GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Trade, Committee on Ways and 

Means, House of Representatives

September 1999 INTERNATIONAL 

TRADE

Implementation and 

Monitoring of the 

U.S.-Japan Insurance 

Agreements

GAO/NSIAD-99-209

Page 1 GAO/NSIAD-99-209 International Trade

Contents

Letter 3

Appendixes Appendix I Questionnaire on the Status of Implementation of 

the U.S.-Japan Insurance Agreements 22

Appendix II Analysis of Company Questionnaires on the Status 

of Implementation of the U.S.-Japan Insurance Agreements 61

Appendix III U.S. Trade Representative’s Key Monitoring and 

Enforcement Decisions 79

Appendix IV U.S. Government Actions Regarding One U.S. 

Insurer 90

Appendix V Objectives, Scope, and Methodology 110

Appendix VI GAO Contacts and Staff Acknowledgments 113

Related GAO Products 114

Tables Table 1: Selected Key Commitments of the 1994 U.S.-Japan

Insurance Agreement 63

Table 2: Selected Key Commitments of the 1996 U.S.-Japan

Insurance Agreement 68

Figures Figure 1: U.S. Company Views on U.S. Government Monitoring and 

Enforcement Efforts 18

Figure 2: Results of Approved Applications Submitted by U.S.

Companies in Japan Since the 1996 Agreement Was Signed 71

Figure 3: Results of Approved Applications by Type, Submitted by U.S. 

Companies in Japan Since the 1996 Agreement Was Signed 72

Figure 4: U.S. Companies' Views on Future Effects of Insurance 

Agreements 75

Figure 5: Primary Sector Sales and Market Share Since the 1994

Agreement Was Signed 77

Figure 6: Third Sector Sales and Market Share Since the 1994

Agreement Was Signed 78

Figure 7: Time Line of Events Related to “Minute” and Yasuda-INA

Deal, 1993-96 92

Figure 8: Text of the December 21, 1996, “Minute” 96

Figure 9: Time Line of Events Related to “Minute” and Yasuda-INA

Deal, 1996-97 99
Contents

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Figure 10: Time Line of Events Related to “Minute” and Yasuda-INA

Deal, 1997-Present 104

Abbreviations

ACCJ American Chamber of Commerce in Japan

ACLI American Council of Life Insurance

AFLAC American Family Life Assurance Company

AIG American International Group

FSA Financial Supervisory Agency

JFTC Japan Fair Trade Commission

MOF Ministry of Finance

MOFA Ministry of Foreign Affairs

NEC National Economic Council

USTR U.S. Trade Representative

WTO World Trade Organization
Page 3 GAO/NSIAD-99-209 International Trade

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-283294 Letr

September 24, 1999

The Honorable Philip M. Crane

Chairman, Subcommittee on Trade

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

The Japanese insurance market is the world's second largest after the 

United States, with $334 billion in annual premiums in Japanese fiscal year 

1997. The foreign share of this market in Japan is 3.7 percent, compared to 

a foreign share of the U.S. insurance market of 10.7 percent in 1996.1

 In 

order to improve foreign access to the Japanese insurance market, the 

United States and Japan have signed two bilateral insurance agreements, in 

1994 and 1996.2

 The United States had two key objectives in negotiating 

these agreements: (1) to ensure that Japan deregulated its primary 

insurance market, comprised of life and non-life (property/casualty) 

insurance and (2) to ensure that Japan provides U.S. companies with a 

reasonable period of time to compete in a deregulated primary sector 

before opening the “third” sector to increased Japanese competition where 

U.S. firms have a substantial presence. The third sector is comprised of 

specialized life and non-life products such as cancer, hospitalization, and 

personal accident insurance. 

In light of concerns that have been raised with your Subcommittee about 

the agreements' implementation and the executive branch's actions related 

to enforcement of the agreements, you asked us to examine (1) the views 

of U.S. insurance companies operating in Japan regarding the agreements' 

implementation and impact on their ability to compete in the Japanese 

1

For more information on the Japanese insurance market, see U.S.-Japan Trade: The 

Japanese Insurance Market (GAO/NSIAD-99-108BR, Mar. 15, 1999). This report provides 

details on the size of the Japanese insurance market, U.S. insurance company participation 

in and concerns regarding that market, and time lines of recent events affecting the market. 

2

These agreements , “Measures by the Government of the United States and the Government 

of Japan Regarding Insurance,” October 11, 1994, and “Supplementary Measures by the 

Government of the United States and the Government of Japan Regarding Insurance,” 

December 24, 1996, can be viewed from the following Department of Commerce World Wide 

Web site: http://www.mac.doc.gov/japan/source/menu/menu.html (cited Sept. 13, 1999).
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market; (2) the roles and efforts of the Office of the U.S. Trade 

Representative and the Departments of Commerce, State, and the Treasury 

in monitoring and enforcing the agreements, and U.S. government views on 

whether Japan has met its commitments under the agreements; and

(3) U.S. insurance industry views on U.S. government monitoring and 

enforcement efforts. As you requested, we are also providing you with 

information on U.S. government actions related to one U.S. insurer and its 

Japanese partner, including the creation of a limited exception to the 1996 

agreement and our views on certain aspects of this exception. (See app. 

IV).

In conducting our work, we prepared a survey that builds upon a similar 

survey we created in 1996 for all U.S. insurance providers operating in 

Japan. (See app. I). For this report, we surveyed the 13 U.S. majority-owned 

insurance companies operating in Japan. In addition, we surveyed the three 

U.S. brokers recently licensed in Japan.3

 Detailed company and broker 

survey results are discussed in appendix II. We also met with senior U.S. 

and Japanese government and industry officials in Japan and the United 

States.

Results in Brief Our 1999 survey of the 13 U.S. insurance companies and 3 brokers in Japan 

revealed that all but 2 think that Japan has made moderate or better 

progress4

 overall in implementing the 1994 and 1996 insurance agreements. 

Our analysis of survey results shows that Japan has met most of its 

transparency (openness), procedural protection, and deregulation 

commitments. Overall, most U.S. companies reported that the agreements 

have had a positive effect on their ability to compete in Japan. This view is 

3

Five of the 13 U.S. majority-owned insurers in Japan are life insurers, while 8 are non-life 

insurers. Three of these 13 companies are owned by American International Group (AIG), 

and 2 were owned by CIGNA Corporation at the time of our survey. CIGNA's 

property/casualty company in Japan was sold to ACE INA effective July 1999. Two U.S. 

insurance providers (American Family Life Assurance Company [AFLAC] and AIG) 

accounted for 81 percent of all U.S. insurance premiums generated in Japan in fiscal year 

1997. Of the three brokers included in our survey, one is a British company whose 

shareholders have been primarily other U.S. companies since November 1998. Brokers are 

intermediaries between individuals or entities purchasing insurance products and insurance 

providers. Brokers provide another distribution channel for insurance products and 

promote competition in the marketplace.

4

Specifically, in our survey these companies reported that Japan had implemented the 

provisions of the two agreements to a “moderate,” “great,” or “very great” extent.
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more positive than what companies reported in our 1996 survey. 5

Nevertheless, almost half the companies expressed concerns over Japan's 

implementation of key commitments such as expediting approval of 

insurance products and rates and limiting the activities of large Japanese 

companies in the specialized third sector.

The Office of the U.S. Trade Representative is the principal agency 

responsible for monitoring and enforcing the insurance agreements, with 

assistance primarily from the U.S. embassy in Tokyo. The U.S. Trade 

Representative also receives assistance from the Departments of 

Commerce and State, with a lesser level of assistance by the Departments 

of the Treasury and Justice. The U.S. Trade Representative and U.S. 

embassy monitoring efforts include obtaining information on the 

agreements' implementation from industry groups and individual U.S. 

insurance companies, as well as consulting with the Japanese government. 

In conducting their monitoring and enforcement work, U.S. government 

officials have noted Japanese progress in implementing the agreements. 

However, they have also identified a few issues, which are similar to those 

cited by some U.S. companies, where they believe Japan has not fully met 

its commitments. Japan, on the other hand, believes that it has fully 

implemented both agreements.

More U.S. insurance companies expressed favorable views of U.S. 

government actions to monitor the insurance agreements than reported 

favorable views of enforcement efforts. About half (7 of 13) of all U.S. 

insurers and 2 of the 3 brokers we surveyed reported that U.S. government 

efforts to monitor the agreements have been effective; with regard to 

enforcement, about one-third of the companies and no brokers reported 

that U.S. government efforts have been effective. Around one-third of the 

companies reported that U.S. government monitoring and enforcement 

efforts have been as effective as ineffective. Three major U.S. insurers 

expressed concerns over U.S. government monitoring and enforcement 

5

Our 1996 survey of U.S. insurance companies operating in Japan found that while these 

companies reported that many provisions of the 1994 agreement had been implemented to 

varying degrees, the agreement had little effect on their ability to compete in the Japanese 

market. U.S. firms noted their continued inability to differentiate the types of coverage they 

could offer and to set the rates they could charge. For more information on the results of 

this survey, see U.S.-Japan Trade: U.S. Company Views on the Implementation of the 1994 

Insurance Agreement (GAO/NSIAD/GGD-97-64BR, Dec. 20, 1996). Further, comparisons 

between the results of our 1996 and 1999 surveys are contained in appendix II. 
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efforts concerning the protection of various U.S. company interests in the 

third sector. 

Background The first U.S.-Japan insurance agreement was signed on October 11, 1994, 

and was concluded under the United States-Japan Framework Agreement.6

In negotiating the insurance agreement, the U.S. government sought to 

establish that deregulation of the large primary sector of the Japanese 

insurance market, where U.S. firms had experienced only limited success, 

would be required before deregulation of the smaller third sector, where 

foreign companies have a substantial presence, would occur. According to 

the Office of the U.S. Trade Representative (USTR), while the third sector 

accounted for roughly 5 percent of the total Japanese insurance market in 

Japanese fiscal year 1997, foreign market share for this sector was over 40 

percent—much higher than in the traditional, primary insurance market. 

U.S. government and industry officials believed that the lack of U.S. 

company success in the larger primary sector was the result of a heavily 

regulated environment that did not allow for new market entry, product 

innovation, or price competition.

In the 1994 agreement, the United States met its negotiating objective of 

establishing that primary sector deregulation would be required before 

third sector deregulation would occur. Under the agreement, Japan agreed 

to avoid “radical change” in the third sector until foreign insurance 

companies were granted a “reasonable period” to compete in a significantly 

deregulated primary sector market, although the terms “radical change” 

and “reasonable period” were not defined in the agreement. The agreement 

recognized that Japan was in the process of reforming its insurance sector, 

noting that the reform would be based on promoting competition and 

enhancing efficiency through deregulation and liberalization. Consistent 

with this reform initiative, the agreement included specific commitments 

by Japan to deregulate the primary sector. For example, the agreement 

provided that insurance companies would be afforded greater flexibility in 

establishing the price (rate) they would charge to customers for certain 

product lines. In addition, the agreement stated that Japan would expedite 

and simplify the application review process for the approval of insurance 

6

The United States-Japan Framework for a New Economic Partnership (“Framework 

Agreement”) was signed by the two countries in 1993. Under the agreement, the United 

States and Japan agreed to focus on eliminating sector-specific and structural market access 

barriers and addressing macroeconomic issues.
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products and rates by gradually introducing expedited approval systems 

for certain products. Japan also agreed to make its regulatory process more 

transparent by, for example, publishing and making publicly available the 

standards that insurance regulators will apply in reviewing applications for 

approval of new insurance products.

During subsequent negotiations in 1996, the two governments reached an 

interim understanding in September, in which Japan agreed to allow direct 

sales of automobile insurance to consumers by mail or telephone and 

established restrictions on sales by subsidiaries of large Japanese insurers 

of some third sector insurance products. The commitment to allow direct 

sales of automobile insurance is referred to in the final December 1996 

agreement (discussed below), while third sector commitments were largely 

superseded by measures contained in the December 1996 agreement.

The second agreement was signed on December 24, 1996. This agreement 

was negotiated in response to U.S. insurance company concerns that the 

Japanese government was preparing to allow large Japanese insurers 

increased access to the third sector through their subsidiaries in violation 

of the 1994 agreement. The 1996 agreement further defined restrictions on 

third sector entry by Japanese companies, and it clarified when these 

restrictions would be lifted by more explicitly linking them to substantial 

deregulation of Japan's larger, primary sector. Specifically, the agreement 

listed five deregulation criteria for the primary sector that would have to be 

met by July 1, 1998, in order to start a 2.5-year countdown toward opening 

the third sector no later than 2001. These criteria reflected specific 

deregulation commitments in the agreement, such as allowing for greater 

pricing flexibility for automobile insurance and applying a system to 

expedite marketing of additional products. The two governments 

recognized that if, on July 1, 1998, there were disagreement about whether 

the criteria had been met, each side would be able to act in accordance 

with its own view of whether the criteria had been met. The U.S. 

government has stated that, in the case of disagreement over 

implementation, it can invoke various trade remedies.

On July 1, 1998, USTR announced that, in its view, Japan had not fully 

implemented key agreement commitments including two of the five 

primary sector deregulation criteria. As a result, USTR did not (and still 

does not) support initiation of the 2.5-year countdown to open the third 

sector to increased competition in 2001. The Japanese government stated 

that it believed it had fully implemented all commitments, including the five 

primary sector deregulation criteria. Thus, in its view the 2.5-year “clock” 
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began on July 1, 1998, and restrictions on the ability of large Japanese 

insurance companies to operate in the third sector will be lifted on

January 1, 2001.

The agreement also contains a commitment by Japan to take steps to 

increase the number of staff responsible for processing insurance 

applications.

In 1998, Japan enacted legal and regulatory changes that affected the 

insurance industry:

• Japan reorganized its financial regulatory system and created the 

Financial Supervisory Agency (FSA). Responsibility for licensing, 

application processing, surveillance, and inspection of the insurance 

industry was shifted from the Ministry of Finance (MOF) to FSA in June.

• Japan agreed to include most of the commitments contained in the 1996 

agreement as part of its obligations in the World Trade Organization 

(WTO) financial services agreement. The WTO can therefore be a forum 

for resolving disputes related to these commitments. The commitments, 

which were codified in Japanese legislation that took effect on July 1, 

1998, included deregulating the primary sector and restricting sales of 

certain third sector products by Japanese insurers.

Companies Reported 

Most Commitments 

Met and Believe 

Agreements Improve 

Their Ability to 

Compete, but Some 

Concerns Remain 

In our January 1999 survey, almost all of the U.S. companies (12 of 13) and 

brokers (2 of 3) operating in Japan reported that overall, the Japanese 

government had implemented the 1994 and 1996 agreements to a moderate 

or greater extent. Our analysis of company responses to our survey 

indicates that the Japanese government has implemented most of its 

commitments to improve transparency and procedural protections and 

deregulate the insurance market. Most of the companies (10 of 13) and 

brokers (2 of 3) reported that both agreements had enhanced their ability 

to compete in Japan, and a few companies attributed increased sales and 

market share to actions taken by Japan under the agreements. Companies, 

however, reported that a few of the agreements' commitments in the areas 

of transparency, deregulation, and third sector protections had not been 

fully implemented.
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Most Transparency and 

Procedural Protections 

Commitments Met

The 1994 agreement included specific commitments by the Japanese 

government to provide greater regulatory transparency and improve 

application processing procedures. Our analysis of company responses to 

our survey indicates that most of these commitments have been 

implemented. For example, most companies (10 of 13) reported that they 

have been given meaningful access to insurance regulators. Further, 10 

companies reported that they had received equal treatment in insurance 

industry groups. Ten companies also reported that they were not required 

to coordinate their applications with other insurance providers (which may 

be potential competitors) and that acceptance of their applications had not 

been conditioned or delayed based upon whether they consulted with other 

insurance providers, which had been experienced by some U.S. companies 

in the past.

Most Deregulation 

Commitments Met 

Our analysis of company responses to our survey indicates that Japan has 

implemented most of its deregulation commitments in the 1994 and 1996 

agreements. Moreover, companies reported that several specific 

commitments had been fully implemented.7

As part of the 1996 agreement, the Japanese government agreed to meet 

five deregulation criteria: (1) processing applications for differentiated 

types of automobile insurance within a 90-day period, (2) further 

liberalizing commercial fire insurance, (3) expanding the “notification 

system,”8

 (4) removing the requirement to use insurance rates calculated by 

rating organizations, and (5) processing applications within a 90-day period 

for differentiated products or rates. The first four criteria apply only to

non-life insurers, while the fifth criterion applies to both life and non-life 

insurers. According to the agreement, once all of these criteria are met, the 

2.5-year countdown toward opening the third sector to increased 

competition will begin.

7

In these instances, the commitments were considered met by all companies expressing an 

opinion.

8

Under Japan’s notification system, a company notifies to the government its intention to 

offer a specific product/rate in categories of risk that have been designated by Japan as 

eligible to use the system. The company then waits 90 days while the notification is 

reviewed by the government. If, after 90 days, no disapproval is received, the company can 

then consider the product/rate approved and begin to offer it. 
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In our January 1999 survey, companies reported that the Japanese 

government had largely met the five primary sector deregulatory criteria. 

All but one of the U.S. non-life companies expressing an opinion reported 

that Japan had met the four criteria that apply only to non-life products 

(processing of differentiated auto insurance within 90 days, further 

liberalization of commercial fire insurance, expansion of the notification 

system, and removal of the requirement to use rating organization rates). 

This one company reported that expansion of the notification system was 

incomplete.

Regarding the fifth criterion that requires approval of applications for 

differentiated products or rates within a standard 90-day processing period 

and applies to all insurance companies, over half of the companies (7 of 

13), representing almost 60 percent of U.S. premiums in Japan, reported 

that the Japanese government had met this commitment.9

 This view is 

consistent with our survey data on application processing, which showed 

that of all approved applications submitted by U.S. insurance companies 

since completion of the 1996 agreement, 95 percent were approved within 

90 days of submission, while 5 percent took more than 90 days to receive 

approval (though this information is insufficient for determining whether 

these last cases constitute violations of the agreement).10

In addition, the 1994 and 1996 agreements included commitments by the 

Japanese government to improve the distribution of insurance products 

through the approval of a direct response system (for example, marketing 

over the telephone) for automobile insurance and the licensing of brokers. 

We found that the Japanese government implemented these commitments.

9

Company shares (percentage) of total U.S. premiums generated in Japan were calculated 

using premium data for Japanese fiscal year 1997 (Apr. 1997-Mar. 1998). Two surveyed 

companies did not have sales in 1997 and were assigned a zero weight for computing the 

premium proportions.

10Under Japanese regulation, the 90-day period can be suspended if the agency responsible 

for processing applications requires a company to revise or supplement information on an 

application. For these cases, we have no information as to whether the 90-day period was 

suspended.
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Japan's Deregulatory 

Actions Promote 

Opportunities for Some U.S. 

Firms

Most companies reported that the overall deregulatory actions taken by 

Japan to implement both the 1994 and 1996 agreements had a generally 

positive effect on their ability to compete in Japan, and several cited 

specific examples of being able to introduce new products or rates that 

they viewed as beneficial. For instance, one non-life insurer reported that 

obtaining approval to offer a differentiated type of automobile insurance 

had a very positive effect on its ability to compete in Japan. Also, two 

companies viewed the increased liberalization of commercial fire 

insurance and the expanded notification system as positive.

Concerning Japan's actions to improve distribution channels for insurance, 

of the three non-life insurers who had received approval to offer 

automobile insurance through the direct response system, one reported 

that this method of distributing insurance products had a very positive 

effect on its ability to compete in Japan. In addition, two of the three 

brokers reported that the Japanese government's decision to recognize 

brokers had a very positive effect on their ability to compete in Japan, 

though about half of the insurance companies reported that this event had 

no effect. However, all brokers told us that they continued to face certain 

obstacles in Japan, including a lack of price and product differentiation, 

restrictions on the types of products they can offer, and restrictions on the 

structure of their business operations.

A Few Key Transparency 

and Deregulation 

Commitments Not Fully Met

Several companies reported concerns regarding Japan's implementation of 

a few commitments in key areas. Concerning one transparency 

commitment, almost half of the companies (6 of 13) reported that the 

Japanese government had done little to publish and/or make publicly 

available licensing, product, and rate approval standards. Regarding 

Japan's deregulation commitments, five companies expressed a belief that 

Japan had not fully implemented its commitment to process applications 

for differentiated products within 90 days. Three companies reported cases 

where applications that were for new-to-market products or that used a 

new distribution channel took longer than 90 days to receive approval. 

Over half of the companies reported that in general Japan has done little to 

expedite and simplify the application review process. Further, regarding a 

commitment related to Japan's ability to meet its application processing 

requirement, all 13 U.S. companies indicated that Japan had not increased
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the number of staff responsible for processing applications. Company 

officials attributed problems with timely processing to this lack of 

staffing.11

Concerns Expressed Over 

Japan's Implementation of 

Certain Third Sector 

Protections

Under the 1994 agreement, the Japanese government committed to avoid 

“radical change” in the third sector until foreign, as well as small and

mid-sized Japanese, insurers had had a reasonable period of time to 

compete in a deregulated primary sector. Six companies, representing over 

80 percent of U.S. premiums, reported that the Japanese government had 

not taken sufficient action to avoid “radical change” in the third sector.

The 1996 agreement included specific commitments by the Japanese 

government to prohibit or substantially limit large Japanese insurers' 

subsidiaries from marketing certain third sector products in the life and 

non-life areas. In the life insurance area of the third sector, Japan 

committed to prohibit Japanese subsidiaries from selling stand-alone 

medical and stand-alone cancer insurance.12 Two U.S. life insurance 

companies in Japan reported that the Japanese government had not met 

this commitment. One U.S. life insurance company reported that the 

Japanese government had failed to prevent Yasuda Fire and Marine, a large 

Japanese company, from selling stand-alone cancer insurance through its 

relationship with INA Himawari, a life insurance subsidiary in Japan of the 

U.S. company CIGNA Corporation. (See app. IV for detailed information on 

certain USTR actions related to these companies.) Another U.S. life 

insurance company reported that a Japanese insurer, Tokyo-Anshin, was 

effectively selling stand-alone cancer insurance even though the company 

offers it as a rider to a base life insurance policy.

In the non-life insurance area, seven restrictions on sales by Japanese 

subsidiaries were put in place by the 1996 agreement, primarily to protect 

the existing sales networks of foreign insurers for personal accident 

insurance. Among U.S. non-life companies expressing an opinion, all 

11USTR officials have noted that the Japanese government has increased its staff responsible 

for processing insurance applications since our survey.

12While sales of stand-alone products in these areas were prohibited in the 1996 agreement, 

medical and cancer benefits can be sold as riders to a base policy, provided that the rider-tobase policy ratio is within prescribed limits. An insurance “rider” is a policy modification or 

addition to a larger insurance policy. In this case, the underlying insurance being sold is a 

life insurance policy.
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reported that Japan had met most commitments in this area, though three 

companies reported that the Japanese government had not complied with 

one commitment—restricting sales of personal accident insurance 

endorsed by interindustry associations.

USTR Is the Principal 

Monitoring Agency; 

Believes Japan Has 

Made Progress, but 

Has Not Met Certain 

Key Agreement 

Commitments

The U.S. government has given the insurance agreements high-level 

attention and monitors them on an ongoing basis. USTR is the principal 

U.S. government agency responsible for monitoring and enforcing the 

insurance agreements. The U.S. embassy in Tokyo also plays a major role, 

with the Departments of Commerce and State providing additional 

assistance. The Departments of the Treasury and Justice play much less 

active roles. USTR officials reported that they hold interagency meetings at 

least once every 2 months, and more often as issues arise, to discuss the 

status of the insurance agreements. USTR and the U.S. embassy in Tokyo 

rely mainly on industry groups and individual companies for information 

on the status of the agreements' implementation. USTR attempts, but is not 

always able, to thoroughly verify the accuracy or completeness of industry 

data on implementation. In monitoring the agreements, USTR has 

determined that Japan has made progress in deregulating its insurance 

industry but has identified key commitments that remain unmet.

USTR Plays Lead Role in 

Monitoring and 

Enforcement 

USTR's Japan Office, the office with primary responsibility for monitoring 

and enforcing the insurance agreements, currently has a total staff of four 

permanent employees and one temporary employee from the State 

Department, twice the amount of people that it had 4 years ago. However, 

the lead USTR official for Japan insurance issues announced his departure 

in September 1999. This office is responsible for monitoring approximately 

20 trade agreements negotiated under the current and previous 

administrations that cover diverse issues such as telecommunications and 

autos and auto parts. USTR's Offices of the General Counsel and Services, 

Investment, and Intellectual Property also provide assistance with the 

insurance agreements when necessary.

USTR has estimated that its efforts, combined with those of the U.S. 

embassy in Japan, constitute about 80 percent of total U.S. government 

efforts to monitor and enforce the Japanese insurance agreements. 

According to USTR, these two agencies confer on the agreements almost 

daily. USTR also estimated that the Commerce Department contributes 

about an additional 10 percent of U.S. government monitoring and 

enforcement efforts and reported that the Treasury Department's role is 
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limited.13 According to our survey, U.S. insurance companies in Japan have 

communicated most frequently with staff from the U.S. embassy in Tokyo 

and USTR regarding the agreements.

According to our survey, six U.S. insurers, which account for over

80 percent of all U.S. premiums generated in Japan, believed that USTR 

does not have sufficient resources (personnel, funding, and so on) to 

monitor and enforce the insurance agreements. USTR officials reported 

that two Japan Office employees have worked part-time on insurance and 

that more people are needed to work on insurance and other U.S.-Japan 

trade issues. Moreover, a 1998 USTR document noted that the U.S. Trade 

Representative spent more time on Japan insurance during much of 1998 

than on any other single issue.

U.S. Agencies Meet at Least 

Bimonthly to Discuss 

Insurance Agreements

USTR has reported that coordination among U.S. government agencies to 

monitor the insurance agreements takes place about every 2 months and 

becomes more frequent prior to consultations with Japan. Meetings are 

called as needed rather than being regularly scheduled in advance, a 

circumstance that USTR officials view as typical for the agency. According 

to a USTR official, there are no minutes or records of decisions for these 

meetings. Typically, the Deputy Assistant U.S. Trade Representative for 

Japan notifies about a dozen other U.S. government officials of meetings on 

insurance.14 An exception to the usual working-level nature of the process 

occurred in the spring and summer of 1998. Spurred by congressional 

interest, the process was elevated to a more senior level, and more 

agencies participated during two interagency reviews of the activities of 

one U.S. insurance company and its Japanese partner. One of these reviews 

reached the Cabinet level.

USTR officials have stated that it is difficult to get all agency 

representatives to consistently attend meetings because these agencies' 

offices have to focus on too many other issues to spend much time on the 

13The U.S. and Foreign Commercial Service, the overseas operations of the Department of 

Commerce, is not involved with monitoring and enforcing the insurance agreements in 

Tokyo.

14These officials usually include an economic officer at the U.S. embassy in Tokyo; two other 

USTR officials; two Commerce Department officials; two State Department officials in 

Washington, D.C.; and one official each from the Treasury Department, the Justice 

Department, the International Trade Commission, and the National Economic Council.
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U.S.-Japan insurance issue. One USTR official noted that, as a result of 

budget pressures and declining staff levels, agencies choose to focus on 

issues where they have the lead. In addition, a lack of personnel with 

technical insurance industry knowledge and frequent personnel turnover in 

certain agencies limit the understanding of issues among the interagency 

participants. (Insurance is not regulated at the federal level in the United 

States.) Decisions typically depend on consensus among those 

participating, rather than on formal clearance with each official on the 

meeting notification list.

U.S. Government 

Monitoring and 

Enforcement Efforts Rely 

Heavily on Private Sector 

Information

For monitoring and enforcing the agreements, USTR and the U.S. embassy 

in Tokyo rely primarily on information provided by U.S. insurance 

companies and industry groups, as well as on information collected by 

officials at the U.S. embassy in Tokyo from Japanese sources.15 For 

example, USTR relied heavily on information provided by the U.S. 

insurance industry in Japan to make its July 1, 1998, decision that the 

Japanese government had not met key primary sector deregulation criteria 

stipulated in the 1996 agreement. (See app. III for further information on 

USTR's key monitoring and enforcement decisions.) USTR officials report 

that while neither USTR nor the U.S. government in general possess the 

resources or technical capabilities to independently investigate or verify 

this type of information, the agency does make an effort to do so by 

consulting with experts and industry analysts.

USTR officials and an economic officer at the U.S. embassy in Tokyo report 

that one large U.S. insurance provider is a key source of information on the 

Japanese insurance market. This company provides the U.S. government 

with information on the insurance industry and identifies and provides 

details on problems with the agreements' implementation. The embassy 

official speaks with representatives from this provider several times a 

week. According to USTR, without this company's assistance, much of 

what the U.S. government has accomplished in encouraging deregulation of 

the Japanese insurance market would not have been possible. USTR and 

embassy officials also gather information from several other U.S. insurance 

companies; the embassy official speaks with representatives from these 

15USTR also receives information from the Japanese government during bilateral 

consultations. This information includes data on product approvals and insurance 

premiums for foreign and Japanese insurance providers.
B-283294

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companies about once a week or once every few weeks in order to obtain 

as complete a perspective as possible on various issues.

In addition to using information from individual companies, USTR relies on 

several industry groups to identify and explain insurance issues. These 

groups include the American Chamber of Commerce in Japan (ACCJ),16 the 

American Council of Life Insurance (ACLI), the Coalition of Service 

Industries, the International Insurance Council, and the Foreign Non-Life 

Insurance Association (which is located in Japan). Company participation 

in these groups varies, and no one group has a membership that includes all 

U.S. participants in the Japanese insurance market. Some U.S. insurance 

companies have noted that even the associations to which they belong do 

not always capture their views on insurance issues. However, USTR 

officials maintain that they solicit competing viewpoints in cases where 

companies are in disagreement. Further, insurance experts at the state 

level from the National Association of Insurance Commissioners have 

joined USTR in meetings with Japan on insurance issues. For example, the 

association hosted working-level consultations between the U.S. and 

Japanese governments in April 1999. The support of these technical experts 

helped create a dialogue between U.S. and Japanese regulators on new 

ways to ease the product approval process.

U.S. Government 

Recognizes Progress in 

Insurance Deregulation, but 

Has Identified Unmet 

Japanese Commitments

As part of its monitoring efforts, the U.S. government has reported that 

Japan has made some progress in deregulating the primary insurance 

sector. According to a recent U.S. embassy document on Japan's insurance 

reforms, there is evidence that deregulation has been taking hold, with new 

entrants into the life and non-life primary sectors, stronger linkages 

between foreign and Japanese firms, and examples of product and price 

competition. However, in July 1998 (and again in April 1999) USTR 

reviewed the state of implementation and determined that Japan has not 

implemented certain deregulation actions called for in the 1996 agreement. 

Specifically, USTR stated that the Japanese government has not fully 

implemented its obligations regarding the reform of rating organizations 

that have historically established prices for major non-life insurance 

products, and regarding the timely processing of new product and rate 

applications. As a result, USTR does not support initiation of the 2.5-year 

countdown toward opening the third sector. In addition, USTR said that 

16The ACCJ insurance subcommittee of the financial services committee is the source of 

insurance information for USTR.
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Japan violated third sector protections by licensing a cancer insurance 

product to a large Japanese insurance company. (For more information on 

how the U.S. government reached these conclusions, see app. III.)

The Japanese government has stated that it has fully implemented both 

agreements, including all deregulation actions. Therefore, on July 1, 1998, 

Japan began its countdown of the 2.5-year period before opening the third 

sector to increased competition. Further, Japan reports that the approval of 

the cancer insurance product under dispute is not an agreement violation 

but conforms to limitations negotiated by Japan and the United States.

U.S. Insurance Industry 

Views U.S. 

Government 

Monitoring Efforts 

More Favorably Than 

Enforcement Actions

More U.S. insurance companies expressed favorable views of U.S. 

government actions to monitor the insurance agreements than reported 

favorable views of enforcement efforts. As shown in figure 1, 7 of the 13 

U.S. insurance companies operating in Japan, accounting for about 50 

percent of U.S. premiums, reported that, overall, the U.S. government had 

been effective or very effective in monitoring the agreements. Four 

companies, representing 13 percent of U.S. premiums in Japan, believed 

that the U.S. government had been effective in enforcing the agreements. 

Four companies reported that U.S. government monitoring efforts had 

been as effective as ineffective. Five companies provided this neutral 

response regarding enforcement efforts.
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Figure 1: U.S. Company Views on U.S. Government Monitoring and Enforcement 

Efforts

Note: Data in the graph does not include brokers.

Source: GAO analysis of company survey results.

Most companies expressed satisfaction with U.S. government efforts 

concerning the insurance agreements, particularly in situations involving 

U.S. government interaction with U.S. industry. For example, nine 

companies reported that the U.S. government had sought input from 

industry on the status of agreement implementation to a great or very great 

extent. Further, seven companies stated that the U.S. government had given 

thorough consideration to implementation issues identified by industry to a 

great or very great extent. Ten companies reported that the U.S. 

government had represented the U.S. insurance industry in Japan generally 

or very adequately. Companies providing these responses represented 

around 40-50 percent of U.S. premiums in Japan.

However, U.S. insurance companies that account for a large percentage of 

U.S. premiums in Japan expressed a lower level of satisfaction with other 

0

1

2

3

4

6

5

Monitoring

Enforcement

Number of companies

Very

effective

Effective As effective

as ineffective

Ineffective Very 

ineffective

No basis

to judge
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aspects of U.S. government monitoring and enforcement efforts, 

specifically in terms of timeliness, accuracy of information, and 

consistency of government policy. Six companies, which accounted for 

over 80 percent of U.S. premiums in Japan, reported that the U.S. 

government had not acted upon agreement implementation concerns in a 

timely manner. Further, seven companies, which also accounted for over

80 percent of U.S. premiums in Japan, reported that the information 

provided to them by the U.S. government on implementation had not been 

clear and accurate. Finally, five companies, accounting for almost 90 

percent of U.S. premiums in Japan, reported that U.S. government policy 

actions regarding the agreements had not been consistent over time. The 

largest U.S. insurance company in Japan expressed a strong level of 

dissatisfaction with a U.S. government decision that Japan's failure to 

prevent certain activities of a competing firm was not violating a third 

sector restriction in the 1996 agreement.

Agency Comments We obtained oral comments on a draft of this report from officials from 

USTR, including the General Counsel and staff from the Japan Office. 

USTR declined the opportunity to provide an overall assessment of the 

report. USTR and an official at the U.S. embassy in Tokyo provided several 

technical comments, which we incorporated into the report as appropriate. 

As arranged with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after the 

date of this letter. At that time, we will send copies of this report to 

interested congressional committees and to Ambassador Charlene 

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

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

State; the Honorable Lawrence H. Summers, Secretary of the Treasury; the 

Honorable Janet Reno, Attorney General; 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.
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If you or your staff have any questions about this report, please contact me 

at (202) 512-4128. Other GAO contacts and staff acknowledgments are 

listed in appendix VI.

Sincerely yours,

Benjamin F. Nelson, Director

International Relations and Trade Issues
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Appendix I

Questionnaire on the Status of 

Implementation of the U.S.-Japan Insurance 

Agreements ApendxiI

We distributed a questionnaire to 13 insurance companies (5 life and 8

non-life companies) and three insurance brokers operating in Japan that 

are either wholly or majority U.S. owned.1

 We obtained a 100-percent 

response rate to the questionnaire. The questionnaire contains four 

sections: (1) implementation/impact of the 1994 U.S.-Japan insurance 

agreement, (2) implementation/impact of the 1996 U.S.-Japan insurance 

agreement, (3) the combined implementation/impact of the 1994 and 1996 

agreements, and (4) monitoring and enforcement of the agreements. We 

also administered a supplemental questionnaire that was only distributed 

to the 13 companies. The supplemental questionnaire asked for detailed 

information concerning applications companies had submitted.2

Some of the questions in the questionnaire only applied to non-life 

companies, while others only applied to life companies, and these 

questions are noted in the attached questionnaire. Also, brokers were 

asked fewer questions than the companies because some of the 

commitments in the agreements did not pertain to them. For each question 

in the following questionnaire and supplemental questionnaire, we have 

displayed the company responses. The broker responses are displayed in 

parenthesis next to company responses.

1

The companies are (1) American Family Life Assurance Company of Columbus (AFLAC); 

(2) American Life Insurance Company (owned by American International Group [AIG]); (3) 

Prudential Life Insurance Company, Ltd.; (4) INA Himawari Life Insurance Company, Ltd. 

(90 percent owned by CIGNA at the time of our survey, but now 61 percent owned by CIGNA 

and 39 percent owned by Yasuda Fire and Marine); (5) GE Edison Life (90 percent owned by 

GE Capital); (6) AIU Insurance Company (owned by AIG); (7) CIGNA Accident and Fire 

Insurance Company, Ltd. (now owned by ACE INA); (8) American Home Assurance 

Company (owned by AIG); (9) Lumbermens Mutual Casualty Company (Kemper); (10) 

Liberty Mutual Insurance Company (Liberty International); (11) Unum Japan Accident 

Insurance Company; (12) Federal Insurance Company (Chubb); and (13) Allstate Property 

and Casualty Insurance Japan Company, Ltd. The three brokers are J&H Marsh & 

McLennan, Japan; Ltd.; AON Risk Services, Japan, Ltd.; and Willis Corroon Japan, Ltd. Willis 

Corroon is a British-registered company, with majority U.S. shareholders.

2

The supplemental questionnaire was not provided to brokers because they do not submit 

insurance applications.
Appendix I

Questionnaire on the Status of 

Implementation of the U.S.-Japan Insurance 

Agreements

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Appendix I

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Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements ApendxiI

This appendix presents a discussion of the results of the company 

questionnaires (see app. I) on the 1994 and 1996 U.S.-Japan insurance 

agreements. The following discussion is structured differently from our 

discussion of this topic in the main body of the report. The discussion in 

the main body of the report is structured around issues, such as 

implementation, impact, and concerns related to the agreements. This 

discussion is structured to follow the order of the questionnaire. We first 

discuss company responses to questions on implementation and impact of 

the 1994 agreement, then follow with a discussion of company responses to 

the 1996 agreement. We end the discussion with company views on the 

future impact of the agreements as well as company experiences in sales 

and market share over the last few years.

In our discussion of company responses to questions on the 1994 

agreement, where appropriate, we compare responses in our current 

survey to those responses to a 1996 survey we conducted on the 1994 

agreement. Eleven of the 13 companies and two of the three brokers 

included in our current survey also responded to our 1996 survey. While our 

current survey section on the 1994 agreement covers the same major issues 

we covered in our 1996 survey, we did not ask as many detailed questions 

about the agreement as we did in our prior survey nor did we ask about 

certain commitments that had clearly been implemented prior to the 

creation of our 1999 survey.

Finally, our discussion of survey results is supplemented with information 

obtained during interviews with U.S. insurance companies in Japan.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 62 GAO/NSIAD-99-209 International Trade

1994 Agreement 

Largely Implemented 

and Provides Positive 

Impact, but Concerns 

Exist Over 

Implementation of Key 

Commitments

In our 1999 survey, 8 of the 13 companies, representing about 90 percent of 

the premiums generated by U.S. companies in Japan, and two of the three 

brokers reported that the 1994 agreement had enhanced their ability to 

compete in Japan.1

 This represents a positive change from our 1996 survey, 

when most companies reported that Japan had implemented the 1994 

agreement to varying degrees, but the agreement had no effect on their 

ability to compete.2

 However, companies reported concerns over Japan's 

implementation of specific commitments under the agreement.

Company Views on 

Implementation and Impact 

of Selected Key 

Commitments Under the 

1994 Agreement

The 1994 agreement included commitments by Japan to increase 

transparency, deregulation, competition, and access to insurance programs 

of government corporations, while protecting foreign companies' shares in 

the third sector. Table 1 lists selected key commitments by the Japanese 

government under the 1994 agreement. Company views on the extent to 

which Japan has implemented these commitments and their impact follow 

the table.

1

Company shares (percentage) of total U.S. premiums generated in Japan were calculated 

using premium data for Japanese fiscal year 1997 (Apr. 1997-Mar. 1998). Two surveyed 

companies, GE Edison and Allstate, did not have sales in 1997 and were assigned a zero 

weight for computing the premium proportions. The three brokers we surveyed were also 

excluded from the calculation of premium proportions.

2

In 1996, we surveyed 11 U.S. companies and four U.S. brokers operating in Japan. In 1999, 

we surveyed these 11 companies and 2 additional U.S. companies. One of these two 

companies, GE Edison, entered the life insurance market through the acquisition of a 

Japanese life insurer in April 1998. The other U.S. company, Allstate, was established in 1998 

to sell automobile insurance. This company once had a 50-percent ownership in two other 

insurance companies in Japan but divested itself of these two companies in November 1997. 

Also, since our prior survey, one of the U.S. brokers acquired another of the brokers, thus 

leaving us with three brokers in our 1999 survey.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 63 GAO/NSIAD-99-209 International Trade

Table 1: Selected Key Commitments of the 1994 U.S.-Japan Insurance Agreement

a

“Mutual entry” was defined in the 1994 agreement as “the ability of life insurance companies to 

introduce existing, new or modified rates, products, or riders in the third sector currently allowed to 

non-life insurance companies, and the ability of non-life insurance companies to introduce existing, 

new or modified rates, products, or riders in the third sector currently allowed to life insurance 

companies.”

b

“Keiretsu” are groups of Japanese firms that maintain close ties through the cross-holding of shares 

and exchange of personnel. They are important in the Japanese insurance market. With close 

corporate links, many Japanese businesses and their employees buy insurance from firms within their 

keiretsu—limiting the ability of foreign insurance providers to distribute their products.

Source: “Measures by the Government of the United States and the Government of Japan Regarding 

Insurance,” October 11, 1994.

Transparency and Procedural 

Protections

Our analysis of questionnaire responses indicates that most of the 

commitments to improve transparency and procedural protections have 

been met. Most companies (10 of 13) reported that they had been given 

meaningful and fair opportunities to share their views with Japanese 

officials regarding insurance laws, ordinances, and/or regulations. One 

1994 Agreement

Measures Selected key commitments by the Japanese government

Transparency and procedural 

protections

• Publish and make publicly available licensing, product, and rate approval standards

• Encourage Japanese advisory groups to allow foreign providers to attend their meetings and 

submit statements when these groups are asked to provide recommendations to Japanese 

government related to the provision of insurance

• Encourage Japanese industry associations to accord foreign insurers rights, privileges, and 

opportunities equal to those accorded to domestic firms

• Provide meaningful and fair opportunities for foreign firms to be informed of, comment on, and/or 

exchange views with Japanese officials regarding insurance laws, ordinances, and/or regulations

• Safeguard information considered secret in connection with a company's application, accept 

multiple applications for license or product approval at the same time, not require companies to 

coordinate their applications with other insurance providers, and not condition/delay acceptance 

of applications based on whether the company has consulted with other insurance providers

Deregulation • Institute, in stages, expedited and simplified systems for the approval of applications for certain 

insurance products and rates

• Allow insurance companies to apply flexible rates for certain non-life products

• Allow applications to use data collected outside of Japan

• Establish a brokerage system

Entry into the third sector by 

subsidiaries

• Do not allow “mutual entry”a

 until a substantial portion of life and non-life areas are deregulated, 

and avoid radical change in the third sector until foreign insurance providers have the opportunity 

to compete on equal terms in major product categories in the life and non-life sectors

Government corporations • Encourage public corporations to permit foreign insurers access to their insurance programs and 

to ensure that allocation of premium shares among insurance providers is done according to fair, 

transparent, nondiscriminatory, and competitive criteria

Competition • Strictly enforce antitrust laws in the insurance sector

• Require the private sector to complete a study of “keiretsu” relationshipsb
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 64 GAO/NSIAD-99-209 International Trade

company official indicated that the Financial Supervisory Agency (FSA), 

which assumed regulatory authority over product approval from the 

Ministry of Finance (MOF), encouraged greater dialogue with companies 

and appeared to value and respect diverse opinions. Further, 10 companies 

reported that they had received equal treatment in insurance industry 

groups. Also, 10 companies reported that the Japanese government had not 

required their company to coordinate its applications with other insurance 

providers (which may be potential competitors) and had not conditioned or 

delayed acceptance of their applications based on whether they had 

consulted with other insurance providers.

Several companies, however, expressed concern over the Japanese 

government's commitment to publish and/or make publicly available 

licensing, product, and rate approval standards. Almost half of the 

companies (6 of 13) reported that the Japanese government had done little 

or nothing to meet this commitment. This result is very similar to what 

companies reported to us during our 1996 survey. Officials from two 

companies told us that the MOF and FSA were reluctant to put anything in 

writing with respect to approval standards. An official from another 

company told us that it was difficult to develop products because the rules 

of the product approval process were unclear. With respect to Japan's 

commitment to encourage Japanese advisory groups to allow foreign 

companies to attend group meetings when these groups are asked to 

provide recommendations related to insurance, four U.S. companies 

reported that they had attended only a few of these meetings, while another 

two U.S. companies reported that they had not attended any meetings. 

Officials from two other companies told us that the most effective way to 

communicate with the Japanese government was through industry 

associations, such as the Life Insurance Association of Japan and the 

Foreign Non-Life Insurance Association of Japan, rather than individually.

Overall, 7 of the 13 companies, representing about 90 percent of the 

premiums of U.S. companies in Japan, reported that the Japanese 

government's actions to improve transparency and procedural protections 

had no effect on their ability to compete in Japan. Three companies 

reported that these actions had a generally positive effect.

Deregulation Our analysis of questionnaire responses indicates that the Japanese 

government has implemented many of the specific deregulatory 

commitments in the 1994 agreement. Four of six non-life companies 

reported that the Japanese government had, to a moderate or great extent, 

expanded the types of non-life products to which flexible rates could be 
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 65 GAO/NSIAD-99-209 International Trade

applied.3 Eight companies submitted applications using data collected 

outside of Japan and were allowed to use this data. This represents twice 

the number of companies that reported using outside data in our 1996 

survey. However, over half of the companies (7 of 13), representing about 

45 percent of the premiums, reported that generally the government had 

done little to expedite and simplify the application review process. This 

result is very similar to what companies reported to us during our 1996 

survey.

Concerning Japan's implementation of its commitment to establish a 

brokerage system, two of the three brokers reported that the Japanese 

government's decision to recognize and license brokers had enhanced their 

ability to compete in Japan.4

 However, all brokers told us that they 

continued to face obstacles in Japan, including a lack of price and product 

differentiation, restrictions on the types of products they can offer, and 

restrictions on the structure of their business operations. In terms of the 

impact of brokers on insurance companies, two companies reported that 

the establishment of a brokerage system had a generally positive effect on 

their ability to compete in Japan, while seven companies reported that this 

system had no effect.5

Overall, 9 of the 13 companies, representing about 45 percent of premiums, 

reported that the Japanese government's implementation of its 1994 

deregulatory commitments had a positive effect on their ability to compete 

in Japan. Eight companies reported that the Japanese government's 

implementation of its deregulatory commitments had enhanced their 

abilities to differentiate product rates and forms.6

 Also, five companies 

reported that the implementation of deregulation commitments had 

increased companies' abilities to distribute insurance products. These 

results represent a positive change over our prior survey, when most 

companies reported that Japan's actions had done little to enhance their 

abilities to differentiate product rates and forms and distribute insurance 

products.

3

Two non-life companies reported that this commitment did not apply to them.

4

All three brokers had received their brokers' licenses.

5

The remaining four companies reported that they had no basis to judge or that it was too 

soon to determine the impact of the brokerage system.

6

These results reflect the Japanese government's implementation of both the 1994 and 1996 

deregulatory commitments.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 66 GAO/NSIAD-99-209 International Trade

Entry Into the Third Sector by 

Subsidiaries

Six companies, representing about 80 percent of U.S. premiums, reported 

that the Japanese government had not taken sufficient action to avoid 

“radical change” in the third sector (that is, had not prevented large 

Japanese companies from entering into the third sector). Two U.S. insurers 

believed that radical change had occurred because two Japanese 

companies, Yasuda and Tokyo-Anshin, were operating in the third sector in 

a manner the U.S. insurers believed violated both agreements. Two 

companies, representing about 45 percent of U.S. premiums, reported that 

Japan had not taken sufficient action to avoid radical change in the third 

sector and that this inaction had a generally negative effect on their ability 

to compete in Japan. One company stated that Japan had taken sufficient 

action to avoid radical change and that this action had a very negative 

impact on its ability to compete. Five companies, representing about

40 percent of premiums, reported that Japan's efforts to avoid radical 

change had a generally positive effect.

Government Corporations The insurance programs of government corporations are large and 

profitable, according to officials from two U.S. insurance companies.7

However, most companies reported that the insurance programs of these 

corporations are not fully available to them. Seven companies reported that 

for the most part, these corporations had not allocated shares of premiums 

using fair, transparent, nondiscriminatory, and competitive criteria, as 

required by the 1994 agreement.8

 This result is very similar to our last 

survey. In our current survey, one company official stated that the formula 

used by the Housing Loan Corporation (the only government corporation 

that has disclosed its formula for allocating shares to insurance companies) 

to allocate premiums gave less than 5 percent of the shares to foreign 

companies. Furthermore, according to this company official, this 

government corporation gave the entire foreign share to one large U.S. 

company, with the expectation that the company would share the 

premiums with other foreign companies through reinsurance agreements.

7

Government corporations are established by special law in Japan to serve as instruments 

for state activities when it is recognized that such a corporation could operate more 

efficiently than if managed directly by a government agency, or that its financial and 

personnel management could proceed more smoothly than if subject to the laws and 

regulations of a government organization.

8

Five public corporations were encouraged by the Japanese government to permit foreign 

insurers access to their insurance programs: the Government Housing Loan Corporation, 

the Pension Welfare Service Public Corporation, the Housing and Urban Development 

Corporation, the Okinawa Development Corporation, and the Employment Promotion 

Corporation.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 67 GAO/NSIAD-99-209 International Trade

Competition Many companies reported that Japan had not taken sufficient action to 

promote competition in the insurance market. Five of the 13 companies, 

representing about 70 percent of U.S. premiums, reported that the 

Japanese government had not vigorously enforced the Anti-Monopoly Act 

in the insurance sector.9

 Eight companies and all three brokers reported 

that keiretsu practices and case agents still adversely affected them to a 

moderate or greater extent.10 Officials from two companies indicated that 

Japanese companies would usually not buy insurance outside of their 

keiretsu. However, officials from two companies and one broker believed 

that keiretsu groups would weaken over time. Overall, 9 of the 13 

companies, representing about 90 percent of the premiums, reported that 

Japan's efforts to improve competition by taking antitrust actions had no 

effect on their ability to compete in Japan. This result is very similar to 

what companies reported to us in our 1996 survey.

1996 Agreement Also 

Largely Implemented 

and Provides Positive 

Impact, but Some Key 

Commitments Not 

Fully Met

In our 1999 survey, 9 of the 13 companies, representing around 50 percent 

of U.S. premiums, and two of the three brokers reported that the 1996 

agreement had a positive effect on their ability to compete in Japan. 

Companies reported that while Japan had implemented many of the 

commitments, some had not been fully met.

Company Views on 

Implementation and Impact 

of Selected Key 

Commitments Under the 

1996 Agreement

The 1996 agreement listed several deregulation commitments for the 

primary sector. In addition, the agreement listed other commitments that 

restrict entry into the third sector by subsidiaries of large Japanese 

companies. The agreement clarified when these restrictions could be lifted 

by explicitly linking them to the implementation of five primary sector 

deregulation commitments. The agreement states that these restrictions 

will be lifted 2.5 years after the five primary sector commitments have been 

9

In addition, the private sector keiretsu study mandated by the 1994 agreement was never 

completed.

10Case agents are in-house insurance companies for Japanese firms. Case agents handle the 

insurance needs of the firm and are supposed to lower a firm's insurance cost. Case agents 

can also handle individual employee insurance needs, including auto, travel, and personal 

accident insurance.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 68 GAO/NSIAD-99-209 International Trade

implemented. Under the 1996 agreement, the Japanese government also 

made a commitment to take steps to increase the number of staff who 

process insurance applications. Table 2 lists selected key commitments by 

the Japanese government under the 1996 agreement. Company views on 

the extent to which Japan has implemented these commitments and their 

impact follow the table.

Table 2: Selected Key Commitments of the 1996 U.S.-Japan Insurance Agreement

a

The implementation of the first five deregulation commitments serves as the five criteria that must be 

met before the restrictions on entry into the third sector by large Japanese subsidiaries can be lifted.

b

The Japanese government committed to allow companies to offer flexible rates on their commercial 

fire policies if the amount insured was 7 billion yen—the threshold—or higher.

c

Under Japan's notification system, a company notifies to the government its intention to offer a 

specific product/rate in categories of risk that have been designated by Japan as eligible to use the 

system. The company then waits 90 days while the notification is reviewed by the government. If, after 

90 days, no disapproval is received, the company can then consider the product/rate approved and 

begin to offer it.

d

This allows for automobile insurance to be marketed directly. For example, automobile insurance may 

be marketed over the telephone. The U.S. government acknowledged that the Japanese government 

had met this commitment in September 1996.

Source: “Supplementary Measures by the Government of the United States and the Government of 

Japan Regarding Insurance,” December 24, 1996.

1996 Agreement

Measures Selected key commitments by the Japanese government

Deregulation in the primary sectorsa • Approval of applications for differentiated automobile insurance (different rates, forms, and 

methods of distributing insurance products based on risk factors) within the standard 90-day 

period

• Authorization for companies to offer commercial fire insurance at different rates by further 

lowering of the minimum insured amount per contract required for the application of the advisory 

rate systemb

• Expansion of the notification system for 19 products and their marketing within 90 daysc

• Implementation of the necessary legal changes to eliminate obligations for members of a rating 

organization to use rates calculated by the rating organization

• Approval of applications for differentiated products or rates within the standard 90-day period

• Approval of direct response system for automobile insuranced

Entry into the third sector by 

subsidiaries

• Non-life subsidiaries of life insurance providers permitted to sell personal accident insurance 

subject to restrictions

• Life insurance subsidiaries of non-life insurance companies not allowed to sell stand-alone 

cancer or medical insurance

• For life insurance subsidiaries, limit the ratio of cancer or medical rider benefits to base life 

insurance policies to what was in existence before the implementation of the new Insurance 

Business Law on April 1, 1996

Other issues • Take steps to increase the number of staff who process insurance applications
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 69 GAO/NSIAD-99-209 International Trade

Deregulation in the Primary 

Sectors

Our analysis of questionnaire responses indicates that for the most part 

Japan has implemented its deregulatory commitments and these 

commitments are having a positive effect. For example, the three non-life 

companies who submitted applications to offer automobile insurance 

through the direct response system (for example, marketing over the 

telephone) reported that these applications have been approved. One of 

these three companies reported that this method of offering insurance had 

a very positive effect on its ability to compete in Japan, while the other two 

companies reported no effect. An official from another company noted that 

the approval of direct marketing of automobile insurance should help 

toward gaining the approval of direct marketing for other insurance 

products.11

Of the five primary sector deregulatory commitments that serve as criteria 

for lifting restrictions on the entry into the third sector by subsidiaries of 

large Japanese companies, four of these apply only to non-life companies. 

All of the non-life companies expressing an opinion reported that Japan 

had implemented three of these four commitments (that is, approval of 

differentiated automobile insurance applications, further liberalization of 

commercial fire insurance, and elimination of the obligation to use rating 

organization rates). One non-life insurer reported that Japan's commitment 

to expand the notification system had not been implemented, while all 

other non-life insurers reported that this commitment had been met. These 

eight non-life companies had mixed views on the extent to which these 

deregulatory actions affected their ability to compete in Japan.

• One of the three non-life insurers that had obtained approval to offer 

differentiated automobile insurance reported that this had a very 

positive effect on its ability to compete in Japan.

• Two non-life companies viewed the liberalization of commercial fire 

rates as generally positive, with one company official indicating that the 

liberalization was producing discounts of up to 30 percent. However, 

four of the six non-life companies that offered commercial fire 

insurance reported that this liberalization had no effect on their 

company's ability to compete in Japan. Officials from two companies 

stated that the threshold—the minimum insured amount above which 

flexible rates could be applied—was still too high. An official from one 

11According to U.S. government officials, other types of insurance products, such as 

personal accident insurance, are already being sold via direct marketing.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 70 GAO/NSIAD-99-209 International Trade

of these companies stated that the keiretsu ties controlled which insurer 

provided commercial fire insurance for large corporations.

• Four of the six non-life companies that offered products under the 

notification system viewed the system as having no effect on their 

ability to compete in Japan, while two companies viewed the system as 

having a positive effect.

• Three companies reported that Japan's reform of rating organizations 

had a generally positive effect on their ability to compete, while four 

reported that Japan's effort had no effect or a generally negative effect. 

One company reported that the elimination of the obligation to use 

rating organization rates gave it greater discretion over setting premium 

rates. Another official indicated that his company left the rating 

organization because it was no longer required to be a member.

The fifth commitment that serves as a criterion for lifting restrictions in the 

third sector applies to all insurers. This commitment requires that 

applications for differentiated products or rates be approved within the 

standard 90-day processing period. Seven of the 13 companies, 

representing about 60 percent of U.S. premiums, reported that Japan had 

implemented this commitment. However, five companies, representing 

about one-third of U.S. premiums, reported that Japan had not met this 

commitment.12 About half the companies (6 of 13) reported Japan's 

approval of applications for differentiated products or rates within the 

standard 90-day processing period had a positive effect on their ability to 

compete in Japan.

We asked companies to provide us with information on the number of 

applications they had submitted since the 1996 agreement was signed. 

Companies reported that 422 of the 466 applications they had submitted 

since the 1996 agreement was signed had been approved and 44 were still 

pending. No companies reported that any applications had been rejected. 

Companies also reported that 21 of the 422 approved applications, or

5 percent, were approved more than 90 days after submission, as shown in 

figure 2. This does not necessarily mean that the Japanese government was 

not in compliance with the standard 90-day processing period. This is 

because the FSA may suspend the 90-day period under some 

circumstances. The 21 applications that took longer than 90 days to 

approve were submitted by three companies. Fifteen of the 21 applications 

were for applications to sell new-to-market products or to sell through a 

12One U.S. insurer reported “Do not know” in this area.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 71 GAO/NSIAD-99-209 International Trade

new distribution channel, as shown in figure 3. The remaining 6 of 21 

applications were for revising company-exclusive product forms or rates. 

The applications that have been approved to sell standard products or to 

revise standard products or rates were all approved within 90 days.

Figure 2: Results of Approved Applications Submitted by U.S. Companies in Japan 

Since the 1996 Agreement Was Signed

Source: GAO analysis of company survey results.

Approved within 90 days

Approved in more than 90 days

401 (95%)

21 (5%)
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 72 GAO/NSIAD-99-209 International Trade

Figure 3: Results of Approved Applications by Type, Submitted by U.S. Companies 

in Japan Since the 1996 Agreement Was Signed

Note: Numbers next to bars represent those applications approved in more than 90 days.

a

Includes applications to sell a new-to-market product and to sell through a new distribution channel.

b

Includes applications to revise a company-exclusive product form or rate. 

c

Includes applications to sell an industry standard product or revise an industry standard product form 

or rate.

Source: GAO analysis of company survey results.

In summary, regarding the five commitments that serve as criteria for lifting 

third sector restrictions, five companies, representing about one-third of 

U.S. premiums, reported that Japan had not complied with the commitment 

to approve applications for differentiated products within a 90-day period. 

0

50

100

150

200

250

300

350

Approved within 90 days

Approved in more than 90 days

Newa Exclusiveb Standardc

Number of applications

15

6
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 73 GAO/NSIAD-99-209 International Trade

One of these companies also reported that Japan had not complied with its 

commitment to expand the notification system.

In addition to asking companies to report on the effect of the individual 

deregulatory commitments, we also asked companies to report on the 

overall effect of deregulatory actions taken by Japan on their ability to 

compete. Seven of the 13 companies, representing about 45 percent of U.S. 

premiums, and two of the three brokers reported that the Japanese 

government's implementation of its deregulatory commitments under the 

1996 agreement had enhanced their ability to compete in Japan. Four of the 

companies and one broker reported that the Japanese government's 

implementation of its deregulatory commitments had no effect, while one 

company reported that the Japanese government's implementation of these 

commitments had a generally negative effect.

Entry Into the Third Sector by 

Subsidiaries

In the non-life area of the third sector, restrictions on sales by Japanese 

subsidiaries were set forth in the agreements primarily to protect the 

existing sales networks of foreign insurers for personal accident insurance. 

For five of the eight non-life companies expressing an opinion, all reported 

that Japan had met most of the these commitments. However, not one 

company (of those expressing an opinion) reported that Japan had 

prohibited the sales of personal accident insurance to association 

members. Overall, three of the non-life companies, representing a majority 

of the non-life premiums, reported that Japan's implementation of 

restrictions on sales by Japanese subsidiaries had a generally positive 

effect.

In the life area of the third sector, Japan committed to prevent Japanese 

subsidiaries from selling stand-alone medical and stand-alone cancer 

insurance, but allowed for the sale of these products as riders to an 

underlying base policy if the rider-to-base-policy ratio was within 

prescribed limits.13 Two U.S. life insurance companies reported that Japan 

had not prevented Japanese subsidiaries from selling stand-alone medical 

and stand-alone cancer insurance. One of these companies reported that 

the Japanese government had failed to prevent Yasuda, a large Japanese 

company, from selling stand-alone cancer insurance through its 

relationship with INA Himawari. The other company reported that another 

13An insurance rider is a policy modification or addition to a larger insurance policy. In this 

case, the underlying insurance being sold is a life insurance policy. Cancer, medical, and 

other benefits are sold as riders in addition to the standard life insurance policy.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 74 GAO/NSIAD-99-209 International Trade

Japanese insurer, Tokyo-Anshin, was effectively selling stand-alone cancer 

insurance even though the company offers it as a rider to a base life 

insurance policy. These two companies reported that the Japanese 

government's inability to prevent Japanese companies from selling

stand-alone cancer insurance had a negative effect on their ability to 

compete in Japan.

Other Issues: Increasing the 

Number of Regulatory Staff to 

Process Applications

The Japanese government committed under the 1996 agreement to take 

steps to increase the number of staff who process insurance applications. 

Ten of the 13 companies reported that Japan had decreased the level of 

staff responsible for insurance product approval, while the remaining three 

companies reported that Japan had maintained the same level of staffing. 

An FSA official told us that the agency had nine individuals responsible for 

processing insurance applications.14 Officials from seven companies told us 

that this staffing level was too small to handle the volume of insurance 

applications. Five company officials told us that they had difficulty in 

arranging a meeting with the FSA, and two of these officials indicated that 

once they had secured a meeting, they were given little time to discuss their 

applications with agency officials. One company official believed his 

company could only submit applications twice a year because of the FSA's 

staffing level. Two company officials expressed concern over the ability of 

the FSA to meet the standard 90-day period for product approval, given the 

expected increases in the volume of applications.

U.S. Companies' Views 

on the Future Effects 

of the Agreements

In soliciting company views on the future effects of the agreements, we 

chose a 2- and 5-year time period to obtain company views both before and 

after Japan intends to lift the third sector restrictions in January 2001. 

Eleven of the 13 companies, representing about 50 percent of U.S. 

premiums, and one of the three brokers reported that over the next 2 years, 

the agreements would have a very or generally positive effect on their 

ability to compete in Japan, as shown in figure 4. Two companies told us 

that they reported positively because of Japan's commitment to restrict the 

entry by large Japanese companies into the third sector over the next

2 years. However, over the next 5 years, a smaller number of companies 

reported a positive outcome, as 7 of the 13 companies, representing about 

25 percent of U.S. premiums, reported that the agreements would have a 

14According to U.S. Trade Representative (USTR) officials, FSA has increased the number of 

staff responsible for application processing since our survey was completed.
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 75 GAO/NSIAD-99-209 International Trade

positive effect. Brokers were more positive over the next 5 years, as all 

three reported that the agreements would have a positive effect over this 

time period. Two companies told us that once the third sector was opened 

to large Japanese companies, the third sector business of these U.S. 

companies would suffer.

Figure 4: U.S. Companies' Views on Future Effects of Insurance Agreements

Note: Does not include brokers.

Source: GAO analysis of company survey results.

0

2

4

6

8

12

10

Number of companies

Very positive

effect

Generally 

positive effect

No effect Very

negative effect

No basis

to judge

Generally 

negative effect

Next 2 years

Next 5 years
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 76 GAO/NSIAD-99-209 International Trade

U.S. Company Sales 

and Market Shares 

Increase; Some 

Companies Attribute 

Agreements

Most of the U.S. insurance companies with sales in Japan in fiscal year 1997 

or earlier reported that their sales and market shares in the primary and 

third sectors had increased since the 1994 agreement was signed. 

Specifically, eight companies realized increases in their primary sector 

sales, and six realized increases in primary sector market share, as shown 

in figure 5.15 Two of the eight companies that reported increases in primary 

sector sales attributed the increases to actions taken by Japan under the 

agreements. In the third sector, eight companies realized increases in third 

sector sales, and six realized increases in market share, as shown in

figure 6.16 Five of the eight companies that reported increases in third 

sector sales attributed the increases to actions taken by Japan under the 

agreements.

15Three companies responded, “Not applicable.”

16 Four companies responded, “Not applicable.” 
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 77 GAO/NSIAD-99-209 International Trade

Figure 5: Primary Sector Sales and Market Share Since the 1994 Agreement Was 

Signed

Note: Does not include brokers.

Source: GAO analysis of company survey results.

0

1

2

3

4

5

6

7

8

9 Number of companies

Increased Remained 

the same

Decreased Not applicable

Annual direct premium sales

Market Shares
Appendix II

Analysis of Company Questionnaires on the 

Status of Implementation of the U.S.-Japan 

Insurance Agreements

Page 78 GAO/NSIAD-99-209 International Trade

Figure 6: Third Sector Sales and Market Share Since the 1994 Agreement Was 

Signed

Note: Does not include brokers.

Source: GAO analysis of company survey results.

0

1

2

3

4

5

6

7

9

8

Number of companies

Annual direct premium sales

Market Share

Increased Remained 

the same

Decreased Not applicable
Page 79 GAO/NSIAD-99-209 International Trade

Appendix III

U.S. Trade Representative’s Key Monitoring 

and Enforcement Decisions ApendxiI

USTR is the lead U.S. trade agency, with primary responsibility for 

monitoring and enforcing the U.S.-Japan insurance agreements. This 

appendix reports on the process and information USTR used in reaching 

key decisions regarding Japan's implementation of the agreements, as well 

as current U.S. government and industry positions on outstanding issues. 

Two of these decisions were reached on July 1, 1998, and decisions to drop 

or raise certain issues in the third sector have since been made. In some 

instances, Japanese, foreign, and U.S. industry groups and U.S. companies 

have expressed opinions that run counter to USTR's current position on 

specific implementation issues.

After consulting with industry sources, USTR released an assessment on 

July 1, 1998, of Japan's implementation of five key primary sector 

deregulation measures contained in the 1996 agreement.1

 USTR stated that 

while Japan had met three of these measures, it had failed to fully 

implement the two remaining commitments. USTR had identified problems 

in two areas: (1) unjustified delays in approving applications for 

differentiated products and rates within the standard processing period of 

90 days and (2) inadequate reform of rating organizations. Therefore, USTR 

announced that it did not support initiating a 2.5-year countdown to open 

the third sector in 2001. In contrast, Japanese officials have stated that 

Japan has fully implemented the five deregulation measures, and on July 1, 

1998, Japan initiated the 2.5-year countdown.

Also, on July 1, 1998, USTR notified Japan that by allowing a Japanese 

insurance company (Tokyo-Anshin) to sell a cancer insurance product, 

Japan had circumvented the 1994 and 1996 agreements' terms that 

effectively reserved the third sector market for foreign and small and 

medium-sized Japanese firms. Japan responded that the agreement permits 

this particular cancer insurance product to be sold since it conforms to 

limitations negotiated by Japan and the United States. USTR has also 

reviewed other possible third sector violations, in one case determining 

1

These measures are (1) approving applications for differentiated types of automobile 

insurance within the standard 90-day processing period, (2) further liberalizing commercial 

fire insurance pricing, (3) expanding a “notification system,” (4) removing the requirement 

for members to use insurance rates calculated by rating organizations, and (5) approving 

applications for differentiated products or rates within the standard processing period of

90 days. According to the 1996 agreement, these measures are to serve as criteria that, upon 

being met, initiate a 2.5-year countdown toward opening the third sector to increased 

competition.
Appendix III

U.S. Trade Representative’s Key Monitoring 

and Enforcement Decisions

Page 80 GAO/NSIAD-99-209 International Trade

that there was no violation, and in another, choosing to raise the issue with 

Japan.

USTR has not revised its July 1998 assessment of Japan's compliance with 

the insurance agreements. In an April 1999 meeting with Japanese officials, 

USTR repeated its position that Japan has not complied with two 

outstanding deregulatory requirements (90-day product approval and rating 

organization reform). Additionally, USTR said that Japan continues to 

allow the ongoing violation of the third sector provisions of the 

agreements. USTR has not undertaken any formal legal actions concerning 

the agreements, but the U.S. Trade Representative has noted that the 

United States can take action against Japan through World Trade 

Organization (WTO) dispute settlement procedures, if necessary, to secure 

U.S. rights under the insurance agreements. These actions are possible now 

that Japan has included many of its insurance commitments in the recently 

implemented WTO financial services agreement.

USTR Solicited 

Information on Japan's 

Implementation of Five 

Deregulation Criteria 

To reach its July 1998 decision that Japan had not fully complied with all 

the five deregulation criteria, USTR relied on information it solicited from 

industry, both in the United States and in Japan, as well as information 

gathered by the U.S. embassy in Tokyo. The embassy works closely with 

some U.S. companies in its data collection. However, some firms are not in 

contact with the U.S. embassy. In addition, USTR consulted with other 

agencies. The decision was preceded by a series of bilateral consultations 

between the governments to review Japan's implementation of the five 

commitments. One large U.S. firm in Japan provided key information to 

USTR about Japan's implementation of the primary sector deregulation 

criteria and possible third sector violations.

In addition to soliciting the concerns of individual U.S. insurance 

companies, USTR also received information from two industry groups: the 

American Chamber of Commerce in Japan (ACCJ) and the American 

Council of Life Insurance (ACLI). In May 1998, the ACCJ insurance 

subcommittee informed USTR that it believed Japan was not in compliance 

with the two primary sector deregulation criteria previously mentioned, a 

position supported by eight members of the subcommittee and opposed by 

one. (Four U.S. firms were not participants in the May 1998 ACCJ decision.) 

In April 1998, ACLI provided an analysis of Japan's implementation, which 

voiced positions similar to those of the ACCJ and expressed additional 

concerns that Yasuda, a Japanese insurer, and INA, its U.S. partner, were 

causing “radical change” in the third sector.
Appendix III

U.S. Trade Representative’s Key Monitoring 

and Enforcement Decisions

Page 81 GAO/NSIAD-99-209 International Trade

USTR feels that such industry information is critical for purposes of 

identifying private sector concerns. However, USTR recognizes that there 

are certain limitations associated with relying on information from industry 

associations. No one trade association represents all U.S. insurance 

companies, and for those represented, association positions may not 

capture all company views on agreement implementation. Groups such as 

ACCJ do not encompass all company views, as some companies do not 

belong or do not actively participate. Participating companies reported that 

there are divisions among ACCJ insurance subcommittee members and 

cited instances where ACCJ position papers have not reflected their 

company's views.

USTR Determines 

Status of 

Implementation of 

Deregulatory 

Commitments on

July 1, 1998

Of five primary sector deregulation criteria in the 1996 agreement, USTR 

concluded on July 1, 1998, that Japan has implemented three of them. 

USTR found that Japan has not complied with the criterion to approve 

differentiated products within 90 days and that fundamental reform of 

rating organizations was incomplete. Our fieldwork conducted in Tokyo in 

March 1999 found that U.S. insurance companies had mixed views 

regarding Japan's implementation of the five criteria.

USTR Noted Three of Five 

1996 Primary Sector 

Deregulation Criteria Met

Four of the five primary sector deregulation criteria apply only to products 

of non-life insurers. USTR has stated that Japan has implemented three of 

these four insurance deregulation criteria. These were requirements to

(1) approve applications within 90 days for “differentiated” auto insurance, 

which allows the insurer the flexibility to develop, price, and market 

automobile insurance based on risk factors, such as the age, gender, and 

driving history of the driver and the use and type of vehicle; (2) further 

liberalize commercial fire insurance by decreasing limits for using an 

“advisory rate system,” which gives insurers the freedom to set rates 

outside the rates established by the Property Casualty Insurance Rating 

Organization;2

 and (3) expand the application of Japan's “notification 

system,” whereby an insurance company, after filing its product plan with 

the regulatory authority, can begin to market an insurance product after

90 days, unless disapproved by the government, to a list of additional 

2

Since July 1, 1998, companies have been free to calculate their own rates and not use those 

computed by a rating organization.
Appendix III

U.S. Trade Representative’s Key Monitoring 

and Enforcement Decisions

Page 82 GAO/NSIAD-99-209 International Trade

products and allow marketing of those products within 90 days.3 According 

to U.S. government officials, USTR's assessment of compliance was based 

on the insurance industry's views.4

USTR Decided 90-Day 

Product Approval 

Commitment Unmet

The 1996 agreement requires that Japan approve applications for 

differentiated life and non-life products or rates within a standard 

processing period of 90 days. In 1998, one U.S. company raised concerns 

with USTR that Japan was not in compliance with this requirement. On

July 1, 1998, USTR determined that Japan had not fully implemented its 

obligations in this area and noted that in a number of specific cases, Japan 

had “unjustifiably exceeded the standard 90-day processing period.” 

According to USTR, the criterion's reference to a “standard 90-day 

processing period” recognizes that the period can be exceeded in specific 

circumstances.

In reaching its July 1998 decision, USTR sought examples from industry on 

numerous occasions of applications whose processing exceeded 90 days so 

it could raise this issue with Japan. One U.S. firm provided USTR with time 

lines for four applications whose processing time exceeded 90 days; USTR 

told us that it had never examined the actual applications. Based on the 

information provided by this provider, USTR believed that these 

applications were unacceptably delayed by the Japanese government.

Following June 1998 consultations with USTR, Japan responded that, per 

the terms of the 1996 agreement, no applications for differentiated 

products (other than differentiated automobile insurance) had been 

received 90 days prior to the July 1, 1998, deadline and thus the 

commitment was considered met.5

 USTR rejected this reasoning as a 

misinterpretation of the agreement. In addition, Japan consistently 

3

Under Japan's notification system, the government has a 90-day period to review the 

notification. If, after 90 days, no disapproval is received, the company can then consider the 

product or rate approved and begin to offer it.

4

U.S. non-life providers are almost unanimous in reporting that Japan has implemented 

these three commitments. In response to our 1999 survey, all U.S. non-life firms expressing a 

view said that the government of Japan has implemented the criteria on differentiated auto 

insurance and liberalized commercial fire insurance; all but one small U.S. non-life firm 

reported that Japan had met the criterion regarding the notification system.

5

During June 1998 consultations, Japan told USTR that two differentiated product 

applications had been approved within 90 days.
Appendix III

U.S. Trade Representative’s Key Monitoring 

and Enforcement Decisions

Page 83 GAO/NSIAD-99-209 International Trade

maintained that it processed applications within the standard period of

90 days. According to Japan, under its regulations, the standard 90-day 

period could be suspended if the agency responsible for processing 

applications requires a company to revise or supplement information on an 

application and that the four USTR examples had experienced delays due 

to such inadequacies.6

 USTR officials acknowledged that the 90-day period 

can be effectively extended for this purpose but found that they were 

unable to respond to Japan's claims that the delays were justified, since 

USTR did not have permission from the insurance provider to discuss 

application details. USTR officials told us that they do not possess the 

technical ability to evaluate the applications' content.

Before the April 1999 consultations with Japan, about four companies 

reported to USTR that they had had recent good experiences with Japanese 

product approval; among those companies were two that had previously 

complained about the application process. USTR officials were not 

convinced that these experiences represented a systemic improvement.

In April 1999, USTR again cited Japan for continued failure to fully 

implement the 90-day processing period requirement, offering several new 

examples from the company that had provided cases to USTR for the July 

1998 decision of applications whose processing exceeded 90 days. As 

before, USTR reviewed the time lines with the company but not the actual 

applications. Japan responded that the approval of applications in excess 

of 90 days is permitted under Japanese regulations. For these cases, Japan 

maintained that the applications were delayed due to sloppiness and 

errors. According to USTR officials, USTR was not given permission by the 

company to reveal its identity to the Japanese, and thus USTR was unable 

to engage in detailed discussions with Japan regarding suspension of the 

90-day period and whether the suspensions were justified in these cases.7

Also related to the product approval process, several industry participants 

that we interviewed in March 1999 reported that the transfer of product 

6

The Ministry of Finance processed insurance applications until June 1998 when the FSA 

began operations and took over this responsibility.

7

With respect to the 90-day application processing period—the only criterion of the five that 

applies to both life and non-life insurers—one life and four non-life U.S. insurance 

companies reported in our survey that Japan was not in compliance. Seven companies 

reported that Japan was in compliance, and one company responded that it did not know 

the state of implementation for this commitment.
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approval authority from MOF to the newly created FSA resulted in a 

reduction in the number of insurance product examiners. This, in turn, 

resulted in a more understaffed office, with overworked employees, who, 

according to U.S. insurers, may be unable to process applications in a 

timely fashion. The Foreign Non-Life Insurance Association reported that 

while its members have not complained about Japan's failure to meet the 

90-day commitment, they have faced difficulties in meeting with FSA 

officials to submit applications. The FSA agreed that it has few insurance 

staff but notes that this staff would increase from 9 to 11 in the new fiscal 

year 1999 government budget.

USTR Decided Fundamental 

Rating Organization Reform 

Incomplete

One of the primary sector deregulation criteria in the 1996 insurance 

agreement that applies only to non-life products required Japan to 

implement “the necessary legal changes to eliminate obligations for 

members of rating organizations to use rates calculated by rating 

organizations.” There are two rating organizations in Japan that non-life 

insurance companies may belong to—one for auto insurance, the other for 

additional types of property/casualty insurance. Historically, rating 

organizations collected claims and expense data from member firms and 

computed premium rates that were approved by the government. Rating 

organization members were required to use the approved rate, unless the 

Minister of Finance approved a deviation based on the firm's circumstance. 

The result was considerable uniformity in insurance policies and rates for 

major non-life insurance products.

At the time of U.S.-Japan consultations in June 1998, the necessary legal 

changes to meet the deregulation criterion were pending. While all 

necessary legal reforms were made by July 1, and the U.S. government was 

aware that rating organization members were no longer required to use 

rating organization rates, USTR concluded in its July 1, 1998, statement that 

“fundamental reform” of rating organizations was incomplete.
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USTR stated that certain aspects of rating organization reform, such as the 

continued collection of expense data8

 and the collection of data for 

additional insurance products, promote anticompetitive activities among 

companies and therefore the rating organization criterion has not been 

met. The two specific issues raised by USTR are not mentioned in the 

bilateral agreements. USTR most recently raised its concerns about Japan's 

incomplete compliance in April 1999 meetings with Japanese officials. 

Japanese officials responded that the 1996 agreement only required that the 

use of rating organization rates not be mandatory, a commitment that has 

been met.9

One of USTR's outstanding concerns about Japanese rating organizations 

involves the scope of cost data that such organizations can collect from 

member firms. Specifically, USTR opposes the continued collection of 

expense data from member firms, believing it limits competition and 

promotes price uniformity. As part of rating organization reform that took 

effect in July 1998, the Japan Fair Trade Commission imposed restrictions 

on what kind of expense data the rating organizations could collect from 

member firms on a voluntary basis. This restriction was to ensure that the 

full rate, which member firms had previously been required to use in 

establishing company rates, could no longer be computed by these firms. 

However, according to USTR, the collection of partial expense data on a 

voluntary basis would still enable firms to set prices in a way that would 

lead to cartel-like, or uniform, practices. Several U.S. insurance providers 

that we interviewed in March 1999 agreed with USTR's overall position that 

fundamental reform has not yet occurred.

However, both Japanese rating organizations, as well as the Japanese 

government and the Foreign Non-Life Insurance Association, reported to 

us that now, after the reforms, the rating organizations can only collect 

partial expense data on a voluntary basis and, therefore, the data held by 

8

Before July 1, 1998, Japanese rating organization members were required to set their rates 

taking into account total premium rates calculated by the rating organizations. The total 

premium included the actual cost of claims (losses), expenses (operating expenses, claim 

investment fees, and general administrative expenses), and profits. Since July 1, 1998, the 

rating organizations collect partial expense data on a voluntary basis and no longer collect 

“general administrative expense” data. Therefore, rating organizations are no longer 

computing total premium rates.

9

In response to our 1999 survey, all U.S. non-life insurance providers reported that Japan had 

complied with the specific criterion on rating organization reform contained in the 1996 

agreement.
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these organizations is incomplete and does not provide a basis to establish 

an industry rate. One rating organization reported that since the July 1998 

reforms, it now collects one-tenth of the data it formerly collected, while 

the other organization said it is unsure of the accuracy or value of the 

expense data, since the data is incomplete in scope. Further, since all 

companies choose whether or not to participate in the system, the 

completeness of the data cannot be assumed.10 The Foreign Non-Life 

Insurance Association questioned the statistical validity of the data 

because not all firms participate and less data is collected. One large U.S. 

non-life company characterized the collected data as “useless.” Further, 

Japanese officials have stated that rating organizations in the United States 

collect and publish complete expense data from companies and do so for 

more product lines. Finally, one U.S. firm told us that it welcomed the 

potential for its competitors to price uniformly, since it could price beneath 

the uniform price and gain market share. Also, the Foreign Non-Life 

Insurance Association noted that small firms need data, including expense 

data, to function, since their sales volume is not large enough to be a 

statistically sound sample from which to forecast costs and derive rates.

Another issue raised by USTR about rating organization reform concerned 

the scope of business the rating organizations covered. Specifically, USTR 

opposes the expansion of rating organization authority to collect data for 

additional products such as nursing care and medical insurance. USTR 

views such expansion as being inconsistent with Japan's objective of 

achieving fundamental reform.

ACCJ and the Foreign Non-Life Insurance Association had expressed 

concern over this expansion prior to the July 1, 1998, announcement. 

However, the Foreign Non-Life Insurance Association reversed its position 

before July 1, 1998, and now supports this expansion of data collection. 

One U.S. insurance company we interviewed said that it would like rating 

organizations to expand the number of product lines for which they collect 

data. According to one Japanese rating organization, the collection of data 

serves to encourage new entrants and promote competition, a position 

agreed to by the Insurance Services Office, a U.S. supplier of insurance

10Additionally, rating organizations are not allowed to identify which firms voluntarily 

submit expense data.
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information. The Japanese rating organization further suggested that data 

for more product lines are available in the United States.11

U.S. Insurance Industry 

Expresses Mixed Views on 

USTR's Position on Primary 

Sector Deregulation

In response to our January 1999 survey and March 1999 fieldwork, U.S. 

companies offered mixed views regarding implementation of the five 

primary sector deregulation criteria.12 In interviews with our staff in Tokyo 

during March 1999, representatives of four insurance providers voiced their 

support for USTR's position on primary sector deregulation. One company 

attributed recent Japanese progress in deregulating the insurance market 

to USTR's aggressively pushing insurance issues. Representatives of five 

other providers volunteered in interviews that Japan had complied with the 

agreements' deregulation commitments. One company said that U.S. 

criticism of Japan's insurance reform efforts can undermine the efforts of 

Japanese officials pushing for broad financial sector deregulation.

USTR Also Identified 

Third Sector Violation

USTR has contended that Japan is violating the third sector protections of 

the 1996 insurance agreement. On July 1, 1998, USTR stated its concerns 

with Japan's licensing of a cancer hospitalization insurance rider to TokyoAnshin, the life subsidiary of a large Japanese non-life insurance company. 

The 1996 agreement stated that life subsidiaries of non-life insurance 

providers will not be allowed to sell stand-alone cancer insurance. 

Japanese subsidiaries may sell cancer insurance as a rider to a life 

insurance policy provided that cancer benefit payments are limited to a 

specific percentage of life insurance benefit payments, as set forth in a 

September 1996 memorandum between the two governments.13 USTR's 

11For example, the Insurance Services Office provides data and information on 14 product 

lines, while currently Japanese rating organizations provide data on 4 categories of 

insurance. The Insurance Services Office recently opened a Japan office to collect and 

publish data on insurance products not covered by the two Japanese rating organizations.

12Five companies, representing about one-third of U.S. premiums, reported in our January 

1999 survey that Japan had not complied with one of the five commitments (90-day product 

approval). One of these companies also reported that Japan had not complied with a second 

commitment (notification system). The remaining eight companies cited no area of 

noncompliance by Japan. Of these eight companies, three have changed their position since 

May 1998 when the ACCJ recorded them as finding Japan not in compliance.

13On September 30, 1996, the two governments agreed that life subsidiaries of non-life 

insurance providers would face restrictions on the benefits they could offer. After January 1, 

1997, the ratio of cancer hospitalization benefit payments to life insurance benefit payments 

would be limited to a maximum 3 to 1,000 ratio.
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analysis concluded that, based on the Tokyo-Anshin insurance policy's 

design and marketing, the rider was clearly intended to circumvent third 

sector protections. According to USTR, the rider was essentially a

“stand-alone” product, equivalent to cancer policies prohibited for sale by 

Japanese life subsidiaries under the 1996 agreement.

USTR first raised the issue beginning in January 1998 after two U.S. 

companies raised concerns about the rider. The government of Japan 

responded that the rider conformed exactly to the limitations established in 

the September 1996 memorandum with USTR that defined permitted 

cancer riders. According to Japan, because this cancer rider is only sold in 

conjunction with a life insurance policy, it cannot be considered a “standalone” product.

USTR took its July 1998 position on the basis of information provided by 

one U.S. life insurance company and the ACCJ insurance subcommittee. 

However, according to the two other U.S. life firms selling cancer insurance 

interviewed by us in March 1999, the Tokyo-Anshin rider is in compliance 

with the agreement and is not a third sector violation. Of these two 

companies, the one that is an ACCJ member chose not to oppose the 

position taken by the ACCJ insurance subcommittee expressing concern 

on this issue but thinks USTR lacks a basis to pursue the issue with Japan. 

USTR continues to raise this issue with Japan. While USTR has not 

undertaken any formal legal action it has underscored its position that 

Japan not approve similar riders for other Japanese insurers.

USTR Reviews Other 

Possible Third Sector 

Violations

In 1997 and 1998, USTR reviewed the activities of one U.S. life insurance 

company, INA, and its Japanese partner, Yasuda Fire and Marine. These 

activities had been identified by competing U.S. insurers as a violation of 

the third sector provisions of the 1994 and 1996 agreements. USTR, in 

consultation with other U.S. agencies, determined in August 1998 that the 

activities were not a violation of the agreement. (See app. IV for further 

details.)

USTR continues to review allegations of another third sector violation that 

was brought to its attention by industry. Specifically, during 1998, one U.S. 

insurance company lobbied the U.S. government to stop plans by a 

Japanese company to discount personal accident insurance offered to 

members of an association of small- and medium-sized businesses. 

According to the U.S. firm and the ACCJ, the discount deviated from past 

practice and constituted “radical change.” USTR asked the government of 
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Japan not to allow the introduction of the discounting prior to 

consultations with U.S. government officials. Japan did not agree to this 

approach. The U.S. government conducted a review of the U.S. company's 

concerns and found that only this company supported the ACCJ finding. 

USTR continues to raise this issue with Japan but has not determined that 

the sales represent a third sector violation.
Page 90 GAO/NSIAD-99-209 International Trade

Appendix IV

U.S. Government Actions Regarding One U.S. 

Insurer ApendxiIV

The U.S. government negotiated the 1994 and 1996 insurance agreements 

with the knowledge that a U.S. insurer, CIGNA Corporation, was 

considering selling a majority interest in its life insurance subsidiary in 

Japan (INA) to a large Japanese insurer, Yasuda Fire and Marine. Following 

completion of negotiation of the 1996 U.S.-Japan insurance agreement but 

before the agreement was signed, USTR and the Japanese government 

created a separate document, referred to as a “minute,” that was intended 

to provide a limited exception to the agreement. According to USTR 

negotiators, this exception, which proved difficult to negotiate, was meant 

to allow CIGNA, per a business agreement reached in 1993, to sell a 

majority interest in INA (which has third sector business) to Yasuda and 

then allow the Japanese-owned INA to continue to have a limited level of 

third sector life sales. Sales of third sector life “niche” products, such as 

cancer and medical insurance, by subsidiaries of large Japanese insurance 

companies, were expressly prohibited in the 1996 agreement. According to 

USTR officials, the “minute” would also prevent other large Japanese nonlife insurers from similarly entering the third sector. During subsequent 

discussions, the two governments never reached agreement concerning the 

precise meaning of the “minute” and how it could be implemented. Further, 

views differ between USTR and two U.S. insurance companies regarding 

the extent to which USTR provided details of this exception to industry at 

the time it was negotiated. The document's actual impact on the third 

sector sales of a Yasuda-owned INA has never been tested, since the 

majority sale has not taken place.1

 Our observations on certain aspects of 

the “minute” are included at the end of this appendix.

Concerns of large U.S. insurers regarding U.S. government actions related 

to this sale continued beyond creation of the “minute” and involved (1) U.S. 

government discussions with the Japanese government during the fall of 

1997 that, while not opposing Japan's approval of the sale, expressed 

concern over whether the ongoing third sector activities of Yasuda and INA 

met the terms of the agreements and the “minute”; (2) USTR discussions 

with Japanese officials regarding Japan's December 1997 decision to 

include the 1996 U.S.-Japan insurance agreement in the WTO financial 

services agreement and what this development meant for the proposed 

majority sale of INA and its subsequent third sector sales; and (3) two 1998 

U.S. government interagency reviews of the third sector activities of 

Yasuda and INA that determined that no agreement violations had 

1

While the majority sale has not been completed, Yasuda did purchase an additional

29 percent of INA in April 1999, bringing its total holdings in the company to 39 percent.
Appendix IV

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occurred. The most active parties during these events have been the largest 

U.S. insurance companies operating in Japan (AIG, AFLAC, and CIGNA) 

and the Office of the U.S. Trade Representative. In response to your request 

for details regarding the extent and nature of U.S. government actions 

related to the proposed sale of INA to Yasuda and subsequent related 

events, we are providing the following information.

U.S. Government 

Negotiated the 1994 

and 1996 Agreements 

With Knowledge of 

Possible Majority Sale 

of INA to Yasuda

In 1993, Yasuda Fire and Marine, a large Japanese non-life insurance 

company, purchased a 10-percent interest in INA Life Insurance Company, 

a subsidiary of CIGNA Corporation, a U.S. company. This deal also 

provided for the possibility of the future sale of an additional 50 percent of 

INA to Yasuda. In 1996, Yasuda announced its intention to acquire a 

majority interest in INA from CIGNA.2

 (See fig. 7 for a time line of events 

from 1993 to 1996 regarding the Yasuda-INA deal.) USTR was aware of this 

possible majority sale of INA to Yasuda before the 1994 agreement was 

negotiated. The language of the 1994 agreement that committed Japan to 

avoiding “radical change” in the third sector by large Japanese insurers was 

negotiated by U.S. officials because INA had sales in the third sector. This 

language was agreed to by CIGNA and AIG, the company expressing 

concern over the possible sale at the time. USTR officials believed that this 

language would provide flexibility for CIGNA to pursue a profitable 

business strategy while still protecting the U.S. presence in the third sector 

from increased competition from large Japanese insurers. The U.S. and 

Japanese negotiators never defined the term “radical change” in the 1994 

agreement.

2

Yasuda and CIGNA have had a formal business relationship since 1972. The companies 

have helped each other in obtaining licenses, through reinsurance agreements, and through 

training and product development. In January 1997, INA Life changed its name to INA 

Himawari Life Insurance Company, Ltd.
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Figure 7: Time Line of Events Related to “Minute” and Yasuda-INA Deal, 1993-96

Source: USTR and U.S. embassy in Tokyo documents.

By late 1995, the U.S. insurance industry was expressing strong concerns 

over implementation of Japan's Insurance Business Law. Revisions to this 

law, the first major changes in 50 years, would for the first time allow life 

insurance companies to enter the non-life insurance business through a 

non-life subsidiary, and, similarly, for non-life insurance companies to enter 

the life insurance business through a life subsidiary. Although the 1994 

agreement restricted the entry of Japanese companies into the third sector, 

U.S. officials were concerned that Japan would allow these subsidiaries to 

move rapidly into the third sector. As a result of these concerns, bilateral 

negotiations on insurance began and would continue for a year−until 

December 1996.

In August 1996, Yasuda formally announced its intention to purchase a 

majority interest in INA from CIGNA. According to Yasuda, this 

strengthened relationship was intended to improve INA Life's distribution 

network and serve as Yasuda's means for achieving entry into the life 

insurance market (through the acquisition, rather than the establishment, 

of a life insurance subsidiary). Press reports noted that this sale could 

provide Yasuda entry into Japan's third sector life insurance market.

CIGNA came to USTR in May 1996 to discuss its intention to sell a majority 

interest in INA to Yasuda and projected sales in the third sector for the 

resulting company. CIGNA requested that this transaction and the business 

of the Yasuda-owned company not be compromised during the ongoing 

Yasuda

purchases

10% interest in

INA Life, with

an option to

purchase an

additional 50%

1993 1994 1995

May

1996

August

1996

December

15, 1996

December

17, 1996

U.S. considers

the possible

majority INA

sale in

negotiating

no radical

change

language in

1994 insurance

agreement

Yasuda

announces

intent to

purchase a

majority

interest in INA

Concerns emerge

over implementation

of 1994 agreement

with regard to

Japanese entry into

the third sector

Negotiations on

new insurance

agreement

concluded

CIGNA tells USTR

about plans to

sell majority

interest in INA to

Yasuda;

expresses

concern that

current

negotiations

might affect the

sale

CIGNA tells USTR

about concerns

over agreements

impact on

proposed INA sale

to Yasuda
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negotiations or through any resulting new bilateral agreement. In an effort 

to maintain a united industry position, USTR asked CIGNA not to press the 

issue at that point and noted that the situation should be handled close to 

the completion of the negotiations. According to a former USTR official, 

CIGNA did not contact USTR again on this issue during the negotiations, 

even though USTR was in frequent contact with the company regarding the 

content of the agreement and had shared drafts of the agreement with 

CIGNA (as well as other U.S. companies). This negotiator noted that USTR 

assumed that CIGNA had worked out an arrangement with the Japanese 

Ministry of Finance (MOF) on its own. Therefore, the U.S. government did 

not include any text to address CIGNA's specific interests in the agreement. 

This former USTR official noted that as negotiations were concluding, 

USTR was focused on primary sector deregulation and other (third sector) 

commitments in the draft agreement. A USTR official stated that the 

Japanese government never raised the issue of the sale of INA to Yasuda 

during the negotiations. CIGNA's failure to pursue the issue with USTR as 

negotiations neared completion, as well as USTR's failure to address the 

Yasuda/INA situation during the negotiations, were oversights by both 

parties, in the view of former negotiators. Negotiations on a new insurance 

agreement were concluded on December 15, 1996, though the agreement 

was not signed until December 24, 1996.

Creation of Exception 

to the 1996 Agreement 

for Yasuda/INA Proved 

Difficult

USTR officials stated that it was completely unexpected when, on 

December 17, 1996, 2 days after negotiations ended, CIGNA approached 

USTR to express serious concerns over the recently concluded insurance 

agreement and its impact on the planned majority sale of INA to Yasuda. 

According to CIGNA, the company had previously “made USTR aware of its 

goals in the Japanese insurance market and has received USTR's assurance 

that a CIGNA/Yasuda joint venture of INA Life which would continue to sell 

INA Life's full product range would not violate the spirit or the letter of the 

1994 Insurance Framework Agreement regardless of Yasuda's potential 

majority interest.” In raising its concerns on December 17, 1996, CIGNA 

noted that agreement language contained in a Japanese agreement outline 

could be interpreted by Japan as prohibiting the CIGNA-Yasuda 

transaction. Specifically, CIGNA was concerned about one provision of the 

agreement that, according to the outline, stated that in order to avoid 

“radical change,” life subsidiaries of non-life insurance providers will not 

be allowed to sell stand-alone cancer and stand-alone medical insurance. 

CIGNA noted that
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“[I]f the Japanese were to interpret INA Life as a ‘life subsidiary of a non-life insurance 

company' when Yasuda acquired a majority interest, then it would prohibit INA Life from 

selling medical or cancer insurance until the year 2001. This would have a severe adverse 

impact on INA Life given its current product and marketing mix and its long-term strategic 

direction.”

At that point, CIGNA proposed that technical language be inserted into the 

1996 agreement that would exclude INA, even if majority Japanese owned, 

from coming under the definition of a “life subsidiary of a non-life 

insurance company.” CIGNA compared this approach to the exemption 

requested and received by UNUM (another U.S. insurance company 

operating in Japan) with respect to group long-term disability insurance 

and income indemnity insurance in the 1996 agreement. USTR also 

received letters from Members of Congress expressing support for the 

exemption for INA from the life third sector restraints of the 1996 

agreement.

USTR took action to address CIGNA's concerns, given that the majority 

sale had been planned prior to the 1994 agreement and the agency needed 

to maintain unified U.S. industry support for the as yet unsigned 1996 

agreement.3

 USTR officials were reluctant to go back to the Japanese 

government, which was being criticized in the Japanese press as a victim of 

U.S. pressure in agreeing to the terms of the 1996 agreement, and asking for 

additional commitments. Further, one of these officials stated that USTR 

did not want to reopen the agreement out of concern that the Japanese 

government would then also want to reopen other issues, thus possibly 

leading to the unraveling of the agreement. USTR negotiators believed that 

a separate document was necessary. USTR immediately contacted the 

Japanese Ministry of Foreign Affairs (MOFA) and initiated new 

discussions.

3

According to USTR and CIGNA officials, USTR officials did not request or review the 1993 

contract between Yasuda and CIGNA that provided for the majority sale of INA.
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USTR negotiated with the Japanese government from December 18 to 21, 

1996.4

 USTR requested a “grandfather” clause to allow the sale of INA to go 

through but also proposed restricting INA's activities in the third sector, 

once the company was owned by Yasuda, to avoid “radical change.” USTR 

was the only U.S. agency involved in these discussions. MOFA was the lead 

Japanese agency and consulted Ministry of Finance officials as necessary.

Negotiations over the “minute” proved difficult. The Japanese government 

was reluctant to make any accommodation for the United States beyond 

those embodied in the then-pending 1996 agreement. Moreover, there was a 

concern that a specific commitment regarding the CIGNA-Yasuda 

transaction could be viewed as singling out one large Japanese insurer for 

special, favorable treatment in the third sector.

Under these circumstances, the Japanese government sought to keep any 

understanding reached regarding the transaction and subsequent third 

sector activities by a Yasuda-controlled INA as informal as possible. For 

their part, USTR negotiators reported that they would have preferred, and 

attempted to obtain, a more formal document than the “minute,” but that 

their paramount concern was the substance, not the form, of the 

understanding. At the same time, USTR negotiators understood the 

sensitivity of the matter for the Japanese government.

No explicit agreement was reached between the two sides during the 

negotiations regarding precisely how, or to what extent, the Japanese 

government would restrict INA's activities in the third sector following 

consummation of the sale. In particular, the two sides did not agree on the 

question of whether the Japanese government had legal authority through 

the use of its licensing powers to restrict INA's post-transaction activities in 

the third sector. However, USTR negotiators felt that the references in the 

“minute” recommitting Japan to avoid “radical change” in the third sector 

and to making necessary modifications to INA's post-transaction licenses, 

4

A final version of the “minute” was not completed until May 1997. When “minute” 

negotiations were concluded and the 1996 bilateral insurance agreement was signed on 

December 24, 1996, there was one unresolved factual issue in the “minute.” In the second 

paragraph, there was a question as to when Yasuda's intention to purchase a majority 

interest in INA had been publicly disclosed. USTR wanted as strong a case as possible for 

creating a “limited exception” to the 1996 agreement for CIGNA/Yasuda, and so asked 

CIGNA to determine whether the planned purchase had been publicly announced prior to 

the 1994 agreement. In May 1997, CIGNA informed USTR that the possible majority sale had 

not been publicly announced prior to conclusion of the 1994 agreement. The two 

governments then finalized the “minute” by including language to that effect.
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meant that Japan had committed to keeping INA's third sector business 

activities very limited. Further, based on past experience, USTR officials 

felt that Japan could use both formal and informal means to limit INA's 

third sector activities.

While no other U.S. government agencies were involved in negotiating the 

document, a copy of the draft “minute” was faxed to the U.S. embassy in 

Tokyo, and the National Economic Council (NEC) was reportedly aware of 

its existence. Two Members of Congress who had requested that USTR 

facilitate the transaction also received copies of the documented 

exception, according to one of the negotiators. This former USTR official 

does not know if key congressional committees ever received the 

document, which, if they did not, he described as an oversight on the part 

of USTR. The exact text of the document is reproduced in figure 8.

Figure 8: Text of the December 21, 1996, “Minute”

Note: The document, on a blank sheet of paper, is unsigned, undated, and untitled.

Source: Office of the U.S. Trade Representative.

Disagreement on 

Meaning of the 

Exception for 

Yasuda/INA 

Current and former USTR officials stated that the final document, the socalled “minute,” was intended to ensure that (1) the 1996 U.S.-Japan 

insurance agreement would not prevent CIGNA from carrying out its 

preexisting business plan to sell a majority interest in INA to Yasuda,

(2) INA would continue to have only a very limited presence in the third 

1. Both governments noted that Yasuda Fire and Marine purchased 10 percent of the INA 

life insurance company on July 7, 1993, which was before the negotiation and conclusion 

of the 1994 Measures and before the passage and implementation of the new Insurance 

Business Law. The transaction was publicly announced on July 7, 1993.

2. The contract provided for Yasuda to acquire an additional 50 percent of INA after

April 1, 1996, the anticipated implementation date for the new Insurance Business Law, 

subject to the necessary approvals by the relevant authorities. This aspect of the contract 

was not publicly announced.

3. It is confirmed that the life insurance business license and product approvals held by 

INA will be maintained with necessary modifications after Yasuda acquires majority 

ownership of INA stock.

4. The Government of Japan reconfirmed its commitment to faithfully implement the 1994 

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

change in the third sector as specified in those sets of measures.
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sector if the transaction went forward, and (3) other large Japanese nonlife insurers would be prevented from similarly entering the third sector. 

There was no attempt during the “minute” negotiations to specify what 

might constitute a limited presence or radical change. Further, USTR 

officials have noted that there have never been discussions between the 

U.S. and Japanese governments to define limited presence or radical 

change regarding INA's post-sale, third sector activities.

U.S. and Japanese officials have disagreed over how the “minute” could be 

implemented. Based on experience with the Japanese government and the 

knowledge that Japan could use formal or informal means to affect 

company behavior, USTR officials felt confident that Japan could exert a 

level of control over INA's third sector activities by modifying INA's 

licenses or other means, once it is majority owned by Yasuda. From the 

time of the “minute” negotiations in December 1996 until July 1998, 

Japanese officials emphasized that they had no legal authority to impose 

restrictions on acquired subsidiaries lawfully operating in the third sector. 

However, after July 1998, Japanese officials said that as a result of 

legislative changes that went into effect at that time (discussed later), a 

Yasuda-owned INA would not be allowed to operate in the third sector at 

all. USTR does not accept this position and has stated that it expects Japan 

to abide by the terms of the “minute.”

In addition, the enforceability of the “minute” is perceived differently by 

the two governments.5

 USTR officials stated that the “minute” is a fully 

negotiated and enforceable document and characterized it as a mutual 

understanding between governments. They have also noted that 

implementation of the “minute” is integral to Japan's compliance with the 

insurance agreements. In contrast, a MOFA official told us that the 

“minute” is in “no way” part of the 1996 agreement. Instead, this official 

characterized the document as a “non-paper memorandum for 

negotiators.” One MOFA official told a U.S. embassy representative that the 

“minute” does not have the same status as the bilateral agreement and that 

Japan does not want to be held by it.

5

In discussions with former USTR officials (who did not work on Japan insurance issues), 

we were told that the creation of documents such as the “minute” is not unusual and is 

within USTR's authority. These officials also stated that it is unusual to provide such a 

document to one member of an industry and not to others (as discussed later), but they 

could understand USTR's decision not to share the document widely since it dealt with a 

company-specific situation.
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Views Differ Regarding 

the Extent to Which 

USTR Disclosed the 

Exception to Key U.S. 

Insurance Companies

According to a former negotiator, USTR was in frequent contact with a 

senior CIGNA official during negotiation of the “minute.” This official was 

shown drafts of the document in order to verify factual information 

included in the “minute.” (See fig. 9 for a time line of events from 1996 to 

1997 regarding the Yasuda-INA deal.) A former USTR negotiator stated that 

CIGNA knew what USTR was trying to accomplish in negotiating the 

“minute” (including allowing the sale but restricting Yasuda's postacquisition third sector activities in order to avoid “radical change”). 

According to CIGNA's outside counsel, on December 24, 1996, the day the 

insurance agreement was signed, CIGNA was informed by USTR that Japan 

had agreed to language that stated that INA would be permitted to maintain 

its licenses and product approvals after the purchase of majority ownership 

by Yasuda. Further, the deal was viewed as unique by both governments 

because it predated the 1994 insurance agreement. CIGNA outside counsel 

was shown a draft version of the “minute” in January 1997.6

 This version of 

the “minute,” like the final version, mentioned “necessary license 

modifications” but did not specifically address the level of third sector 

activity permitted by the Yasuda-owned company. Nevertheless, according 

to CIGNA's legal counsel, CIGNA was satisfied that this arrangement would 

meet its needs. Moreover, CIGNA was not concerned about the level of 

formality or the enforceability of the document.

6

CIGNA's outside counsel has stated that CIGNA was not given a copy of the “minute” 

document until April 1998.
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Figure 9: Time Line of Events Related to “Minute” and Yasuda-INA Deal, 1996-97

Source: USTR and U.S. embassy in Tokyo documents.

Around December 21, 1996, USTR officials contacted AFLAC and AIG, 

INA's primary U.S. competitors in the life third sector, regarding the 

situation with CIGNA, INA, and Yasuda. U.S. government and industry 

officials characterized these discussions very differently. According to 

USTR notes taken during the discussion with AFLAC, a USTR negotiator 

told a company official that USTR needed to ensure that “the deal can go 

forward, and it is not a precedent for other deals.” USTR informed AIG that 

a problem had arisen with Yasuda/INA and USTR had to find a way to deal 

with it. USTR needed to make an adjustment as this issue threatened the 

recently concluded agreement of supplementary measures. Former and 

current USTR officials stated that they informed the two companies that an 

“accommodation” was necessary for INA and Yasuda, though no mention of 

the existence of a document was made. USTR officials did not explicitly 

convey their intention to AIG or AFLAC that the “accommodation” would 

allow for limited third sector sales by Yasuda once it acquired a majority 

interest in INA. However, according to these officials, AFLAC and AIG 

understood that the accommodation would allow for the majority sale and 

limited third sector activities for the subsequent company. USTR officials 

stated that neither company raised objections during their communications 

with USTR (though AIG expressed some unhappiness).

USTR negotiates

language on

Yasuda-INA deal

with Japanese;

minute

drafted;

agreement

signed, 12/ 24

December

18-21, 1996

On or near

December 21,

1996

January

1997

September

1997

Sept.-Oct.

1997

October

1997

Nov.-Dec.

1997

USTR informs AIG

and AFLAC that

accommodation

was made for INA

and Yasuda;

minute not

mentioned; AIG

and AFLAC do not

object

CIGNAs counsel

concerned that

USTR may have

threatened the

sale; USTR not

opposed to the

sale but concerned

about Yasudas

third sector

activities; USTR

receives

congressional

letters for and

against the sale

INA changes

name to INA

Himawari

AFLAC and AIG first

shown the minute;

USTR meets with

Japanese officials,

does not oppose the

sale but says

Yasudas third sector

activities through INA

should be limited

AIG and AFLAC

express concerns

to U.S.govt; U.S.

conveys

concerns to

Japanese

USTR continues

to meet with

Japanese

officials on

Yasuda-INA

issue
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In contrast, AFLAC stated that “based on prior discussions with USTR and 

the Japanese government, and on restrictions in the 1996 agreement, 

AFLAC did not oppose CIGNA's sale of a controlling interest in INA to 

Yasuda. But USTR did not discuss, nor did AFLAC agree to, a special carveout [the “minute's” limited exception] for INA's continued or expanded 

operations in the third sector after a takeover by Yasuda.” An AIG official 

also noted that AIG did not understand at that point that an 

accommodation had been reached with Japan that would allow for some 

level of third sector sales once INA was majority owned by Yasuda.

The “minute” document itself was not shown to companies other than 

CIGNA until October 1997, when AIG and AFLAC were raising concerns 

with USTR over Yasuda's and INA's increasing third sector activities 

(discussed later). According to USTR officials, no company representatives 

ever asked USTR about the existence of this document until that time. 

These officials noted that, when AIG and AFLAC inquired at a meeting in 

late October as to whether there was an agreement with Japan concerning 

the sale of INA to Yasuda, they did not respond in the affirmative or 

negative, but instead, after the meeting, conferred with a senior USTR 

official. A few days later, USTR called both companies to the agency and, at 

separate meetings, presented them both with copies of the “minute” 

document.

AFLAC's and USTR's portrayals of how the existence of the “minute” 

document was disclosed differ. According to an AFLAC official, USTR 

repeatedly denied the existence of this written agreement before October 

1997 when questioned by the company. However, according to a USTR 

official, agency officials never denied the existence of the “minute.” In 

addition, a U.S. embassy official also reported that he was asked about the 

“minute” twice before it was publicly acknowledged by USTR. The 

embassy did not provide any information to the companies and later asked 

USTR for guidance on how to respond to such inquiries. According to this 

official, he was told to refer companies to USTR on this issue.

Two former USTR officials who were involved in negotiating the “minute” 

have since stated that, in their judgment, the document should have 

immediately been fully disclosed to industry. While AIG and AFLAC did not 

raise objections in December 1996 when USTR informed them of the 

“accommodation” for the sale of INA to Yasuda, they reacted negatively 

upon learning of the existence of the “minute.” An AFLAC official has noted 

that the 1996 agreement states that no large Japanese insurer will sell 

stand-alone cancer or stand-alone medical insurance prior to 2.5 years after 
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primary sector deregulation; in his view, this prohibition should include 

INA once it is majority owned by Yasuda, a large Japanese insurer. Further, 

an AIG official has written that “regrettably, USTR saw fit in late 1996 to 

allow an exception [to the 1996 agreement], which has the effect of 

allowing a U.S. company to divest itself in Japan, thus reducing the overall 

U.S. market penetration while jeopardizing the integrity of the entire 

agreement.”

USTR Expressed 

Concerns to Japan in 

1997 Over Yasuda's 

Ongoing Third Sector 

Activities While 

Making Clear That the 

Majority Sale of INA 

Should Be Allowed

In late September 1997, as a result of urgent concerns on the part of AIG 

and AFLAC, an official from the U.S. embassy in Tokyo met with Japanese 

government officials from the Ministries of Finance and Foreign Affairs, at 

USTR's instruction, to discuss a recent expansion of third sector activities 

by INA and Yasuda. This U.S. embassy official emphasized that while the 

two governments had reached an understanding (the “minute”) to allow 

Yasuda to move forward with its plans to acquire a controlling interest in 

INA, the understanding also contained a commitment to constrain the 

growth of INA's third sector business so as to avoid “radical change.” The 

U.S. embassy representative informed Japanese officials that INA's third 

sector licenses must be modified in order to achieve this commitment.

The U.S. government had concerns that Yasuda and INA were acting in a 

manner inconsistent with the agreements' restrictions on avoiding “radical 

change” by greatly expanding the marketing of INA products by Yasuda 

sales agents before the majority acquisition. This U.S. embassy official 

expressed concerns to Japanese officials that Yasuda had more than 

doubled the number of agents selling INA products in a 1-year period and, 

as a result, INA was rapidly increasing its third sector sales.7

 This change 

was characterized to Japan as “historically unprecedented” and “resulting 

in a serious loss of business for U.S. firms in the third sector.” He 

emphasized the U.S. belief that the bilateral insurance agreement 

compelled MOF to limit the growth of INA's third sector business and 

agents to historical trends and roll back the past year's dramatic increase in 

INA's force of Yasuda agents.

7

A competing U.S. firm asserted that INA had increased its pool of Yasuda agents licensed to 

sell INA products to over 10,000. Further, an internal U.S. government document noted that 

INA's third sector premiums rose by 82 percent in fiscal year 1996. CIGNA has stated that 

Yasuda agents have a long history of selling INA products and the agent increase was due to 

a liberalization in Japanese law that allowed non-life agents to sell the products of multiple 

insurance companies. CIGNA has also noted that AIG and AFLAC have used Yasuda agents 

to distribute their products.
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Japanese officials responded that INA's activities had nothing to do with 

the agreements. They stated that the agreements' provisions apply to 

Japanese, not U.S., subsidiaries and INA is majority-owned by a U.S. 

company. They noted that Yasuda owned only 10 percent of INA and any 

market developments reflected the independent operations of INA. These 

officials also emphasized that there was no basis under Japanese law to 

restrict the license of a company operating properly under law and 

regulation, and, further, an agent rollback would be impossible.

After U.S. embassy meetings with the Japanese government, CIGNA's 

outside counsel expressed concern to USTR that the U.S. government's 

recent communication with MOF had threatened the majority sale. CIGNA 

believed, as a result of its discussions with MOF, that the U.S. government 

would only support MOF approval of the sale if Yasuda and INA were to be 

restricted from selling any third sector products and reduce the number of 

Yasuda agents at INA to the number at the end of the previous fiscal year. 

CIGNA requested that USTR rectify the situation by sending a letter to MOF 

supporting the sale without conditions or modification of licenses.8

USTR met with CIGNA's outside counsel and explained that USTR did not 

oppose the transaction but had concerns about Yasuda's third sector 

activities. Again, USTR noted that, while it was still looking into the facts, 

Yasuda's current activities might violate the terms of the insurance 

agreement. USTR pointed out to CIGNA that while what might constitute 

“radical change” was not precisely defined, the threshold was not very 

high−particularly when activities by a large Japanese insurance company 

might result in a direct loss of business for U.S. firms.

USTR eventually concluded that sending a letter to MOF would be 

counterproductive based on concerns that the letter might be 

misinterpreted. During this period, while USTR was communicating 

frequently with CIGNA regarding the majority sale of INA to Yasuda and 

subsequent third sector activities, USTR received congressional letters of 

support for the transaction, as well as letters claiming that Yasuda was 

violating the agreements and should not be allowed to sell third sector 

products after the sale.

8

A letter expressing this view was sent to Japan's Minister of Finance from one U.S. Senator, 

which, from Japan's perspective, created an inconsistency in the U.S. government position 

on this issue. According to one Japanese official, USTR was telling Japan to restrain INA 

activities, while from elsewhere in the U.S. government, Japan was receiving 

encouragement for the sale to go forward with no restrictions.
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In October of 1997, a senior USTR official traveled to Japan for 2 days of 

meetings with Japanese officials and certain U.S. companies to discuss the 

activities of INA and Yasuda. This official emphasized to Japanese officials 

that (1) the transaction should be allowed to go forward, (2) INA's licenses 

should be modified as necessary, (3) this is the only exception to the 

agreement, and (4) Yasuda's actions both before and after the acquisition 

should not be permitted to result in radical change in the third sector. He 

noted that there was evidence suggesting that Yasuda was controlling INA 

and might be causing radical change.

Japanese officials again responded that Yasuda's and INA's activities before 

the acquisition cannot constitute an agreement violation since INA is a U.S. 

company. Furthermore, these officials said that Japan could not impose 

legally enforceable restrictions (such as license modifications) upon the 

activities of INA just because it is acquired by Yasuda. However, Japanese 

officials also suggested that, recognizing the agreement's spirit, Yasuda was 

likely to act on its own initiative to keep INA's activities in the third sector 

within a certain limit.

CIGNA correspondence with USTR shows that the company was unhappy 

with USTR's visit to Japan, believing that a link had been made with 

Japanese officials that the transaction should not be approved unless 

Yasuda's current activities were restricted. CIGNA also expressed concern 

that USTR was discussing its private business decisions with its 

competitors.

The U.S. and Japanese governments had additional discussions in late 1997 

regarding the majority sale and subsequent third sector activities of INA 

once it was owned by Yasuda. No agreement was ever reached as to how or 

whether the third sector sales of INA could be restricted.

Japan Included the 

1996 Agreement in Its 

1997 WTO Financial 

Services Commitments

During the WTO financial services negotiations,9 the U.S. government 

requested that Japan include the 1996 bilateral insurance agreement in its 

WTO commitments. The U.S. government held this position (1) in order to 

seek third country support for full implementation of the agreement, (2) to 

have access to WTO dispute settlement procedures, and (3) to respond to 

U.S. industry support for this initiative.

9

These WTO financial services negotiations were concluded in December 1997 and 

addressed banking, securities, and insurance.
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In December 1997, the Japanese government agreed to include most of the 

provisions in the 1996 agreement in the WTO financial services agreement, 

including third sector provisions.10 (See fig. 10 for a time line of events from 

1997 to the present regarding the Yasuda-INA deal.) Japan's legislation that 

implements its WTO financial services commitments authorizes MOF to 

prohibit entry into the third sector by acquired, as well as newly 

established, subsidiaries. A MOFA official confirmed to us that Japan's 

implementing legislation and its referral to established as well as acquired 

subsidiaries implied that if Yasuda were to acquire INA, INA would be 

considered a life insurance subsidiary of a non-life insurance company 

subject to the third sector sales prohibition in the 1996 agreement. 

Therefore, while Japanese officials had said, before implementation of 

Japan's WTO financial services commitments, that they were unable to use 

legal means to regulate third sector activities even following Yasuda's 

purchase of the company, Japan has now implemented its WTO insurance 

commitments and has expressed a view that INA's sales in the third sector, 

post transaction, would be completely prohibited.

Figure 10: Time Line of Events Related to “Minute” and Yasuda-INA Deal, 1997-Present

Source: USTR and U.S. embassy in Tokyo documents.

10According to a USTR financial services negotiator, some provisions of the 1996 agreement 

that had already been implemented, such as expansion of the notification system, were not 

included.

Japan agrees to

include third sector

and most other

provisions of 1996

agreement in the

WTO financial

services pact

December

1997

February

1998

Summer

1998

Present

Japan says inclusion of

1996 agreement in WTO

pact would authorize MOF

to prohibit third sector

entry by subsidiaries like

INA that may be acquired

in the future; Yasuda

announces delay of its

majority purchase of INA

Interagency reviews

conclude that INAs

and Yasudas third

sector activities have

not violated the

agreements; USTR

finds no evidence that

CIGNA had transferred

ownership or control

to Yasuda

AFLAC and AIG

disagree with

interagency

conclusions but one

company notes that

Yasuda/ INAs third

sector activities have

had little impact, have

slowed, and are no

longer a threat

July I, 1998

Japan implements

its WTO insurance

commitments
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In February 1998, MOF notified insurers to explain that Japan's 

commitments under the WTO financial services agreement prohibit sales of 

third sector products by acquired life subsidiaries of non-life insurance 

providers. One day later, Yasuda announced that it would delay its majority 

purchase of INA until agreement restrictions are lifted on sales of third 

sector products by life subsidiaries of non-life insurance companies.11

In later communication with USTR, CIGNA did not preclude the possibility 

that the sale still might go through before third sector restrictions are lifted. 

Therefore, in June 1998, the month before Japan's WTO insurance 

commitments were implemented on July 1, USTR engaged in discussions 

with Japanese officials regarding the consistency of Japan's implementing 

legislation with the intent of the “minute.” Specifically, USTR sought 

reassurance that INA could continue third sector sales if acquired by 

Yasuda. USTR officials claim that Japanese officials responded in a 

noncommittal fashion and never provided an answer. USTR officials have 

emphasized to Japan that it has an obligation to uphold the “minute,” which 

allows for the majority sale of INA to Yasuda, and to limit third sector 

activity for the new entity, regardless of Japan's WTO insurance 

commitments.12

U.S. Government 

Review of Yasuda's and 

INA's Ongoing 

Activities in the Third 

Sector Determined 

That No Agreement 

Violations Have 

Occurred

In early 1998, USTR began a review of the ongoing activities of Yasuda and 

INA to determine whether they were consistent with the third sector 

restrictions in the 1994 and 1996 agreements. Two companies, AFLAC and 

AIG, had contended that Yasuda, through its partnership with INA, had 

entered the third sector and caused radical change to that sector in 

contravention of the agreements. USTR provided CIGNA, AFLAC, and AIG 

with an opportunity to present their views in writing. AFLAC and AIG 

argued that Yasuda had effectively entered the third sector through receipt 

of financial benefits it had obtained in connection with its business 

relationship with INA. They also argued that because of its relationship 

with Yasuda, INA was a de facto Japanese company and that its third sector 

activities violated the agreements' restriction on these activities by 

11According to CIGNA, the timing of Yasuda's announcement to delay the purchase of INA 

was coincidental.

12USTR has always supported third sector restrictions for newly established and acquired 

subsidiaries but has consistently viewed Yasuda/INA as a limited exception to these 

restrictions.
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Japanese companies. Finally, the U.S. companies argued that changes to 

INA's corporate structure and business operations constituted radical 

change and should therefore not have been permitted. 

During this review, the U.S. Trade Representative expressed a reluctance to 

choose sides among U.S. companies and a hope that the companies could 

cooperate to find a mutually agreeable business solution.13 However, such a 

solution never materialized. Therefore, USTR examined each of the 

allegations and, as summarized in a classified memorandum, concluded 

that the activities of Yasuda and INA did not constitute a violation of the 

agreements.14 After conducting an analysis of INA's operations, USTR's 

fundamental position was that INA is a U.S. company and, therefore, its 

activities do not fall within the terms of the 1994 and 1996 agreements. This 

decision was agreed upon during interagency meetings that reached the 

subcabinet (NEC Deputies) level15 and included officials from the 

Departments of State, Commerce, the Treasury, and Justice; as well as the 

NEC and USTR. On July 1, 1998, USTR communicated the consensus 

decision to CIGNA, AIG, and AFLAC.

In response to a request by AFLAC and a few Members of Congress, an 

additional interagency review was subsequently conducted in late July and 

early August 1998. This final review reached the level of the Cabinet (NEC 

Principals), whose review had participation from the Council of Economic 

Advisers; the Office of Management and Budget; the National Security 

Council; NEC; the Departments of Commerce, Justice, Labor, State, and the 

Treasury; and USTR. During this second review, all three companies 

presented their arguments orally to the interagency group. The original 

conclusion−that information provided to date did not support a 

determination that the activities of INA and Yasuda in the third sector had 

violated the 1996 agreement−was reaffirmed. During the second 

interagency review, which reached a consensus decision that there was no 

violation of the “radical change” provisions of the 1996 agreement, the 

Department of Commerce recommended that additional measures be taken 

13USTR did note that very strong proof would be required to demonstrate that INA, a 

company 90 percent owned by CIGNA, was actually controlled by Yasuda.

14Due to the classified nature of the USTR's analysis during this review, we are unable to 

disclose more details about the basis for USTR's final determination.

15There are four possible levels of review in making decisions related to trade policy: the 

Trade Policy Staff Committee, the Trade Policy Review Group, the NEC Deputies, and, 

finally, the NEC Principals.
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to monitor the situation. A Commerce official proposed that an interagency 

team conduct further work in Tokyo to verify the facts presented to the 

U.S. government. According to USTR, this suggestion was not adopted 

based on the general interagency view that no further information was 

necessary to resolve the issue.

In discussing how USTR's views evolved from raising serious concerns 

regarding a possible violation of the agreements with Japan in late 1997 to a 

final determination that no violation of third sector provisions had 

occurred, USTR officials noted that AIG and AFLAC expressed concerns 

over Yasuda and INA activities in an extremely urgent manner in 1997. As 

the companies emphasized that they were losing business as a result of 

these activities, USTR felt compelled to address the issue with the 

Japanese government immediately. However, over the next several months, 

as USTR was able to conduct its own analysis of the situation, it ultimately 

determined that no violation had occurred.

Both AFLAC and CIGNA raised concerns about the process used by USTR 

to conduct the formal review of Yasuda's and INA's activities in the third 

sector. AFLAC expressed frustration over USTR's requests for updated 

information on the situation after the agency did not act on information 

provided by AFLAC months earlier. CIGNA felt that it never received a 

complete explanation from USTR as to what accusations had been made 

against the company, but was compelled to respond to allegations made 

against it nonetheless in an attempt to defend itself. 

AIG and AFLAC disagreed with the interagency decision. However, officials 

from one company have also noted that Yasuda's activities in the third 

sector have slowed. Specifically, these officials have stated that the rapid 

growth in the Yasuda agent force selling INA products has ended and their 

company's existing client base is no longer being actively threatened. INA's 

principal U.S. third sector competitor believes that the government of 

Japan has been successful in restraining Yasuda's activities through the use 

of “soft controls,” such as requiring a slowdown in the projected 

registration of Yasuda agents with INA in the company's business plans. 

This company has also noted that the impact of Yasuda's and INA's 

activities on its business has been small to date. Neither AFLAC nor AIG is 

currently pressing this issue with the U.S. government.
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Our Observations on 

the “Minute”

We have observations in the following three areas regarding the “minute”: 

(1) the difficulties USTR faced in creating the “minute,” (2) the 

consequences of USTR's lack of complete communication with industry 

regarding the limited exception, and (3) the problems USTR encountered 

due to the use of undefined terms in the text of the “minute.”

Because the issue of the majority sale of INA to Yasuda and the resulting 

company's allowable third life sector activities were not addressed during 

the course of the 1996 insurance agreement negotiations, USTR was put in 

a difficult position. After the agreement negotiations were concluded, 

USTR felt compelled to preserve CIGNA's support for the agreement by 

accommodating the company's business plans that predated negotiation of 

both insurance agreements but that would clearly violate the 1996 

agreement's terms if not addressed by the two governments. This situation 

was made more delicate due to the fact that competing U.S. companies had 

opposing and strong views as to whether or how Yasuda/INA should be 

allowed to sell third sector life products. In deciding to accommodate 

CIGNA's sale of INA to Yasuda and subsequent third sector life sales by the 

company, USTR took a position that appeared to benefit one U.S. firm at 

the expense of others. USTR faced the difficult challenge of determining 

the U.S. interest in a case where U.S. companies' interests were opposed.

Moreover, given the sensitive issues the “minute” raised in Japan, USTR 

officials believed that broad dissemination of the document might lead to 

its disavowal and possibly to the unraveling of the 1996 agreement itself. 

USTR therefore sought to limit distribution of the “minute” and thus did not 

provide copies to the two other U.S. insurance companies that had an 

interest in developments related to Yasuda/INA. Further, in late December 

1996, USTR did not explicitly describe to AIG and AFLAC the extent to 

which a Yasuda-owned INA would be allowed access to the third sector life 

insurance business. This “grandfather” document added to the 1996 

agreement, combined with USTR's incomplete description of the exception 

and the failure of USTR to provide the actual document to industry, created 

frustration with USTR on the part of U.S. insurers that lasted for months.

Further, the “minute” used undefined terms that made its meaning and 

implementation uncertain. While USTR officials maintained that a Yasudaowned INA would only be allowed restricted access to the third sector, it is 

unclear what language or provision in the “minute” requires that the 

company maintain only a limited presence. As a result of this undefined 

language in the “minute,” the U.S. and Japanese governments had 
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numerous consultations during 1997 regarding the meaning of the 

document's terms. U.S. and Japanese government officials have expressed 

very different understandings of the “minute,” with Japan's actions 

suggesting an unwillingness, even an inability under Japanese law, to 

implement the document as intended by USTR. After several months of 

discussions, the two governments were never able to reach an agreement 

as to how Yasuda might be restricted in the third life sector, demonstrating 

the questionable value of the “minute” in creating a limited exception to the 

1996 agreement to accommodate CIGNA.
Page 110 GAO/NSIAD-99-209 International Trade

Appendix V

Objectives, Scope, and Methodology ApendxiV

The Chairman of the House Subcommittee on Trade, Committee on Ways 

and Means, asked us to examine (1) the views of U.S. insurance companies 

operating in Japan regarding the agreements' implementation and impact 

on their ability to compete in the Japanese market; (2) the roles and efforts 

of the Office of the U.S. Trade Representative and the Departments of 

Commerce, State, and the Treasury in monitoring and enforcing the 

agreements, and U.S. government views on whether Japan has met its 

commitments under the agreements; and (3) U.S. insurance industry views 

on U.S. government monitoring and enforcement efforts. We also collected 

information addressing U.S. government actions related to one U.S. insurer 

and its Japanese partner.

To obtain the views of U.S. insurance companies regarding the agreements' 

implementation and impact on their ability to compete in Japan, we 

distributed a questionnaire to all 13 U.S. insurers and three brokers in 

Japan that are either wholly or majority U.S. owned. Surveys for life and 

non-life insurers differed somewhat depending on whether a particular 

commitment applied to them, and the survey included far fewer questions 

for brokers as several of the commitments in the agreements do not 

directly pertain to them. The survey was distributed in January 1999, and 

we obtained a 100-percent response rate to our questionnaire. We then 

traveled to Japan and met with representatives from all the insurers and 

brokers in March to obtain detailed explanations of and clarifications to 

their questionnaire responses. In some cases, responses were revised 

during discussions at our meetings. The questionnaire asked U.S. insurers 

and brokers for their views on the implementation and the impact of those 

provisions of the agreements for which the companies would have firsthand experience. All of the questions were referenced back to their related 

provisions in the agreements. For the questions related to the 1994 

agreement, we developed, where possible, similar or identical questions to 

those we used in a 1996 survey on the implementation and impact of the 

1994 agreement. This allowed us in some cases to compare how company 

responses had changed over time. Eleven of the 13 companies and two of 

the three brokers included in our current survey also responded to our 1996 

survey. In analyzing questionnaire results, we examined response 

frequencies. We also computed the percentage of U.S. insurance sales in
Appendix V

Objectives, Scope, and Methodology

Page 111 GAO/NSIAD-99-209 International Trade

Japan represented by company responses.1 In requesting company 

participation in our survey, we pledged that company responses would be 

reported in aggregate form and that we would not identify specific 

responses with the individual companies. In certain cases, the reporting of 

responses in conjunction with the percentage of U.S. insurance premiums 

in Japan associated with that response limits this confidentiality. In those 

cases, the firms that could be identified, due to their large size, gave us 

permission to report the market premium data. We also interviewed and 

collected information from industry groups and insurance companies in the 

United States.

To identify the roles and efforts of USTR and the Departments of 

Commerce, State, and the Treasury in monitoring and enforcing the 

insurance agreements, as well as U.S. government views on 

implementation, we conducted interviews with officials from each agency, 

including the U.S. embassy in Tokyo. We reviewed available information 

from USTR and the U.S. embassy in Tokyo to establish the nature and 

frequency of interagency interaction. We also assessed extensive 

documentation from USTR and the U.S. embassy in Tokyo to review 

USTR's determination regarding the status of agreement implementation 

and discussed USTR's determination with U.S. companies and Japanese 

government agencies and industry groups. Information on Japanese law in 

this report does not reflect our independent legal analysis but is based on 

interviews and secondary sources.

We also used the 1999 questionnaire to obtain the views of U.S. insurance 

companies regarding U.S. government monitoring and enforcement of the 

agreements. All 13 insurance companies and three brokers were asked 

questions regarding overall U.S. government monitoring and enforcement 

efforts, as well as questions related to their specific experiences with 

various government agencies. As with implementation and impact 

questionnaire responses, we conducted follow-up interviews in Japan with 

U.S. participants in the Japanese market. We also held interviews with 

industry groups and insurance companies in the United States. We 

examined extensive documentation regarding monitoring and enforcement 

1

Company shares (percentage) of total U.S. premiums generated in Japan were calculated 

using premium data for Japanese fiscal year 1997 (Apr. 1997-Mar. 1998). Two surveyed 

companies did not have sales in 1997 and were assigned a zero weight for computing the 

premium proportions.
Appendix V

Objectives, Scope, and Methodology

Page 112 GAO/NSIAD-99-209 International Trade

actions by USTR and the U.S. embassy in Tokyo that have proven 

controversial with some U.S. insurers operating in Japan.

We performed our review from July 1998 to June 1999 in accordance with 

generally accepted government auditing standards.
Page 113 GAO/NSIAD-99-209 International Trade

Appendix VI

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Elizabeth Sirois (202) 512-8989

Leslie Holen (415) 904-2277

Staff 

Acknowledgments

In addition to those named above, Emil Friberg, José Peña, Kay Halpern, 

Kim Frankena, Richard Burkard, Kathleen Joyce, and Rona H. Mendelsohn 

made key contributions to this report.
Page 114 GAO/NSIAD-99-209 International Trade

Related GAO Products

U.S.-Japan Trade: U.S. Company Views on the Implementation of the 1994 

Insurance Agreement (GAO/NSIAD/GGD-97-64BR, Dec. 20, 1996).

U.S.-Japan Trade: The Japanese Insurance Market (GAO/NSIAD-99-108BR, 

Mar. 15, 1999).

(711367) Letr
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