marine &NichidoEntered a business relationship agreement with South
African company Hollard Insurance Company Limited

April 2015

Aioi Nissay Dowa
Acquired shares of Box Innovation Group Limited,
Insurance Company
a major U.K. telematics3 auto insurance company
of Europe

July 2015

Mitsui Sumitomo
Insurance

Invested in Sri Lanka’s largest insurance group

October 2015

Tokio Marine &NichidoCompleted acquisition of HCC Insurance Holdings, Inc.

November 2015

SOMPO
HOLDINGS

Consolidated reinsurance business within Sompo
Canopius AG

December 2015

Mitsui Sumitomo
Insurance

Increased ownership of Indian joint-venture company

February 2016

Mitsui Sumitomo
Insurance

Completed acquisition of Amlin plc of the United Kingdom

April 2016

Aioi Nissay Dowa
Insurance

Established a new U.S. subsidiary for research and investigation for advanced automotive technology

April 2016

Aioi Nissay Dowa
Insurance Services
USA Corporation

Established joint telematics auto insurance services company in the United States

May 2016

Tokio Marine Asia
Pte. Ltd.

Increased shareholdings in Bao Viet Tokio Marine
Insurance

June 2016

Sompo Holdings(ASIA)

Entered into a non-life bancassurance partnership with
CIMB Group

Source: Compiled from press releases from each company. Company names are abbreviated.
Note: 3. ‌Telematics automobile insurance has premiums that reflect analysis of driver behavior andmeasurement of driving distance.

3. Product Trends(1) Automobile Insurance
An increase in accidents caused by older drivers and lower automobile use among
the young was a key factor reducing profits in Japan’s automobile insurance business.
In recent years, non-life insurers have therefore moved to revise their automobile
insurance products, including rates, to improve earnings.
With product revisions driving gains in automobile insurance profitability, theresults of non-life insurers remained firm in fiscal 2015.
At the same time, significant technological advances in the automobile industry
are likely to cause major changes over the medium and long term in the operating
environment and risks of the Japanese automobile insurance industry.
Anticipating innovation in the automobile industry, major non-life insurancecompanies are collaborating with automobile manufacturers to use telematics and27

5. Trends in Japan’s Non-Life Insurance Industry

sophisticated safety technologies in automobile insurance. Moreover, non-life insurance companies may well accelerate various research activities and infrastructuredevelopment to address the advance of futuristic autonomous vehicle technologies.
Autonomous vehicles should reduce traffic accidents and congestion. The world’s
automobile manufacturers are competing intensely to develop this technology, withseveral now conducting road tests.

(2) Fire Insurance
The General Insurance Rating Organization of Japan raised reference loss cost
rates4 in July 2014 since fiscal year 2004. Non-life insurance companies then revised
fire insurance premiums from October 2015.
The recent revision mainly reflected an increase in payout of insurance benefits
for wind, hail and snow damage. Non-life insurance companies raised premiums by anationwide average of 2 to 4%.
In addition, the maximum term of 36 years for long-term contracts has been
reduced to 10 years. Evaluating long-term fire insurance risks has become more difficult because global warming increased uncertainty in predicting future natural disaster risks.
Note: 4. ‌The General Insurance Rating Organization of Japan calculates the portion equivalent to thenet premium and provides the reference loss cost rates to non-life insurance companies.

4. Trends inRegulation by
Regulatory Agencies(1) Risk Management among Insurance Companies
The revised Insurance Core Principles (ICPs) adopted by the International
Association of Insurance Supervisors (IAIS) in October 2011 specified the implementation of Own Risk and Solvency Assessment (ORSA) practices. As a result, the introduction of ORSA-related regulations and systems is progressing internationally. In
Japan, the Financial Services Agency (FSA) has been conducting enterprise risk management (ERM) hearings with certain insurance companies since 2011. In February
2014, the FSA revised its Comprehensive Guidelines for the Supervision of Insurance
Companies to incorporate items related to ERM, including ORSA. Moreover, fromfiscal 2015 all Japanese insurance companies are obligated to submit ORSA reports,
which the FSA uses to check the status of insurance company ERM, including ORSA.
Another major FSA initiative involves examining economic value-based evaluationand supervision methods. The FSA has been preparing for the introduction of an economic value-based solvency regime by conducting field tests (currently, insurers andreinsurers undergo the third test). The FSA is taking the issues it confirmed with thefield tests into account as it proceeds with studies for formulating a definite regime. The
timeframe for introducing a definite economic value-based solvency regime has not yet
been announced, but the FSA is expected to develop the new regime while studying
trends at the IAIS and the International Accounting Standards Board.

(2) Regulations for Insurance Sales Representatives
One of the amendments to the Revised Insurance Business Act, enacted in May
2016, introduces an “obligation to confirm customer intentions” and an “obligation
to provide information” about products for comprehensive insurance agencies that sell
28

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

the products of multiple companies and engage in comparison selling.
Restructuring the regulations for insurance sales representatives to allay criticism
of comprehensive agencies that advocate neutrality but sell the products that generatehigh commissions from insurance companies is a means to ensure public trust in theinsurance system and protect policyholders.

5. M
 ajor Natural
Disasters

Losses from major natural disasters in Japan in recent years are as follows.

(1) Typhoon Goni in 2015
Typhoon Goni lasted from August 24 to August 26, 2015 and caused extensive
damage in Western Japan. According to GIAJ, payout of insurance benefits for
Typhoon 15 (Goni) totaled 164.2 billion yen, which historically was the fourth largest payout for typhoon damage.

(2) The 2016 Kumamoto Earthquake
Two large-scale earthquakes struck Kumamoto Prefecture on April 14 and April
16, 2016. The earthquake on April 14 was a foreshock with a magnitude of 6.5, andthe main earthquake on April 16 had a magnitude of 7.3. A string of inland earthquakes with magnitudes of 6.5 or more occurred for the first time in Japan
Meteorological Agency’s recorded history, which expanded the damage from theearthquakes.
Payout of earthquake insurance benefits to dwellings5 as a result of the Kumamoto
Earthquake had already reached 328.5 billion yen as of June 27, 2016. This amountexceeds the 78.3 billion yen for the Great Hanshin-Awaji Earthquake in 1995, and issecond to the 1,265.4 billion yen for the Great East Japan Earthquake in 2011.
Note: 5. ‌Earthquake insurance on dwelling risk in Japan is an optional rider attached to a fire
insurance policy, and pays out insurance benefits for damage from earthquakes, volcanic
eruptions or resulting tsunami. Payout of earthquake insurance benefits can be huge. The
system is therefore structured so that the government and non-life insurance companies
share insurance liabilities capped at 11.3 trillion yen per disaster.

The increased payout of insurance benefits for the Kumamoto Earthquake isbacked by the higher penetration of earthquake insurance as a result of the Great
Hanshin-Awaji Earthquake and the Great East Japan Earthquake. In Kumamoto, theepicenter of the damage, the penetration ratio of earthquake insurance in 1995 when
the Great Hanshin-Awaji Earthquake occurred was 5.8%, but rose by about five times
to 28.5% in 2014.
Japan has a public-private earthquake insurance system that has the goal of “helping to contribute to the stability of the lives of disaster victims of an earthquake.” To
achieve this goal, Japanese insurance companies are accelerating the payout of earthquake insurance benefits following earthquakes by immediately strengthening theirloss service organization in ways such as adding personnel to handle insurance payouts and simplifying insurance claim procedures.

29

6.
1. General Topics
Related to the Life
Insurance Market

2. O verview ofBusiness Results for
Fiscal 201530

Trends in Japan’s Life Insurance Industry
Life Underwriting & Planning Department
The Toa Reinsurance Company, Limited

Negative Interest Rates
The Bank of Japan decided to introduce a negative interest rate policy on January
29, 2016. The negative interest rate policy led market interest rates lower, whichbegan to impact single-premium insurance products, which are the flagship savingstype products of life insurance companies.
For single-premium products, insurance companies receive the full amount of thepremium at one time before the date of issue, and they primarily invest these premiums in ultra-long-term government bonds. The Bank of Japan’s decision to implement a negative interest rate policy has driven government bond interest rates down
further, which presents insurance companies with difficulties ensuring the yield (orthe expected rate) they have promised policyholders. Therefore, a number of companies decided to drop expected rates for single-premium whole life insurance. Further,for single-premium endowment insurance and single-premium individual annuities,
insurance companies need to invest their premiums in fixed-term government bonds
with lower interest rates due to the shorter investment period for these products compared with single-premium whole life insurance. Under such circumstance, it is quitedifficult to ensure the yield, therefore some companies have stopped sales of theseproducts.
Regardless of whether they are single premium payments or equalization payments, holding government bonds as assets that match the duration of liabilities is afundamental approach to manage long-term liabilities for life insurance companies.
However, the negative interest rate policy has led market interest rates lower, making
it difficult to ensure an interest rate from government bonds that exceeds the expected
rate. Given these conditions, insurance companies have rushed to diversify investment
management to include foreign bonds with higher interest rates and investments ingrowth areas such as environment-related and infrastructure businesses.
Life insurance companies struggled with negative spreads in the 1990s following
the collapse of Japan’s bubble economy. Attention has now turned to how life insurance companies will handle the low market interest rates that have resulted from thecurrent negative interest rate policy.

The fiscal 2015 business results for 41 life insurance companies are as follows:(1) Total Amount of New BusinessIn the fiscal year ended March 31, 2015, the total insured amount of new business increased for individual life, health, and annuity because of the popularity of
products denominated in foreign currencies with favorable yields amid continued low
interest rates. Additionally, in the fiscal year ended March 31, 2016 the total insured
amount increased by 2.8% to 69.3 trillion yen for individual life and health because of
the same factor to 2015, while it decreased by 3.5% to 8.3 trillion yen for individual
annuity because several companies stopped selling single-premium annuities as theinvestment environment deteriorated due to the introduction of negative interest rates.

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

(2) Total Amount of In-force Business
The total insured amount of in-force business for individual life and healthincreased by 0.1% compared with the previous fiscal year to 858.6 trillion yen, withgrowth in new business offsetting factors including cancellations. For individual
annuity, the amount decreased by 0.5% to 103.6 trillion yen, which was the firstdecrease in 13 years, mainly due to lower sales of single-premium annuities.

(3) Premium Revenues and Total Assets
Total premium revenues increased by 0.7% compared with the previous fiscal
year to 39.0 trillion yen, with the popularity of insurance products denominated inforeign currencies offsetting lower sales of single-premium annuities. Total assets were
almost unchanged at 367.2 trillion yen.

3. Trends in the Life
Insurance Industry(1) Privatization of Japan Post Insurance
jJapan Post Group ListingsThree Japan Post Group companies listed their shares on the Tokyo Stock
Exchange on November 4, 2015: Japan Post Holdings, Japan Post Bank andJapan Post Insurance.
The Japan Post Group has finally started to move forward with privatization,
10 years after postal reform began in 2005 during the Koizumi administration.
Privatization of postal infrastructure, including related operations such as postal
services, the postal savings system and postal insurance, is part of a global trend.
Deutsche Post of Germany listed its shares in 2000, as did Royal Mail Group of
the United Kingdom in 2013.
Japan Post Group has consolidated total assets of nearly 300 trillion yen.
The 2015 listing was the third largest in the history of Japan’s stock market, following the large-scale public offerings of NTT in 1987 and NTT Docomo in
1998. Moreover, the listing of the three companies on the First Section of theTokyo Stock Exchange went smoothly, with prices closing higher than the initial offering prices for all three.
However, the enthusiasm for the listings came to an end. Japan Post Group
listed company share prices have been declining in tandem with wild fluctuations
in stock prices in markets worldwide since the beginning of 2016. Moreover, due
to the introduction of a negative interest rate policy by the Bank of Japan on
January 29, 2016, reduced investment incomes are expected. The operating environment remains challenging, and attention is now focused on the post-privatization
growth strategies presented by Japan Post Group companies.

kJapan Post Insurance Trends
Japan Post Insurance has an exceptionally broad network because it uses
the approximately 24,000 post offices (as of April 30, 2016) throughout Japanas a sales channel. It therefore has a powerful customer base, and was one of theleading life insurance companies in Japan with premium and other revenues
totaling approximately 5.4 trillion yen in fiscal 2015.

31

6. Trends in Japan’s Life Insurance Industry

Japan Post Insurance was created in 2007 through the privatization andcorporate separation of Japan Post. However, since privatization, strict restrictions limiting the insurance amount per person and the scope of operations
have remained. Under these circumstances, the basic product lineup it had during
the postal insurance era before privatization has been maintained, therefore thenumber of policies in force has been trending downward because of diversifying
customer needs.
The 2015 public offering started Japan Post Insurance on the road toward
its long-sought goal of true privatization. Japan Post Group’s medium-term
management plan is titled “New Japan Post Group Network Creation Plan
2017.” Its strategies for Japan Post Insurance are to establish the financial management base that will be necessary for growth, develop products and services toenhance its strengths, and aim for the reversal of the decreasing trend of policies
in force after the final fiscal year of the Medium-term Management Plan
(FY2018/3). This suggests various plans will be formulated to achieve targets inthe future. As one plan to diversify revenue sources, on March 11, 2016 Japan
Post Insurance obtained a license for the reinsurance of the policies that Japan
Post Insurance and Japan Post sell as sales agents for other life insurance companies.
In addition, on March 29, 2016 Japan Post Insurance concluded a business alliancewith The Dai-ichi Life Insurance Company, Limited with the goal of building acomplementary relationship in areas such as the overseas life insurance businessand asset management.
The constraints on Japan Post Insurance have been relaxed in conjunction
with the public offering. On April 1, 2016, the limits on the insurance amountper person were revised for the first time in 30 years, and the cumulative limitof 13 million yen increased to 20 million yen. Limits on the scope of businessexpansion and other restrictions will likely ease if Japan Post Insurance is seen ascompeting fairly with the other private life insurance companies.
Japan Post Insurance used to be subject to a wide range of restrictions, but
its proactive initiatives after privatization will bring intensified competition in themarket. The impact of privatization of Japan Post Insurance on Japan’s life insurance market requires attention.

(2) Acquisitions by Large Life Insurance Companies
Japan’s population is currently over 120 million, but is decreasing due to the lowbirthrate and is estimated to fall to 100 million in 2045. Japan’s population is also
aging, with the current high ratio of one in four people age 65 or older forecast to rise
to about one in three in 2035. Japan’s life insurance market is contracting because of
the aging of society and the low birthrate. Individual policies in force in fiscal 2014
for principal products including death benefit products and health insurance totaled
857 trillion yen, which was 43% below the historical high in fiscal 1996.
With the Japanese life insurance market forecast to contract further due to theaging of society and low birthrate, large Japanese life insurance companies have beenenergetically advancing outside Japan.

32

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

Large Japanese life insurance companies have been exploring overseas businessdevelopment by investing in life insurance companies in emerging countries in Asiawith growing populations and low life insurance penetration rates. However, theseinvestments have been limited to small amounts because capital restrictions on foreign investment are stringent in Asia.
On the other hand, in 2015 Japanese life insurance companies announced a succession of major investments to acquire life insurance companies in developed countries, primarily the United States. These investments are expected to contribute toearnings from the first year after acquisition.
Announced Acquiring Company
June 2014 Dai-ichi Life Insurance
July 2015
August2015
October2015

Meiji Yasuda Life
Insurance Company
Sumitomo Life
Insurance Company
Nippon Life Insurance
Company

Acquired Company
Country
Protective Life
United States
Corporation
StanCorp Financial United States
Group, Inc.
Symetra Financial
United States
Corporation
Australia
The life insurance
business of MLC
Limited, a subsidiaryof National Australia
Bank Limited

Acquisition Cost
Approx. USD 5,554
millionApprox. USD 4,950
millionApprox. USD 3,732
millionApprox. AUD 2,400
million**Estimated amount when the press release was issued

Japanese life insurance companies launched into large overseas acquisitions todiversify their revenue base. To secure stable earnings deserving of the massive investments, given that regulations and the market environment differ from those in Japan,
the key issue now is how the acquiring companies can increase corporate value byaddressing the challenges of cultivating personnel, creating synergies through productdevelopment, and managing companies outside Japan.
At the same time, in Japan, Nippon Life has announced the large-scale acquisitionof Mitsui Life for approximately 280 billion yen. One objective of this acquisition is
to collaborate with Mitsui Life in flexibly providing suitable products to the growing
channels of bancassurance and insurance shops. On the other hand, Dai-ichi Life has
already launched a subsidiary that specializes in providing protection-type products tothese channels. The Japanese market continues to contract due to aging and the lowbirthrate, therefore these types of acquisitions and alliances aimed at enhancing marketing are likely to continue. Nippon Life’s acquisition of Mitsui Life and the privatization of Japan Post Insurance are likely to add momentum to the restructuring ofJapan’s life insurance companies and the industry as a whole, and future moves amonglife insurance companies will demand attention.

33

6. Trends in Japan’s Life Insurance Industry

4. Product Trends(1) New Products Launched to Support the Treatment of Dementia
The composition of Japan’s population has changed, with 26.7% now 65 orolder. Japan has become a super-aged society, and the number of people with dementia has been increasing over the past several years as a result. In 2012, 4.6 million people suffered dementia, representing one in seven people age 65 or older. And thisnumber will increase in the future. In 2025, 7 million people are forecast to suffer
dementia, representing one in five people age 65 or older.
The public long-term care insurance system in Japan has usage limits according to
the extent of long-term care required, and pays 90% of the long-term care costs fordementia patients within these limits. Patients, however, are responsible for 100% of all
costs beyond the limits. Dementia has become a social issue in recent years because thecosts for treatment and long-term care expenses are rising, and more people are having toleave their jobs because they need to take care of relatives suffering from dementia.
Few patients recover from dementia, and most require long-term treatment.
However, early detection and appropriate treatment can ameliorate symptoms and slow
the progression of the disease. Consequently, needs have been growing for insurance
products that cover costs for treatment and nursing of patients suffering from dementia.
In March 2016, Taiyo Life Insurance Co., Ltd. was first in the industry to sell adementia-related insurance product that only requires simple declaration to purchasea policy. This product pays a lump sum when a patient is diagnosed with organic
dementia, a type of dementia associated with organic changes in the brain, and if thecondition persists for at least 180 days. Moreover, this product is a relaxed underwriting type that can be purchased by customers who feel anxiety about their health orhave been hospitalized in the past.
Sales of dementia products besides those of Taiyo Life Insurance continue as well,and the market is forecast to expand in accordance with market needs.

(2) Life Insurance Industry Response to LGBTIn April 2016, Shibuya ward in Tokyo began offering a “partnership certificate”
in line with its stated goal of realizing a broadly participative society that respects
diverse people regardless of gender or other characteristics in which people can fully
exercise their individuality and capabilities and share social responsibilities. While thiscertificate differs from a legally binding marriage certificate, it does place same-sex
marriages on the same plane as heterosexual marriages as long as certain conditions
are satisfied. This trend mirrors the infiltration of the culture of respect for the individual associated with progress of globalization in recent years. In line with this social
development, the life insurance industry has moved forward with initiatives for theLGBT (lesbian, gay, bisexual, and transgender) community. On October 29, 2015,
Lifenet Insurance Company announced that it had expanded the range of designateddeath benefit beneficiaries to allow designation of a same-sex partner. Previously,
spouses in a common-law marriage were recognized as beneficiaries under certain
conditions, but as a rule beneficiaries were limited to a spouse listed on the family
registry or up to a second-degree relative. Lifenet Insurance expanded the scope ofdesignation by applying the treatment for common-law marriages to same-sex partners if certain conditions are satisfied.
34

The Toa Reinsurance Company, Limited — Japan’s Insurance Market 2016

Other insurance companies are also expanding LGBT initiatives in ways such as
expanding beneficiary designation. Further, some insurance companies started to
implement their benefit programs for employees who have a same-sex partner. Not
limited to the LGBT issues, the development of new products that address various
social needs is expected.

5. Regulatory Trends

Financial Services Agency Permits the Sale of Infertility Insurance
Couples in Japan are increasingly marrying later and therefore having children
when they are older, and the number of couples seeking infertility treatment is growing. However, in vitro fertilization and surgical procedures such as sperm extraction
frequently cost about 300 thousand yen per procedure. At present, infertility treatments are generally not covered by public health insurance, so they are a heavy financial burden that leads couples to forego having a baby through infertility treatments,
thus contributing to the low birthrate.
Since reaching a record 4.54 in 1947, Japan’s overall fertility rate has declined
rapidly to a record low of 1.26 in 2005. The birthrate subsequently trended upwardslightly, but has remained at a low level compared with the rest of the world. Japan’s
population began to decrease in 2005 as a result. Japan is now an aging society with adeclining population. If the low birth rate continues, the nation’s GDP will fallbecause of the decreasing demographic engaged in productive labor. This in turn will
reduce the nation’s competitiveness. Moreover, a lower GDP will reduce Japan’s tax
revenue, which will reduce the quality of life and public services.
Japan’s declining population has become a social issue. The Abe administration isdrafting measures to achieve a target birthrate of 1.8 in 2025 by expanding support
for childbirth, including infertility treatment.
Based on these developments, on April 1, 2016 the FSA announced it would permit the sale of insurance products that cover the cost of expensive infertility treatments. A large number of issues must be resolved to develop infertility insurance
products, including the differing treatment criteria among medical institutions thatprovide infertility treatment. However, the economic need to offset large medical
expenses for infertility treatments is strong, and infertility insurance is a very sociallyconscious product. Insurance companies are therefore expected to continue studying
the development of infertility insurance products.

35

36

1,507,157
1,444,176
800,899
810,853
19,116
14,000167,896
171,328
113,970
89,114
6,786,590
6,790,021
58.9
62.2
31.0
31.8
2.40
2.44
585.9
651.5

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Fiscal 2015

Fiscal 2014

Mitsui
Sumitomo

804.9

829.3

2.34

2.28

35.0

34.3

63.2

59.2

3,470,706

3,418,516

39,48031,09868,973

61,771

14,79324,881

677,923

644,889

1,160,867

1,192,089

Aioi Nissay
Dowa

MS&AD Holdings

751.7

746.3

3.28

4.41

30.2

30.6

61.3

60.0

9,078,083

9,242,545

185,312

301,610

264,085

377,258

59,917

13,886

1,148,370

1,175,089

2,036,790

2,128,312

Tokio Marine &Nichido

1,064.5

1,127.7

1.42

1.41

32.6

32.7

63.7

61.6

431,903421,690

12,592

6,147

17,674

9,715

14,748

7,875

77,51675,731

136,634

138,671

NisshinTokio Marine Holdings

939.9

919.5

1.51

1.51

37.6

42.3

54.8

55.4

866,933

849,964

2,014(5,446)

4,780(7,845)(5,220)(12,991)

137,273

137,498

278,898

279,178

Fuji

851.4

792.0

4.12

4.01

22.8

23.7

79.4

70.6

489,561

491,993

2,634

2,191

11,5693,275(2,231)(8,246)

131,377

122,580

165,497

173,632

Toa Re(Unit: Millions of yen, %)Sources: Each company’s financial statements of Fiscal 2015

716.3

729.3

2.08

2.13

31.8

31.6

65.6

63.7

7,326,234

7,036,222

39,348126,289

166,828

178,086

42,14978,284

1,125,937

1,287,493

1,891,605

2,218,425

Sompo
Japan
Nipponkoa

Sompo Holdings

Results of Japanese Major Non-Life Insurance Companies for Fiscal 2015, Ended March 31, 2016
(Non-Consolidated Basis)

Notes 1. Sompo Japan Nipponkoa Holdings, Inc. will change its name to Sompo Holdings, Inc. on October 1, 2016.
2. ‌Sompo Japan Nipponkoa’s data for Fiscal 2014 in “Japan’s Insurance Market 2015” does not match the above data for Fiscal 2014. This is because Sompo Japan and Nipponkoa merged to become Sompo Japan Nipponkoa
Insurance Inc. on September 1, 2014, and Sompo Japan Nipponkoa’s data in “Japan’s Insurance Market 2015” did not reflect a consolidated adjustment account between two companies.

Ratio 4
Solvency Margin Ratio (%)

Ratio 3
Yield on Investments (Income) (%)

Ratio 2
Expense Ratio (%)

Ratio 1
Loss Ratio (%)

Total Assets

Net Profit (Loss) for the Year

Ordinary Profit (Loss)

Underwriting Profit (Loss)

Net Claims Paid

Net Premiums Written

Supplemental Data:

Printed in Japan