GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Trade, Committee on Ways and 

Means, House of Representatives

March 1999 U.S. - JAPAN TRADE

The Japanese 

Insurance Market

GAO/NSIAD-99-108BR

United States

General Accounting Office

Washington, D.C. 20548 Letr

Page 1 GAO/NSIAD-99-108BR Japan’s Insurance Market

GAO

National Security and 

International Affairs Division Letr

B-282164

March 15, 1999

The Honorable Philip M. Crane

Chairman, Subcommittee on Trade

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

U.S. insurers have raised concerns about Japan’s implementation of 

bilateral insurance agreements entered into with the United States in 1994 

and 1996. In recent years, Japan has taken some actions to deregulate its 

insurance market, both in accordance with these agreements and as part of 

its overall efforts at financial deregulatory reform. However, some U.S. 

insurance industry representatives have stated that the measures taken to 

date are insufficient. The U.S. and Japanese governments differ regarding 

the extent to which the agreements have been implemented.

At your request, we are currently assessing the implementation of the 

insurance agreements, as well as U.S. government monitoring and 

enforcement efforts. This interim report responds to your request for 

information on (1) the size of the Japanese insurance market; (2) the U.S. 

insurance company presence in and concerns regarding this market; and 

(3) the business, regulatory, and other events that have affected the 

Japanese insurance market in the 1990s. We expect to issue our final 

report in August 1999.

Results in Brief The Japanese insurance market is the second largest insurance market in 

the world after the United States, with $334 billion in annual premiums paid 

to insurance companies operating in Japan in fiscal year 1997.1 The 

Organization for Economic Cooperation and Development (OECD)2

reports that foreign market share grew in Japan, from 2.4 percent in 1990 to 

3.7 percent in 1996, the most recent year for which such data are available. 

1The 1997 Japanese fiscal year covers the period from April 1, 1997, to March 31, 1998. The premiums 

for this period in yen were 40,965 billion. We averaged the exchange rates for the four quarters of the 

period to obtain a rate of 122.7 yen to the dollar. 

2

The OECD is an international forum for monitoring economic trends and coordinating economic 

policy among 29 countries, including the United States and Japan.
B-282164

Page 2 GAO/NSIAD-99-108BR Japan’s Insurance Market

By comparison, foreign penetration of the U.S. insurance market in 1996 

was almost three times greater. 

Currently, 13 U.S. majority-owned insurance companies operate in Japan, 

with 81 percent of the $10.961 billion in premiums generated by these 

companies in fiscal year 1997 attributable to two insurance providers—the 

American Family Life Assurance Company of Columbus (AFLAC) and the 

American International Group (AIG).3 AFLAC is the largest U.S. provider 

of niche insurance products (such as cancer insurance), and AIG is the 

largest U.S. provider of standard life insurance and non-life insurance 

products (such as automobile insurance). CIGNA4

 is the next largest U.S 

provider in the Japanese insurance market, followed by Prudential Life 

Insurance Company, Ltd. Of total U.S. premiums, over 60 percent are 

attributable to niche products, with AFLAC accounting for $4.582 billion, or 

67 percent, of U.S. niche product sales in fiscal year 1997. U.S. insurers in 

Japan are concerned about the following issues: (1) Japan’s degree of 

deregulation of its market for standard insurance products, (2) Japanese 

firms’ increased activities in the market for niche insurance products,

(3) Japan’s level of transparency in approving new insurance products and 

making other regulatory decisions, (4) the sufficiency of staffing of Japan’s 

regulatory offices, (5) Japan’s handling of how insurance industry 

contributions are being determined for a new fund to protect policyholders 

from company failures, and (6) an impasse between the United States and 

Japan over the timing of a grace period during which U.S. and other 

insurers could gain a competitive foothold in important segments of the 

Japanese insurance market.

 Several business, regulatory, and other events have affected the Japanese 

insurance market in the 1990s. 

• Japan passed an “Insurance Business Law” in 1995, which went into 

effect in April 1996. The first major revision of Japan’s insurance laws in 

more than 50 years, this legislation, among other things, permitted life 

insurance companies to form non-life subsidiaries and non-life 

insurance companies to form life subsidiaries.

3AFLAC is a U.S. company based in Columbus, Georgia. AIG, a U.S.-owned entity, owns 100 percent of 

three insurance companies in Japan and 50 percent of a joint venture with a Japanese company.

4

CIGNA, a U.S. company, owns 100 percent of CIGNA Accident and Fire Insurance Company, Ltd., a 

non-life insurance company in Japan, and 90 percent of INA Himawari Life Insurance Company, Ltd., a 

life insurance company in Japan.
B-282164

Page 3 GAO/NSIAD-99-108BR Japan’s Insurance Market

• The failure of a major Japanese life insurance company in 1997 spurred 

some other Japanese insurers to find foreign partners. For example, a 

U.S. firm, GE Capital, formed a joint venture with failing Toho Mutual 

Life Insurance Co., in which GE Capital owns 90 percent of the business 

and Toho owns 10 percent. The new venture sells mostly standard life 

insurance policies.

• In 1997 and 1998, as part of its overall effort to deregulate its insurance 

market and implement the 1994 and 1996 agreements with the United 

States, Japan began allowing insurers greater flexibility in setting rates 

for liability, commercial fire, and automobile policies.

Additionally, in 1997, Japan agreed to include key commitments contained 

in the 1996 agreement as part of its obligations under a World Trade 

Organization (WTO) financial services agreement. As a result, these 

commitments apply to all WTO members. The WTO can therefore be a 

forum for resolving disputes related to these commitments. 

Background The insurance market in Japan is divided into three sectors. The first 

sector consists of standard life insurance products; the second sector 

consists of standard non-life insurance products (mostly automobile and 

fire policies). These two sectors combined are called the “primary” sector. 

In addition to the primary sector, a “third” sector of the Japanese insurance 

market includes certain life and non-life niche products such as cancer 

insurance and personal accident insurance. 

In 1994 and 1996, the United States and Japan signed agreements to reduce 

barriers that impede market access for competitive foreign insurance 

providers in the Japanese market. The 1994 and 1996 agreements also 

generally preserved foreign companies’ presence in the third sector by 

linking deregulation of that sector to substantial deregulation of the larger, 

primary sector. Under the 1996 agreement, once the government of Japan 

has met specific criteria to deregulate the primary sector, foreign insurers 

will have a 2-1/2 year period to gain a competitive foothold before the third 

sector is opened to new competition. The U.S. and Japanese governments 

are currently at an impasse over whether this 2-1/2 year period has begun. 

The Japanese government has stated that the required primary sector 

deregulation was completed on schedule and that the 2-1/2 year interim 

period began July 1, 1998. The U.S. government has stated that it does not 

support the initiation of the 2-1/2 year countdown because Japan has not 

fully implemented all the specific actions to deregulate the primary sector 

called for in the 1996 agreement.
B-282164

Page 4 GAO/NSIAD-99-108BR Japan’s Insurance Market

Agency Comments We discussed a draft of this report with knowledgeable officials from the 

Office of the U.S. Trade Representative (USTR) and the U.S. embassy in 

Japan. They agreed with the information presented and made some 

technical comments, which were incorporated in the report as appropriate.

Scope and 

Methodology

In order to obtain information on the size of the Japanese insurance 

market, we reviewed statistical data from the OECD and from Japanese 

sources. The Japanese sources were two annual publications: Statistics of 

Life Insurance Business in Japan and The Statistics of Japanese Non-Life 

Insurance Business (Tokyo, Japan: Hoken-kenkyujo [Insurance Research 

Institute], 1993-97). We did not verify the published firm and market 

information. Several different concepts of premium income are available 

to portray insurance operations in Japan. Our tables and graphs use the 

“premium income” of life insurance companies and the “net direct 

premium” (including savings premiums) of non-life insurance companies. 

These premiums are net of cancellations and other returns and exclude 

reinsurance. The measures used show total premiums received from 

policyholders.

In order to determine the U.S. company presence in and U.S. concerns 

about the Japanese insurance market, we interviewed company and 

industry association officials and looked at the Japanese statistical sources 

mentioned above. We converted yen data from these sources by averaging 

the exchange rates for the four quarters of Japan’s 1997 fiscal year—April 1, 

1997-March 31, 1998—to obtain a rate of 122.7 yen to the dollar. Our 

computations include prorated premiums for INA Himawari Life Insurance 

Company, Ltd., which is 90-percent owned by CIGNA, and Japan 

International Accident & Fire Insurance Co. Ltd., which is a 50/50 joint 

venture with AIG.

In order to identify the business, regulatory, and other events that have 

affected the Japanese insurance market in the 1990s, we examined the text 

of the 1994 and 1996 agreements, official U.S. statements of policy on

U.S.-Japan relations and the Japanese insurance market, industry position 

papers, reports by the Japan Economic Institute and the Japan Economic 

Almanac on insurance, and Japanese and U.S. insurance industry 

publications. 

We conducted our work between October 1998 and March 1999 in 

accordance with generally accepted government auditing standards.
B-282164

Page 5 GAO/NSIAD-99-108BR Japan’s Insurance Market

Briefing Section I provides more information on the size of Japan’s 

insurance market; Briefing Section II details U.S. company presence in and 

concerns regarding this market; and Briefing Section III describes in 

greater depth the business, regulatory, and other events that have affected 

the market in the 1990s. Appendix I highlights key steps Japan has taken to 

deregulate its insurance market and agreements it has made on insurance; 

Appendix II provides a more detailed list of these and other events, 

including Japanese regulatory measures, bilateral and multilateral 

activities, and Japanese and U.S. business actions.

We are sending copies of this report to Senator Joseph R. Biden, Senator 

Robert C. Byrd, Senator Pete V. Domenici, Senator Jesse A. Helms, Senator 

Frank R. Lautenberg, Senator Patrick J. Leahy, Senator Joseph I. 

Lieberman, Senator Mitch McConnell, Jr., Senator Ted Stevens, and Senator 

Fred Thompson, and to Representative Dan Burton, Representative Sonny 

Callahan, Representative Sam Gejdenson, Representative Benjamin A. 

Gilman, Representative John R. Kasich, Representative Sander M. Levin, 

Representative David R. Obey, Representative Nancy Pelosi, 

Representative John M. Spratt, Jr., Representative Henry A. Waxman, and 

Representative C.W. (Bill) Young in their capacities as Chair or Ranking 

Minority Member of Senate and House Committees and Subcommittees. 

We are also sending copies of this report to Ambassador Charlene 

Barshefsky, U.S. Trade Representative; the Honorable William M. Daley, 

Secretary of Commerce; the Honorable Madeleine K. Albright, Secretary of 

State; the Honorable Lynn Bragg, Chairman of the International Trade 

Commission; the Honorable Jacob Lew, Director, Office of Management 

and Budget; and to the firms we contacted in preparing this report. Copies 

will also be made available to others upon request.
B-282164

Page 6 GAO/NSIAD-99-108BR Japan’s Insurance Market

If you or your staff have any questions about this report, please contact me 

at (202) 512-4128.

Sincerely yours,

Benjamin F. Nelson, Director

International Relations and Trade Issues
B-282164

Page 7 GAO/NSIAD-99-108BR Japan’s Insurance Market
Page 8 GAO/NSIAD-99-108BR Japan’s Insurance Market

Contents

Letter 1

Briefing Section I

Size of Japan’s 

Insurance Market

10

OECD Shares of Insurance Market Premiums, 1988-96 10

Japan’s Insurance Market, Fiscal Years 1992-97 12

Japan’s Share of OECD Life Insurance Market, 1996 14

Japan’s Share of OECD Non-Life Insurance Market, 1996 16

Foreign Market Share in the Japanese and U.S. Insurance Markets,

1990-96 18

Briefing Section II

U.S. Company 

Presence in and 

Concerns Regarding 

the Japanese Insurance 

Market

 20

U.S. Firms in Japan’s Insurance Market, Fiscal Year 1997 24

U.S. Insurance Company Premium Distribution by Sector in Japan,

Fiscal Year 1997 26

U.S. Firms in Japan’s Primary Insurance Sector, Fiscal Year 1997 28

U.S. Firms in Japan’s Third Insurance Sector, Fiscal Year 1997 30

Areas of Concern for the U.S. Insurance Industry 32

Briefing Section III

Recent Events 

Affecting Japan’s 

Insurance Market 

34

Timeline of Recent Business Events in Japan’s Insurance Market 34

Timeline of Recent Regulatory Events in Japan’s Insurance Market 36

Timeline of Developments Affecting U.S.-Japan Insurance Agreements 38

Appendix I

Key Insurance 

Deregulation Steps and 

Agreements on 

Insurance by Japan, 

1992-98

40
Page 9 GAO/NSIAD-99-108BR Japan’s Insurance Market

Appendix II

List of Events Relating 

to Japan’s Insurance 

Market, 1990-Present

41

Appendix III

Major Contributors to 

This Report

50

Tables Table II.1: U.S. Life Insurance Companies in Japan, Fiscal Year 1997 20

Table II.2: U.S. Non-Life Insurance Companies in Japan, Fiscal

 Year 1997 22

Abbreviations

AFLAC American Family Life Assurance Company of Columbus

AIG American International Group

ALICO American Life Insurance Company

OECD Organization for Economic Cooperation and Development

USTR U.S. Trade Representative

WTO World Trade Organization
Page 10 GAO/NSIAD-99-108BR Japan’s Insurance Market

Briefing Section I

Size of Japan’s Insurance Market onISnigBefctri

Note: “Other OECD” excludes the United States and Japan.

Source: Insurance Statistics Yearbook, 1997 and 1998 editions (OECD, 1997 and 1998)

0

500

1000

1500

2000

2500

1988 1989 1990 1991 1992 1993 1994 1995 1996

Other OECD

Japan

USA

OECD Shares of Insurance Market

Premiums, 1988-96
Briefing Section I

Size of Japan’s Insurance Market

Page 11 GAO/NSIAD-99-108BR Japan’s Insurance Market

The global insurance market has grown over the last decade, from a total of 

$1,337 billion in premiums for Organization for Economic Cooperation and 

Development (OECD) countries in 1988 to $ 2,051 billion in 1996, the most 

recent year for which such data are available.1

 Japan is the second largest 

insurance market after the United States, with an 18 percent share of the 

OECD market in 1996. The Japanese are high per capita consumers of 

insurance. Only the populations of Luxembourg and Switzerland buy more 

insurance on a per capita basis.

1

We have not taken into account insurance premiums from non-OECD countries, since data for these 

countries are not readily available.
Briefing Section I

Size of Japan’s Insurance Market

Page 12 GAO/NSIAD-99-108BR Japan’s Insurance Market

Source: Statistics of Japanese Non-Life Insurance Business and Statistics of Life Insurance Business 

in Japan, 1993-97 editions. Dollar premiums computed using International Monetary Fund quarterly 

exchange rates corresponding to the Japanese fiscal year.

Insurance Market Measured in Dollars and Yen

38000

38500

39000

39500

40000

40500

41000

41500

1992 1993 1994 1995 1996 1997

Premiums in yen, billions

200

250

300

350

400

450

Premiums in U.S. dollars, billions

Yen

U.S. Dollar

Japan’s Insurance Market, Fiscal Years

1992-97
Briefing Section I

Size of Japan’s Insurance Market

Page 13 GAO/NSIAD-99-108BR Japan’s Insurance Market

When measured in both yen and dollars, the Japanese insurance market 

grew steadily from 39,132 billion yen ($314 billion) in fiscal year 1992 to a 

high of 41,294 billion yen ($428 billion) in fiscal year 1995. It then dropped 

to 40,266 billion yen ($357 billion) the following year. The dollar and yen 

trends diverge, however, in fiscal year 1997, with the yen-denominated 

market showing an increase to 40,965 billion yen while the

dollar-denominated market shrank further, to $334 billion. 

Some of the differences in the dollar- and yen-denominated premium trends 

are due to changes in the exchange rate. The yen rose continuously against 

the dollar from fiscal year 1992 through the first quarter of fiscal year 1995 

but then proceeded to fall. It went from 96.44 yen to the dollar in fiscal 

year 1995 to 122.70 yen to the dollar in fiscal year 1997.
Briefing Section I

Size of Japan’s Insurance Market

Page 14 GAO/NSIAD-99-108BR Japan’s Insurance Market

Note: “Other OECD” excludes the United States and Japan.

Source: Insurance Statistics Yearbook, 1998 edition (OECD, 1998). Market share is based on total 

OECD premiums.

Japan’s Share of OECD Life Insurance

Market, 1996

27%

29%

44% Japan

USA

Other OECD
Briefing Section I

Size of Japan’s Insurance Market

Page 15 GAO/NSIAD-99-108BR Japan’s Insurance Market

Japan was the world’s second largest life insurance market in 1996, 

accounting for 27 percent of OECD premiums in that year, the latest period 

for which such data are available. The United States, at 29 percent in 1996, 

was the largest market. In 1995, Japan was the world’s largest life 

insurance market, with just under 33 percent of OECD premiums. The 

United States ranked second in that year, with 27 percent of premiums.
Briefing Section I

Size of Japan’s Insurance Market

Page 16 GAO/NSIAD-99-108BR Japan’s Insurance Market

Note: “Other OECD” excludes the United States and Japan.

Source: Insurance Statistics Yearbook, 1998 edition (OECD, 1998). Market share is based on total 

OECD premiums.

Japan’s Share of OECD Non-Life

Insurance Market, 1996

11%

49%

40%

Japan

USA

Other OECD
Briefing Section I

Size of Japan’s Insurance Market

Page 17 GAO/NSIAD-99-108BR Japan’s Insurance Market

Japan was also the world’s second largest non-life insurance market in 

1996, with 11 percent of OECD premiums in that year. The United States 

was the dominant market, accounting for almost 50 percent of OECD 

premiums in 1996. Japan’s share of OECD premiums was slightly larger in 

1995, with 13 percent of premiums. The U.S. share at that time was

48 percent.
Briefing Section I

Size of Japan’s Insurance Market

Page 18 GAO/NSIAD-99-108BR Japan’s Insurance Market

Source: GAO calculations of direct business premium data from the Insurance Statistics Yearbook, 

1997 and 1998 editions (OECD, 1997 and 1998).

Foreign Market Share in the Japanese and

U.S. Insurance Markets, 1990-96

0

2

4

6

8

10

12

1990 1991 1992 1993 1994 1995 1996

Japanese Market

U.S. Market
Briefing Section I

Size of Japan’s Insurance Market

Page 19 GAO/NSIAD-99-108BR Japan’s Insurance Market

The foreign share of the U.S. insurance market was almost three times 

greater than that of Japan in 1996, the most recent year for which such data 

are available. The foreign share of Japan’s insurance market has grown 

from 2.4 percent in 1990 to 3.7 percent in 1996. Foreign penetration in the 

U.S. insurance market also rose during this period, from 6.8 to 10.7 percent. 

The growth rate of foreign penetration in both countries’ insurance 

markets during this period is about the same. 
Page 20 GAO/NSIAD-99-108BR Japan’s Insurance Market

Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market noSInBiegfctri

Table II.1: U.S. Life Insurance Companies in Japan, Fiscal Year 1997 

aThese are different types of standard life insurance policies.

bSupplementary riders provide additional coverage.

c

We averaged the exchange rates for the two quarters of this period to obtain a rate of 137.87 yen to 

the dollar.

Sources: Aide Memoir: Japan Insurance Issues, (Dec. 4, 1992), International Insurance Council 

(Washington, D.C.); GE Edison; Insurance Statistics of Life Insurance Business in Japan 1997 (Tokyo, 

Japan: Insurance Research Institute); life insurance products and primary/third sector percentages 

provided by each company.

Although there are fewer U.S. life insurance companies than non-life 

companies in Japan, the life companies’ cumulative premium volume is 

greater than that of the non-life companies. American Family Life 

Assurance Company of Columbus (AFLAC), a life insurance company, is by 

far the largest U.S. insurance company in Japan, with $4,823 million in 

premiums in fiscal year 1997. According to AFLAC’s 1997 annual report, 

AFLAC is also the largest foreign insurer in Japan, as well as the fourth 

most profitable foreign company there after IBM, Coca-Cola, and Amway. 

Dollars in millions

Company name

Year entered

Japanese market

Total direct

premiums

Standard products

(primary sector)

Niche products

(third sector)

American Family Life 

Assurance Company of 

Columbus (AFLAC)

1974 $4,823 5% of business:

term, wholea

95% of business:

cancer, with some

hospitalization, nursing 

care, and other illness 

products

American Life Insurance 

Company (ALICO)

(owned by American 

International Group [AIG])

1972 $2,035 64% of business:

whole, term, endowmenta

36% of business:

hospitalization 

Prudential Life Insurance 

Company, Ltd.

1988 $912 84% of business:

whole, term, endowment, 

variablea

16% of business:

supplementary ridersb

INA Himawari Life Insurance 

Company, Ltd.

(90%-owned by CIGNA)

1982 $720 78% of business:

term, whole, endowmenta

22% of business:

medical, cancer, other

GE Edison Life

(90%-owned by GE Capital)

Formed new joint 

venture with Toho 

Mutual Life on 4/1/98

About $537c

(4/1/98-9/30/98)

97% of business:

endowment, annuities, 

whole, termb

3% of business:

medical
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 21 GAO/NSIAD-99-108BR Japan’s Insurance Market

As of March 1998, AFLAC’s Japan operations accounted for about

70 percent of its business. 

Whereas AFLAC’s business is predominantly in the niche, or “third” sector, 

where it sells cancer insurance, the other U.S. life insurance companies 

concentrate their activities in the primary sector. An additional U.S. 

company, GE Capital, entered the Japanese insurance market in April 1998 

by forming a joint venture with the failing Toho Mutual Life Insurance Co., 

in which GE Capital owns 90 percent and Toho owns 10 percent of the 

business. The joint venture is called GE Edison Life.
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 22 GAO/NSIAD-99-108BR Japan’s Insurance Market

Table II.2: U.S. Non-Life Insurance Companies in Japan, Fiscal Year 1997

Sources: Aide Memoir: Japan Insurance Issues (Dec. 4, 1992), International Insurance Council 

(Washington, D.C.); Liberty, Unum, and Allstate; Insurance Statistics of Non-Life Insurance Business in 

Japan 1997 (Tokyo, Japan: Insurance Research Institute).

Dollars in millions

Company name

Year entered

Japanese market

Total direct

 premiums

Standard products

(primary sector)

Niche products

(third sector)

AIU Insurance Company 

(owned by AIG) 

1946 $1,889 53% of business:

auto, fire, casualty, 

marine & transit

47% of business:

personal accident 

(includes travel)

CIGNA Accident and Fire

Insurance Company, Ltd. 

1950 $441 65% of business:

auto, fire, casualty, 

marine, transit, other

35% of business:

personal accident, 

overseas travel

American Home Assurance Company

(owned by AIG)

1960 $129 20% of business:

fire, auto, casualty, 

marine & transit

80% of business:

personal accident 

(includes travel)

Japan International Accident & 

Fire Insurance Co. Ltd 

(50%-owned by AIG)

1989 $96 15% of business:

casualty, property, 

auto, energy, marine, 

other

85% of business:

personal accident 

(includes travel)

Lumbermens Mutual Casualty 

Company (Kemper)

1981 $12 76% of business:

casualty, auto, fire, 

marine & transit

24% of business:

personal accident

Liberty Mutual Insurance

Company

(Liberty International)

1995 $11 80% of business: 

casualty, auto, marine 

& transit, fire

20% of business:

personal accident

Unum Japan Accident

Insurance Company

1994 $7 0% 100% of business:

long-term disability 90%; 

short-term disability &

personal accident 10%

Federal Insurance Company 

(Chubb)

1973 $6 70% of business:

casualty, fire, marine & 

transit, auto

30% of business:

property, liability, accident

Allstate Property and Casualty 

Insurance Japan Company Ltd.

Divested 2 other 

companies in 11/97 & 

created new company 

in spring '98

Operational, but 

no significant 

sales yet

Auto
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 23 GAO/NSIAD-99-108BR Japan’s Insurance Market

American International Group (AIG), which owns companies on both the 

life and non-life sides of the Japanese insurance market, dominates U.S. 

participation on the non-life side, with more than four times the premium 

volume in fiscal year 1997 of CIGNA, the next largest U.S.

non-life insurance provider.

Of the eight wholly U.S.-owned and one 50-percent U.S.-owned non-life 

insurance companies, the largest company, AIG’s AIU Insurance Company, 

splits its business almost evenly between the primary and third sectors. 

Third sector non-life products consist primarily of personal accident and 

disability insurance. Of the remaining eight companies, four conduct a 

majority of their business in the primary sector; three concentrate their 

business in the third sector; and one, Allstate, divested itself of all but

5 percent of its existing insurance business in Japan in November 1997 and 

created a new entity there in early 1998. The new company sells 

automobile insurance, a primary sector product, but has not yet reported 

any significant sales. Company officials stated that it does not plan any 

advertising or other sales attempts until April 1999. 

CIGNA reports that it is currently negotiating the sale of its worldwide 

property and casualty business, including CIGNA Accident and Fire 

Insurance Company, Ltd., in Japan, and is examining the possibility of 

getting into the Japanese pension and healthcare insurance markets.
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 24 GAO/NSIAD-99-108BR Japan’s Insurance Market

Source: Statistics of Life Insurance Business in Japan, 1997; Statistics of Japanese Non-Life 

Insurance Business, 1997. We calculated prorated premiums for AIG and CIGNA based on the 

percentage of U.S. ownership.

U.S. Firms in Japan’s Insurance

Market, Fiscal Year 1997

0

1

2

3

4

5

6
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 25 GAO/NSIAD-99-108BR Japan’s Insurance Market

The two largest U.S. insurance providers, AFLAC and AIG, together earned 

81 percent of total U.S. insurance company premiums in Japan in fiscal 

year 1997. The CIGNA-owned companies and Prudential combined 

accounted for 18 percent. The remaining four companies—Lumbermen’s 

Mutual Casualty Company (Kemper ), Liberty Mutual Insurance Company 

(Liberty), Unum Japan Accident Insurance Company (Unum), and Federal 

Insurance Company (Chubb)—together earned less than 0.5 percent. 

GE Edison Life is not shown in this chart because it did not enter the 

market until after fiscal year 1997. It earned about $0.5 billion during its 

first 6 months of operation (Apr.-Sept. 1998). Extending this trend over a 

12-month period would make its annual premium volume about $1 billion, 

or slightly less than that of the CIGNA-owned companies combined.
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 26 GAO/NSIAD-99-108BR Japan’s Insurance Market

Source: Statistics of Life Insurance Business in Japan, 1997; Statistics of Japanese Non-Life 

Insurance Business, 1997. We calculated prorated shares for AIG and CIGNA based on the 

percentage of U.S. ownership.

U.S. Insurance Company Premium Distribution by

Sector in Japan, Fiscal Year 1997

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Primary sector

Third sector
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 27 GAO/NSIAD-99-108BR Japan’s Insurance Market

Only Unum and AFLAC conducted all or most of their business in the third 

sector in fiscal year 1997. However, given the size of the two largest U.S. 

insurance providers in Japan, AFLAC and AIG, and their respective shares 

of premiums attributable to third sector sales in that year, over three-fifths 

of all U.S. premiums were earned in the third sector in fiscal year 1997.

Allstate and GE Edison Life were not included in this chart because there 

are no comparable, fiscal year 1997 data for these companies. Both 

companies have told us that their products fall completely or almost 

completely within the primary sector.
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 28 GAO/NSIAD-99-108BR Japan’s Insurance Market

Source: Statisctics of Life Insurance Business in Japan, 1997; Statistics of Japanese Non-Life 

Insurance Business, 1997. We calculated prorated premiums for AIG and CIGNA based on the 

percentage of U.S. ownership.

U.S. Firms in Japan’s Primary

Insurance Sector, Fiscal Year 1997

0

0.5

1

1.5

2

2.5
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 29 GAO/NSIAD-99-108BR Japan’s Insurance Market

The AIG-owned companies combined dominated the U.S. insurers in the 

primary sector in fiscal year 1997. With $2.345 billion in primary sector 

premiums in that year (56 percent of the U.S. total), AIG’s primary sector 

business was almost three times that of any other U.S. insurer. The

CIGNA-owned companies combined ranked second, with 19 percent of the 

U.S. total. Unum did not derive any of its premiums from primary sector 

products in fiscal year 1997.
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 30 GAO/NSIAD-99-108BR Japan’s Insurance Market

Source: Statistics of Life Insurance Business in Japan, 1997; Statistics of Japanese Non-L:ife 

Insurance Business, 1997. We calculated prorated premiums for AIG and CIGNA based on the 

percentage of U.S. ownership.

U.S. Firms in Japan’s Third Insurance

Sector, Fiscal Year 1997

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 31 GAO/NSIAD-99-108BR Japan’s Insurance Market

With regard to the third sector, AFLAC led the U.S. insurers, earning

$4.582 billion in third sector premiums in fiscal year 1997, or 67 percent of 

the U.S. premiums in this sector. The AIG-owned companies’ combined 

third sector premiums for the year were less than 40 percent of AFLAC’s, or 

26 percent of the U.S. total. The remaining six companies together 

accounted for less than 7 percent of the U.S. total. 
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 32 GAO/NSIAD-99-108BR Japan’s Insurance Market

The U.S. insurance industry has expressed several concerns over 

implementation of the 1994 and 1996 insurance agreements with Japan and 

developments in the Japanese insurance market. First, U.S. insurance 

company representatives in Japan have been concerned that primary 

sector deregulation falls short of meeting some of the requirements of the 

agreements. For example, they have identified cases where the approval of 

new product and new premium rate applications has taken longer than the 

standard 90 days committed to by Japan in the 1996 agreement. Also, 

Areas of Concern for the

U.S. Insurance Industry

Japanese Primary Sector Deregulation

Third Sector Activities of Japanese Insurers

Transparency

Staffing of Regulatory Offices

Policyholder Protection Corporations

Timing of Opening the Third Sector
Briefing Section II

U.S. Company Presence in and Concerns 

Regarding the Japanese Insurance Market

Page 33 GAO/NSIAD-99-108BR Japan’s Insurance Market

insurance industry executives have questioned the adequacy of reform of 

organizations that calculate premium rates for certain risks for 

non-life insurance products in Japan. 

In addition, U.S. insurance companies are concerned that Japanese 

activities in the third sector are increasing even though both agreements 

restrict most such activities. U.S. company representatives report that 

Japanese insurance providers are expanding their distribution channels in 

the life area of the third sector (cancer insurance) and offering significant 

discounts in the non-life area (group personal accident insurance). 

U.S. insurance industry representatives have also stated that Japan’s 

process of implementing laws regarding insurance, approving new 

products, and making other decisions affecting insurance companies is 

often unclear. For example, insurance companies have little opportunity to 

comment on regulatory decisions before they are finalized by the Japanese 

government. In addition, Japan has few written guidelines on how 

insurance companies can obtain approval for issuing new types of policies 

and/or new rates for these and existing policies. Moreover, U.S. insurance 

industry representatives have said that Japanese regulatory agencies do not 

have adequate staff to approve insurance products and rates in a timely 

manner. 

Although not covered by the agreements, U.S. companies have also been 

concerned about the creation of “policyholder protection corporations” 

through which insurance companies will be required by the Japanese 

government to contribute to a fund to protect policyholders from insurance 

company failures. U.S. insurance company executives are concerned that 

these corporations may not equitably distribute among Japanese and 

foreign insurance providers the cost of absorbing future insurance 

company insolvencies. 

Finally, U.S. insurance industry representatives have expressed concern 

that the Japanese and U.S. governments disagree on when the third sector 

will be opened to new competition from Japanese insurance providers. 
Page 34 GAO/NSIAD-99-108BR Japan’s Insurance Market

Briefing Section III

Recent Events Affecting Japan’s Insurance 

Market onISBigecftri

Timeline of Recent Business Events in

Japan’s Insurance Market

Unum

licensed for

disability

1994 1996 1997 1997 1998

1998 -

present

CIGNA

Accident and

Fire Insurance

Company, Ltd.

licensed to

sell personal

accident

insurance;

two

companies

receive

authorization

to make direct

sales to

customers

GE Capital

enters the

Japanese

market

Expanded

activities and

new

connections

by U.S. firms

announced

Third sector

activities by

INA/Yasuda

raise concerns

by some U.S.

firms

AIG offers

differentiated

auto rates
Briefing Section III

Recent Events Affecting Japan’s Insurance 

Market

Page 35 GAO/NSIAD-99-108BR Japan’s Insurance Market

Since 1994, U.S. companies have entered new lines of business and 

introduced innovative products and marketing techniques in Japan’s 

insurance market, such as direct marketing of auto insurance to consumers 

via mail and phone. More recently, after the failure in 1997 of Nissan Life, a 

number of connections with Japanese firms have been announced, 

including GE Capital’s partnering in 1998 with ailing Toho Mutual Life. 

Deregulation in Japan’s insurance market is also expanding opportunities 

for U.S. firms outside the insurance industry. For example, Citigroup, the 

largest financial group in the United States, has announced plans to enter 

the insurance market in Japan as early as 2001, when a ban will be lifted on 

banks selling insurance. Other U.S. companies currently negotiating deals 

with Japanese insurance providers include a discount broker that may 

provide online sales of insurance products and a firm specializing in 

managing earthquake risks.
Briefing Section III

Recent Events Affecting Japan’s Insurance 

Market

Page 36 GAO/NSIAD-99-108BR Japan’s Insurance Market

1990 1995 1997 1998 1998

Japanese

government

study of

insurance

reform begun

Commercial

fire rate

flexibility

allowed

Japanese

government

passes

insurance

business law

Rate

differentiation

allowed for auto

and liability

insurance

Rating

organization

reform; new

oversight bodies

formed

Timeline of Recent Regulatory Events in

Japan’s Insurance Market
Briefing Section III

Recent Events Affecting Japan’s Insurance 

Market

Page 37 GAO/NSIAD-99-108BR Japan’s Insurance Market

Japan began examining fundamental reform of insurance sector regulation 

in the early 1990s. In 1995, the Japanese government passed an “Insurance 

Business Law,” which represented the first major revision of Japan’s 

insurance laws in more than 50 years. This legislation allowed for greater 

flexibility in the insurance industry by permitting life insurance companies 

to form non-life subsidiaries and non-life insurance companies to form life 

subsidiaries, by partially liberalizing premium rates, and by allowing for 

other new activities. The U.S.-Japan insurance agreements of 1994 and 

1996 addressed the scope and timing of deregulation. The agreements 

created opportunities in the primary sector to adjust rates for certain 

products to take risk into account and to simplify new product and rate 

approval. Automobile, liability, and commercial fire policies are among 

those eligible for these changes. In July 1998, Japan removed the 

requirement that non-life insurers use rates established by industry groups 

known as “rating organizations” to set their rates. These agreements also 

delayed opening the third sector to new competition until substantial 

deregulation of Japan’s primary sector had occurred. The changes in 

Japan’s insurance market are part of a larger effort to modernize Japan’s 

financial markets. New, more independent oversight bodies have been 

established to deal with insolvency in the banking and insurance sectors.
Briefing Section III

Recent Events Affecting Japan’s Insurance 

Market

Page 38 GAO/NSIAD-99-108BR Japan’s Insurance Market

Timeline of Developments Affecting

U.S.-Japan Insurance Agreements

U.S.-Japan

framework

agreement

concluded

1993 1994 1995 1996 1997 1998

March

1999

Insurance

agreement

signed

Japan agrees

to include

insurance

commitments

in World

Trade

Organization

(WTO)

financial

services

agreement

Concerns

emerge over

implementation

of 1994

agreement

July 1 decision

on

whether 2-1/2

year grace

period can

start; impasse

over start of

grace period

Second

insurance

agreement

signed

United States

and Japan

agree to hold

consultations

under the

agreements in

April 1999
Briefing Section III

Recent Events Affecting Japan’s Insurance 

Market

Page 39 GAO/NSIAD-99-108BR Japan’s Insurance Market

In 1993, the United States and Japan concluded a “Framework for a New 

Economic Partnership,” which addressed sectoral, structural, and 

macroeconomic obstacles to market access in Japan. Under this 

framework, the United States and Japan concluded their first bilateral 

agreement on insurance in 1994. A principal goal of the agreement was to 

ensure that Japanese insurance reform was carried out in a way that would 

not discriminate against the interests of foreign insurance providers. In 

1995, U.S. insurance companies in Japan raised concerns over increasing 

third sector activities by Japanese firms. These concerns led to a second 

agreement, which was concluded in December 1996. Since July 1, 1998, the 

United States and Japan have been at an impasse over whether the

2-1/2 year grace period before opening the third sector to new competition 

from Japanese insurers should have already started. In March 1999, the 

two governments agreed to resume consultations in April on general issues 

regarding the implementation of the agreements.

In the international arena, Japan in 1997 included insurance as part of its 

agreement on financial services in the World Trade Organization (WTO). A 

multilateral forum could therefore be available to settle disputes involving 

insurance. As part of this agreement, Japan placed many commitments it 

made in its 1996 agreement with the United States in a legally binding, 

multilateral framework. The WTO Financial Services Agreement took 

effect on March 1, 1999. 
Page 40 GAO/NSIAD-99-108BR Japan’s Insurance Market

Appendix I

Key Insurance Deregulation Steps and 

Agreements on Insurance by Japan, 1992-98 ApIexndi

Date Steps and agreements

June 1992 Government of Japan’s Insurance Advisory Council issues proposals for deregulating insurance market

July 10, 1993 U.S.-Japan framework agreement concluded

October 11, 1994 1994 U.S.-Japan insurance agreement signed

April 1, 1996 Revised Insurance Business Law enters into effect in Japan

August 27, 1996 Licenses granted to 17 Japanese insurance subsidiaries for “mutual entry” into previously closed 

markets

October 1, 1996 Direct marketing of automobile insurance to consumers permitted

November 11, 1996 “Big Bang” financial reform initiative announced by Japan

December 24, 1996 1996 U.S.-Japan insurance agreement signed

January 1, 1997 Sixteen products added to list of products that can be marketed upon prior notification to government 

authorities (“notification system”)

September 1, 1997 Auto insurance rate differentiation permitted to reflect risks

December 13, 1997 Japan agrees to include provisions of the 1996 U.S.-Japan insurance agreement in its schedule of 

commitments for the World Trade Organization (WTO) Agreement on Financial Services

April 1, 1998 Threshold lowered for commercial fire insurance

June 22, 1998 Financial Supervisory Agency takes over approval of insurance products and rates from the Ministry of 

Finance

July 1, 1998 Rating organization reform legislation goes into effect

U.S. Trade Representative (USTR) says primary sector deregulation is not complete so it does not 

support start of 2-1/2 year grace period leading to third sector opening

July 2, 1998 Japan says remaining restrictions on entry into and operations by Japanese firms in the third sector will 

be lifted effective January 1, 2001 

November 4, 1998 Japan says it cannot agree to meet on insurance, as requested by the United States

November 14, 1998 Japan Fair Trade Commission study states that end of “radical change” limits in third sector is desirable

November 20, 1998 Insurance raised in Clinton-Obuchi summit

December 1, 1998 Privately funded policyholder payment protection corporations established

January 26, 1999 Deputy U.S. Trade Representative says requests to meet with officials at Japan’s Ministry of Finance 

and Financial Supervisory Agency were denied; Deputy USTR meets with these Japanese officials the 

next day

February 15, 1999 The USTR says WTO Agreement on Financial Services “establishes powerful new disciplines to ensure 

Japan fulfills its obligations” in the insurance sector

February 23, 1999 Forty-four Members of Congress urge President Clinton to address Japan’s failure to implement

U.S.-Japan insurance agreement

March 1, 1999 WTO Agreement on Financial Services enters into force

March 4, 1999 U.S. and Japanese governments agree to hold consultations under the insurance agreements in April 

1999
Page 41 GAO/NSIAD-99-108BR Japan’s Insurance Market

Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present ApIexndi

Date Event

Spring 1990 Japanese study on revisions to the Insurance Business Law launched.

1991 Japan Economic Almanac 1991 reports that despite years of avoiding competition in premium rates or 

dividend payments, in fiscal year 1990, “the top five life insurers broke ranks for the first time over 

policyholder dividends.”

June 1992 Advisory panel presents recommendations for deregulating Japan’s insurance market; a panel is 

formed in September to consider legal changes.

July 7, 1993 Yasuda Fire & Marine Insurance Co., Ltd. purchases a 10-percent interest in INA Life Insurance Co., a 

subsidiary of CIGNA. INA subsequently changes its name to “INA Himawari Life Insurance Company, 

Ltd.,” effective January 1, 1997.

July 10, 1993 The United States and Japan enter into a Framework for a New Economic Partnership (framework 

agreement) to increase foreign firms’ access to the Japanese market. Addressing sectoral, structural, 

and macroeconomic obstacles, agreements reached under the framework are to incorporate 

quantitative and qualitative criteria for monitoring and implementing each agreement reached.

November 12, 1993 Japan’s Administrative Procedure Law enacted to ensure fairness and enhance the transparency of 

government administrative operations.

July 15, 1994 Journal of Commerce reports that Unum Japan Accident Insurance Co., Unum Corp.'s Japanese 

affiliate, received its operating license from the Ministry of Finance and will sell group long-term 

disability insurance, a new product in Japan's market.

October 11, 1994 “Measures by the Government of the United States and the Government of Japan Regarding 

Insurance" signed (1994 agreement) under the framework agreement.

• The agreement's goal is to increase market access and sales for competitive foreign insurance 

suppliers in Japan through enhanced regulatory transparency, strengthened antitrust enforcement, 

and deregulation of specific aspects of Japan's insurance business. Simplified and expedited 

approval of new products and rates, limited freedom to set flexible rates for non-life products, 

establishment of broker system, and wider access to public corporations are among the specific 

liberalization measures promised.

• Limits on third sector entry and activity are also included. Specifically, Japan is to avoid "radical 

change” in the third sector until substantial deregulation of the primary sector is achieved and a 

“reasonable period” has been provided for medium to small and foreign insurers to compete in a 

deregulated environment in the primary sector.

The USTR writes to Chairman of the International Insurance Council, a U.S. trade association, 

summarizing oral assurances by Japan that (1) current administrative practices limiting the third sector 

presence of existing large Japanese life and non-life companies will continue, (2) similar restrictions will 

apply to these firms’ subsidiaries, and (3) the “reasonable period of time” stated in the agreement 

"means three years."

March 31, 1995 End of Japanese fiscal year 1994. Profits and returns of life insurers—Japan’s largest institutional 

investors—drop. Several firms report losses for the first time in the postwar period.

June 7, 1995 Revised Insurance Business Law enacted, to enter into effect April 1, 1996.

September 1995 First U.S.-Japan review of the 1994 insurance agreement takes place.

December 4, 1995 U.S. Secretary of the Treasury and the USTR express concern to Japan's Minister of Finance over 

implementation of the 1994 insurance agreement.

February 29, 1996 Ministry of Finance issues enforcement regulations regarding the Insurance Business Law and 

ministerial ordinances regarding non-life insurance rating organizations.
Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present

Page 42 GAO/NSIAD-99-108BR Japan’s Insurance Market

Date Event

March 1996 Press reports indicate that newly formed CIGNA Accident and Fire Insurance Co., Ltd., was 

provisionally licensed to write personal accident insurance policies. CIGNA had sold property and 

casualty policies through its branch operations since 1985 but says the new subsidiary will boost sales 

by designing products for the Japanese market.

April 1, 1996 Insurance Business Law enters into effect, the first major revision of Japan’s insurance laws in more 

than 50 years. Among other things, it permits “mutual entry” through subsidiaries between life and

non-life insurance companies, establishes an insurance policyholder protection fund, permits insurance 

brokerage, and partially liberalizes premium rates.

May 1996 Non-life insurers remove restrictions on commissions paid to insurance agents selling policies targeting 

corporations.

August 26, 1996 Yasuda, a 10-percent equity owner in CIGNA’s INA Life, announces its intention to acquire a majority 

interest in INA Life.

August 27, 1996 Ministry of Finance grants licenses to 17 Japanese insurance companies’ subsidiaries—11 non-life 

insurance companies’ subsidiaries receive life insurance licenses, and 6 life insurance companies’ 

subsidiaries receive non-life insurance licenses.

September 30, 1996 The United States and Japan reach interim agreement that precludes new subsidiaries of major 

Japanese insurance companies from entering third sector through December 31. The USTR 

announcement highlights a “downpayment on deregulation”: Japan’s decision to approve direct 

marketing for auto insurance to consumers via mail or phone (“direct response system”). By

December 15, 1996, two firms had received approval of applications to provide insurance through a 

direct response system; in 1998, auto insurance was reported to account for about half of the premium 

income of Japanese non-life insurers.

October 1, 1996 Ministry of Finance publicly announces its decision to permit premium payments via credit card.

November 11, 1996 Japan announces its "Big Bang" initiative aimed at reforming Japan's financial sector to be "free, fair, 

and global" by 2001. It will liberalize cross-border capital transactions, widen the scope of financial 

instruments, improve the quality and variety of financial services, enhance efficiency and diversity of 

financial markets, diversify corporate funding options, and strengthen the transparency and safety of 

financial markets. 

December 15, 1996 Negotiations on the U.S.-Japan supplemental measures for the 1994 insurance agreement are 

concluded.

December 18-24, 1996 At the request of the United States, U.S. and Japanese officials negotiate the text of an unsigned, 

undated record of understanding (“minute”). Current and former USTR officials state that this document 

is intended to ensure that (1) the 1996 Supplementary Measures will not prevent CIGNA from carrying 

out its preexisting business plan to sell a majority interest in INA to Yasuda; (2) INA will continue to have 

only a very limited presence in the third sector if the transaction goes forward; and (3) other large 

Japanese non-life insurers will be prevented from similarly entering the third sector. Language in the 

“minute” reconfirms the Japanese government’s commitment to faithfully implement the 1994 Measures 

and the 1996 Supplementary Measures, inclusive of measures to avoid radical change in the third 

sector.
Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present

Page 43 GAO/NSIAD-99-108BR Japan’s Insurance Market

Date Event

December 24, 1996 The United States and Japan sign the “Supplementary Measures by the Government of the United 

States and the Government of Japan Regarding Insurance.” (1996 agreement)

• Key provisions set more specific limits on entry into and sales in the third sector, a time frame of

2-1/2 years after substantial deregulation before the opening of the third sector, and an explicit formula 

for determining by July 1, 1998, whether substantial deregulation has occurred before removing 

measures to avoid radical change in the third sector.

• Among the agreement’s liberalizing provisions, non-life subsidiaries of life insurance providers can sell 

personal accident insurance as of January 1, 1997, subject to specific limits. Japan also agreed to

(1) permit differentiation of rates, forms, and distribution of auto insurance; (2) expand by 16 the list of 

products for which automatic approval will generally occur within a short period after notification of 

authorities (the “notification system”); (3) further deregulate commercial fire insurance; (4) eliminate 

obligations by members to use rates calculated by the rating organizations to set certain non-life 

premiums; and (5) to approve, within 90 days after submission, applications for products whose forms, 

rates, or distribution are new or different.

Exchange of letters between the USTR-Designate and the Ambassador of Japan, confirming 

agreement that, in the event the United States and Japan do not reach a common view of whether the 

criteria for starting the 2-1/2 year grace period for terminating third sector protections have been met by 

the decision point of July 1, 1998, each side retains its “right to act in conformity with its view as to 

whether the criteria had been met."

January 1, 1997 As called for in the 1996 agreement, 16 products, including several classes of liability products, are 

added to list of policies that can be offered at risk-weighted rates upon notification to regulators.

April 1997 Nissan Mutual Life Insurance Co. fails.

June 1997 Nippon Life Insurance Co. and U.S. investment manager Putnam Investments, Inc., join to develop 

financial products.

Final report of the Japanese Insurance Council issued.

Legislation establishing Japanese Financial Supervision Agency approved. 

June 11, 1997 A press statement issued by the U.S. delegation after the first review of the 1996 measures says that 

changes to Japan’s rating system must be transparent and must make it easier for insurance providers 

to deliver innovative and competitively priced insurance services to Japanese consumers. The time 

required for obtaining approval for products and the denial of meaningful opportunities for foreign firms 

to participate in deliberations of the Insurance Council are also of concern, it says.

June 19, 1997 The United States and Japan establish the Enhanced Initiative on Deregulation and Competition Policy. 

The focus will be on both sectoral issues (telecommunications, medical devices and pharmaceutical 

products, housing and construction products, and financial services) and structural issues (competition 

policy, distribution, transparency, and other government practices).

September 1, 1997 Japan implements its commitment to begin approving applications for automobile insurance with rates 

that vary according to risk. American Home Assurance Co., an AIG subsidiary, begins to offer auto 

insurance rates that vary according to risk.

November 1997 Allstate Insurance sells all of its interests in a Japanese life insurance company and all but 5 percent of 

its 50-percent stake in a Japanese property and casualty insurance business to its Japanese partner.

November 10, 1997 The United States transmits proposals for deregulation to Japan, including an easing of restrictions on 

product innovation in the financial services market.

December 1997 First Chicago Tokio Marine Financial Products Ltd., a joint venture between First Chicago NDB Corp. 

and Tokio Marine & Fire Insurance, is established to help companies in Japan and elsewhere in Asia 

meet their growing risk-management needs.
Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present

Page 44 GAO/NSIAD-99-108BR Japan’s Insurance Market

Date Event

December 13, 1997 Japan agrees to include provisions of the 1996 insurance agreement, including its third sector 

provisions, in its binding commitments under the WTO Agreement on Financial Services.

January 1998 Zurich Insurance becomes second firm to offer auto insurance based on risk factors.

February 1998 GE Capital Services Corporation says it will establish a new life insurance company in partnership with 

struggling Toho Mutual Life Insurance Co. GE will take over all new policywriting and pension 

management business effective April 1 and hire 9,500 of Toho Mutual’s sales agents and other 

personnel.

February 12, 1998 Ministry of Finance notification explains that Japan’s commitments under the WTO Agreement on 

Financial Services prohibit sales of third sector products by acquired life subsidiaries of non-life 

insurance providers.

February 13, 1998 Yasuda announces its decision to delay its majority purchase of INA until restrictions are lifted on sales 

of third sector products by life subsidiaries of non-life insurance companies. 

March 10, 1998 Amendments to Law Concerning Non-Life Insurance Rating Organizations and the Insurance Business 

Law to reform rating organizations are submitted to the Japanese parliament. With two exceptions, the 

rating organizations will publish only pure premium rates—actual cost of claims, but not all expenses 

and profits—for referential use by rating organization members for all the fire, personal accident, and 

automobile insurance lines covered by the rating organizations. Antitrust exemption will also be 

abolished for rating organization activities for all product lines except compulsory automobile liability 

insurance and household earthquake insurance.

March 27, 1998 Japanese cabinet transmits "freedom of information" legislation to parliament. The bill aims to increase 

transparency and accountability of Japanese government bureaucracies.

March 31, 1998 In its annual report on foreign trade barriers, USTR gives a mixed review of Japan’s implementation of 

insurance commitments. 

• On the positive side, USTR states that Japan’s Ministry of Finance has, to varying degrees, 

implemented its commitments under the October 1994 insurance agreement to enhance regulatory 

transparency, strengthen antitrust enforcement, introduce a notification system for approval of 

insurance rates and products, and undertake specific liberalization measures. Certain commitments 

under the 1996 agreement were implemented on schedule. These commitments were to approve 

applications for automobile insurance on the basis of risk; to reduce the threshold for offering flexible 

rates for commercial fire insurance; and to expand the list of products, including several important 

liability lines, to be included in the notification system.

• However, concern was expressed over implementation of commitments regarding large government 

purchasers of insurance, foreign input into Japan’s insurance reform process, and increased activity 

by Japanese insurance firms and subsidiaries in the third sector.

March 31, 1998 Japanese cabinet approves latest 3-year deregulation program for the Japanese economy. It 

recommends a formal review of the insurance product approval process.

April 1998 Allstate Property and Casualty Insurance Japan, Company, Ltd. (Allstate Insurance Company’s newly 

established subsidiary) receives a non-life insurance business license from the Ministry of Finance.

Great American Insurance Co., a Cincinnati, Ohio-based non-life insurer, opens an office in Tokyo.

ALICO, a subsidiary of AIG, becomes the first company to offer nonsmokers lower-cost life insurance.

Los Angeles-based TCW Asset Management Co. will help Yasuda Fire & Marine develop new 

investment products.

AFLAC becomes the first foreign insurer to have offices in all of Japan’s 47 administrative districts. 
Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present

Page 45 GAO/NSIAD-99-108BR Japan’s Insurance Market

Date Event

April 1, 1998 In line with 1996 agreement, commercial fire market is further deregulated by lowering the threshold 

above which insurers can offer differentiated rates for commercial fire coverage, thereby making more 

products eligible to be offered at flexible rates. The threshold was lowered from 20 billion yen to 7 billion 

yen. It had previously been lowered from 30 billion yen.

April 2, 1998 USTR issues a press release stating that while the latest 3-year deregulation plan submitted by Japan 

represents progress, it still falls short of U.S. expectations.

April 17, 1998 Unum reaches agreement with two major Japanese firms to expand distribution of its products. 

Chiyoda Mutual Life Insurance will offer Unum’s policies to Chiyoda’s corporate life insurance 

customers, and Dai-Ichi Kangyo will sell Unum’s long-term disability insurance at its branches.

April 24, 1998 American Council of Life Insurance provides USTR with requested analysis of current status of 

implementation of the 1994 and 1996 agreements, highlighting fundamental aspects of the agreements 

“where the Government of Japan has failed to live up to its promises.” It urges USTR to meet with 

Japan’s Ministry of Finance before July 1 to review all pending issues and obtain agreement on what 

actions are necessary to justify the start of the 2-1/2 year grace period.

May 1998 St. Louis-based Reinsurance Group of America, Inc., reaches a deal with Daihyaku Mutual Life 

Insurance Co. to guarantee $38.6 billion worth of whole life and term life insurance policies in return for 

part of the future premiums of those contracts. 

May 15, 1998 The United States and Japan issue a joint status report on the Enhanced Initiative on Deregulation and 

Competition Policy. Regarding insurance, the report highlights Japanese action to eliminate rate 

setting, permit mutual entry, and strengthen the role of the Japan Fair Trade Commission.

June 3, 1998 Press reports indicate that U.S.-based specialist in earthquake risk management, EQE International, is 

joining Tokio Marine & Fire Insurance Co., Ltd., and Mitsubishi Corporation. EQE’s extensive database 

will be used to calculate premiums based on the risk of earthquake damage.

June 5, 1998 Japanese parliament passes legislation to implement Japan’s WTO financial services commitments. 

The law is promulgated 10 days later and is scheduled to take effect December 1, 1998. The 

legislation amends the 1995 Insurance Business Law, stating in part: 

The provisions restrict entry into the third sector

 (1) of a newly licensed insurer, whether original or subsidiary,

 (2) of an existing insurer by means of transfer of business from, consolidation or merger with, or

 acquisition of, another existing insurer, and

 (3) of an existing insurer by means of extended or amended approval that has been already granted

 to it;

for the time being to avoid radical change in the management environment, and to ensure robust 

operation, of those insurers which rely to a greater extent on the third sector insurance.

American Chamber of Commerce in Japan transmits four position papers to USTR as input for 

upcoming bilateral review of the agreements. The papers address the proposed new payment 

guarantee system, radical change in the third sector, continued delays in approval of differentiated 

products and rates, and rating organization reform. The Chamber notes that ministerial ordinances now 

being finalized to implement the rating organization reform law will expand the businesses for which the 

rating organization will calculate pure premium rates to include medical expense and nursing care 

insurance. In addition, the Chamber raises concern that proposed collection and analysis of expense 

data by the rating organizations could restrain competition and promote uniformity.

June 9-10, 1998 The fourth semi-annual working-level review of the insurance agreements takes place. U.S. embassy in 

Tokyo says a number of “serious concerns” about Japanese implementation were raised.
Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present

Page 46 GAO/NSIAD-99-108BR Japan’s Insurance Market

Date Event

June 11-12, 1998 High-level bilateral talks take place in Tokyo to assess Japan’s implementation of the 1994 and 1996 

agreements. No agreement is reached on outstanding U.S. concerns regarding deregulating the 

primary sector and avoiding radical change in the third sector. 

Deputy USTR says U.S. participants notified their Japanese counterparts of the U.S. view that 

conditions necessary to start the process of terminating third sector restrictions have not been met.

June 22, 1998 Financial Supervisory Agency takes over much of the Ministry of Finance’s supervisory and approval 

responsibilities, processing all applications for new and modified insurance products in Japan, including 

riders and rate revisions.

July 1, 1998 Legislation removing requirement to use premiums calculated by rating organizations in setting rates 

becomes effective.

USTR press release states that insufficient progress has been made under the 1996 insurance 

agreement in deregulating the primary sector of Japan's insurance market to warrant initiating the

2-1/2 year grace period for opening the third sector to new competition. It identifies two of the five 

criteria established in the 1996 U.S.-Japan agreement that have not been fully implemented: reform of 

rating organizations has not gone far enough to accomplish Japan’s stated objective of fundamental 

reform, and applications for approval of new insurance products still face processing delays.

July 2, 1998 Japanese Minister of Finance officially confirms that, despite the U.S. position, remaining restrictions on 

entry into and operations by Japanese firms in the third sector of Japan's insurance market will be lifted 

effective January 1, 2001.

July 15, 1998 American Council of Life Insurance testifies before House Ways and Means Committee’s Subcommittee 

on Trade, concluding that "the Japanese insurance market remains highly restrictive and difficult to 

penetrate" for U.S. firms. The Council says Japan is not complying with the agreements because

(1) reform of rating organizations has not been meaningful or transparent,

(2) entry of new products and rates into the marketplace continues to be slowed by Japan's approval

 process,

(3) the notification system operates in a vague and unpredictable manner,

(4) proposals for reform of payment guarantee systems (a) do not equitably distribute the cost of future

 insolvencies and (b) minimize foreign participation in the systems' management, and

(5) inadequate staffing of relevant regulatory offices hampers full implementation of Japan's

 commitments.

The Council also expresses concern over increased activities by Japanese firms and subsidiaries in the 

third sector.

August 5, 1998 The USTR reports to Congress that the information the administration has to date does not support a 

finding that actions by INA/Yasuda, a 90-percent U.S.-owned subsidiary, constitute a violation of the 

insurance agreements' third sector provisions.

September 21, 1998 Nikkei Business reports that AFLAC and AIG’s subsidiary, ALICO, are among the healthiest large life 

insurance companies in Japan. Both had high returns on total assets and, unlike the majority of 

insurance companies, ALICO “expanded the value of its individual insurance contracts in 1997, using its 

rating as a weapon.” 

Separately, Nikkei Business reports that foreign firms had acquired 4.4 percent of the new contracts for 

individual insurance in 1997, non-life firms acquired 3.7 percent, and other firms acquired 3.9 percent, 

bringing the share of new entrants to 12 percent. This was up from the combined 3.4 percent share for 

these new entrants in 1992, when existing Japanese life insurance firms accounted for 96.6 percent of 

new contracts.
Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present

Page 47 GAO/NSIAD-99-108BR Japan’s Insurance Market

Date Event

October 1998 American Chamber of Commerce in Japan issues a series of position papers on insurance, including 

one on personal accident insurance, a non-life third sector product.

October 7, 1998 U.S. government submits over 270 deregulation proposals to Japan. They include a request that notice 

and comment procedures be followed in regulations of the life and non-life policyholder protection 

groups and the non-life rating organizations and that the burdensome and unpredictable nature of 

approval processes by Japan's Ministry of Finance and Financial Supervisory Agency be rectified. 

October 30, 1998 U.S. embassy Tokyo transmits a formal request for consultations under the U.S.-Japan insurance 

agreement to the government of Japan.

November 2, 1998 In a Journal of Commerce op ed piece, a former USTR official urges amending U.S. trade law to require 

USTR to draw an adverse inference under U.S. trade law against any country that refuses to enter into 

meaningful consultations over a trade dispute.

November 4, 1998 Government of Japan notifies U.S. embassy Tokyo that Japan cannot agree to meet in response to the 

U.S. request. 

November 5, 1998 Sankei Shimbun article includes a statement by Ministry of Finance’s International Bureau that says a 

secret memorandum between the United States and Japan related to Yasuda/INA (the December 1996 

“minute”) does not exist and stresses that Japan’s policy is to deregulate the third sector effective 

January 1, 2001.

November 14, 1998 Nihon Keizai Shimbun reports that a study by the Japan Fair Trade Commission on the insurance 

industry finds deregulation has stimulated competition somewhat, but about half of the companies it 

surveyed seek to preferentially award contacts to non-life insurance companies that hold their stock. 

The Commission study indicates that early abolition of the radical change provisions of U.S.-Japan 

agreements is desirable.

November 20, 1998 Deputy Secretary of the Treasury reports that one of the four economic issues raised by the U.S. 

President with Japan’s Prime Minister was the need to carry through on trade agreements, including 

insurance. 

December 1, 1998 Series of financial deregulation steps take effect in Japan, including establishment of policyholder 

protection corporations and easing of regulations on sales of investment trusts by banks and insurers.

Prudential Insurance Co. of America teams up with Mitsui Trust & Banking Co. in July to establish an 

investment trust management firm in anticipation of the December 1 deregulation step.

AIG abandons plan to acquire Japan’s Aoba Life Insurance Co., which took over Nissan Mutual Life 

Insurance Co.’s assets in October 1997.

December 2, 1998 Tokio Marine & Fire Insurance Co. and U.S. discount broker Charles Schwab & Co. are reported close 

to a deal that will make Tokio Marine the first non-life insurance firm to enter Japan’s securities market. 

Online sales of insurance products through the brokerage are reportedly under consideration.

December 4, 1998 CIGNA International Holdings and Yasuda Fire & Marine Insurance Co. announce plans to jointly enter 

the pension business. The two companies will reportedly establish a joint venture in 1999.

December 8, 1998 News reports indicate that Citigroup, the largest financial group in the United States, has announced 

plans to enter the insurance business in Japan as early as 2001, when a ban is lifted on banks selling 

insurance. 

January 26, 1999 In Tokyo, the Deputy U.S. Trade Representative says his requests to meet that week with officials at 

Japan’s Ministry of Finance and Financial Supervisory Agency were denied. He states that the United 

States is “deeply concerned” about Japan’s unwillingness to engage in discourse on the matter. Deputy 

USTR meets with senior Ministry of Finance and Financial Supervisory Agency officials the following 

day.
Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present

Page 48 GAO/NSIAD-99-108BR Japan’s Insurance Market

Date Event

February 15, 1999 The USTR says that the entry into force of the WTO Financial Services Agreement establishes powerful 

new disciplines to ensure Japan fulfills its obligations in the insurance sector—rights “we will not 

hesitate to exercise” to ensure U.S. insurance providers receive the full market access benefits they are 

entitled to in Japan.

February 23, 1999 Forty-four Members of Congress urge the President to insist upon Japanese compliance with “the core 

provision” of the U.S.-Japan insurance agreement, which provides “that the 2-1/2 year countdown to the 

opening of the third sector to large Japanese companies not begin until the primary insurance market is 

fully opened to competition.”

March 1, 1999 WTO Agreement on Financial Services enters into effect.

March 4, 1999 U.S. and Japanese governments agree to hold consultations under the insurance agreements in April.
Appendix II

List of Events Relating to Japan’s Insurance 

Market, 1990-Present

Page 49 GAO/NSIAD-99-108BR Japan’s Insurance Market
Page 50 GAO/NSIAD-99-108BR Japan’s Insurance Market

Appendix III

Major Contributors to This Report ApIexndi

National Security and 

International Affairs 

Division, Washington, 

D.C.

Elizabeth Sirois, Assistant Director

Kay Halpern, Evaluator-in-Charge

Emil Friberg, Senior Economist

Kim Frankena, Senior Trade Specialist

San Francisco Field 

Office

Leslie Holen, Senior Evaluator

Jose Péña, Senior Evaluator

(711406) Lret

United States

General Accounting Office

Washington, D.C. 20548-0001

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