Abstract: In the following decade of 1996, Japan's insurance industry entered an era of great changes, due to the loss of interest margins, and in the late 90s, many small and medium-sized life insurance companies in Japan went bankrupt
Text: Li Haiyan
As we all know, Japan is a big insurance country and an insurance powerhouse. There is a lot of research on Japan's bubble economy, but there is very little research on the once-in-a-century changes in Japan's insurance industry after the bubble economy.
In 1995, Japan substantially revised the Insurance Business Act, which came into effect in 1996. In the 45 years from 1950 to 1995, the competitive landscape of Japan's insurance industry remained virtually unchanged. About 20 life insurance companies and 20 property insurance companies have developed steadily for 45 years under the supervision model of the Ministry of Finance's "escort ship group", and the ranking order of the strength of enterprises in the industry has not changed.
However, in the 10 years after 1996, the Japanese insurance industry began to change dramatically, forming a completely different industry pattern.
The reason why I want to introduce the "earth-shaking" changes in the Japanese insurance industry during this period of time is that some of the external environment in China is similar to the macro environment of Japan in the 90s of the 20th century, such as: population growth is slowing down, the problem of aging is beginning to appear, the real estate bubble is beginning to burst, enterprises have begun to carry out extensive overseas investment, there are trade and financial frictions with the United States, the stock market is not in good shape, and long-term interest rates are slowly declining. Within the insurance industry, there are some similar situations in China and Japan, for example, the homogeneous competition is serious, the development of some insurance companies is relatively aggressive, and the quality of employees in the insurance industry is uneven.
Forward in 1996: Stable competitive landscape
The five years between 1945 and 1950 were a period of recovery and adjustment of the Japanese insurance industry, and the life insurance industry and the property insurance industry maintained the size of 20 companies, and according to the asset size ranking in 1975, the ranking of companies in the Japanese life insurance industry is as follows:
Note 1: The companies in bold in the above table are insurance companies that went bankrupt after 1996. Among them, Yamato Life went bankrupt in October 2008. The main reason for bankruptcy was that the foreign securities invested were hit by the subprime mortgage crisis and suffered heavy losses. All other life insurers went bankrupt between 1997 and 2001.
Note 2: In Japanese, "so-and-so life" means "so-and-so life insurance". It is a translation of Life Insurance in English. The "sea" in "certain sea" means marine insurance, which is the Japanese translation of English marine insurance. The beginning of property insurance in Japan was mainly shipping insurance. Fire insurance was gradually developed after that. After World War II, auto insurance gradually became one of the main businesses of property insurance.
After 1996: 15 changes that occur once in a century
In the 10 years since 1996, the Japanese insurance industry has undergone tremendous changes, which can be summarized as follows:
Change 1: Changes in the regulatory system.
After World War II, the Ministry of Finance was responsible for the regulation of Japan's insurance industry. Around 1996, Japan underwent a reform of the central administrative structure. In 1998, the Financial Supervision Office was established, and the Banking and Securities Bureaus of the Ministry of Finance were transferred to the Financial Supervision Agency. In 2000, the Office of Financial Oversight was transformed into the Office of Financial Services.
Change 2: From the regulatory system of escort ship groups to allowing insurance companies to go bankrupt.
Prior to 1996, there were virtually no bankruptcies of financial institutions in Japan's banking, insurance, and securities industries. In April 1997, Nissan Life went bankrupt, kicking off the bankruptcy of Japan's largest financial institutions. In June 1999, Toho Life, May 2000, Taisho Life, Chiyoda Life, Kyoei Life in October 2000, and Tokyo Life went bankrupt in March 2001.
The property insurance industry fared slightly better, but there was also a situation in May 2000, when the first fire went bankrupt at sea.
It is important to point out that the Japanese regulatory authorities are not unprepared to deregulate the country. In 1996, the Insurance Security Fund was established in 1996 in order to prevent the bankruptcy of insurance companies.
Change 3: There has been a major change in the way of supervision.
In the era of escort ships, Japan's Ministry of Finance adopted extremely strict business supervision and window guidance. In terms of the insurance industry, the life insurance industry and property insurance are strictly separated. Prior to 1996, Japan did not allow the existence of holding companies. After 1996, Japan liberalized mixed operations.
From 1996 to 1998, almost all of Japan's major life insurance companies set up property insurance subsidiaries, and it can be said that the insurance industry has entered an era of chaos. But in the 10 years after 1996, it all disappeared.
After 1996, regulators began to introduce solvency indicators and positive information disclosure. In March 1998, Japanese life insurance companies began to publish their solvency.
In 2008, Japan amended the Commercial Code to remove the part on insurance and promulgate it as the Insurance Law. This is also a once-in-a-century change in the regulations of the insurance industry.
Change 4: A once-in-a-century large-scale merger.
Through the merger, the Japanese life insurance industry has formed five major life insurance giants, namely Nippon Life, Daiichi Life Holdings, Sumitomo Life, Akeji Yasuda Life, and T&D Holdings. Among them, Meiji Yasuda Life was formed by the merger of Meiji Life and Yasuda Life in 2004, and T&D Holdings was formed by the merger of Sun Life and Daido Life in 2004.
Japan's property and casualty insurance industry has undergone greater changes than the life insurance industry. The landscape of Japan's 20 property and casualty insurance companies, which had been maintained for a long time after World War II, has changed radically. Companies in Japan's property insurance industry have been repeatedly merged to form three major property insurance holding groups. They are as follows:
The largest company is Tokio Marine Holdings. The holding group includes two property insurance companies, Tokio Marine Nichido Fire Insurance and Nissin Fire Insurance (in addition to these two, E-Design Property Insurance, Tokio Marine Millea Micro Short-Term Insurance, and Tokio Marine West Micro Short-Term Insurance, and three subsidiaries). Tokio Marine & Nichido Co., Ltd. was formed in April 2004 by the merger of Tokio Marine Co., Ltd. and Nichido Fire Co., Ltd. Tokio Marine Nitto Corporation was formed in April 2004 through the merger of Tokio Marine Corporation and Nichido Fire Company.
The second largest property insurance group is controlled by MS&AD Insurance Group. Under the umbrella are two property insurance companies, Sumitomo Mitsui Offshore and Aiheyi, Risheng Tonghe. Mitsui Marine and Sumitomo Marine merged in October 2001 to form Mitsui Sumitomo Marine. In April 2001, the Great Tokyo Fire Marine Insurance Company and Chiyoda Fire Insurance Company merged to form Aiwayi Damage Insurance. In 2001, Nissan Damage Insurance and Tonghe Fire Marine merged to become Nissen Tonghe Loss Insurance. In 2010, Aiheyi Loss Insurance and Risheng Tonghe Loss Insurance merged to become Aiheyi Risheng Tonghe. The current MS&AD Insurance Group was formed after 1996 when 11 insurance companies merged and merged repeatedly.
The third largest property insurance group is SOMPO Holdings. In July 2002, Yasuda Fire & Marine Insurance and Nissan Fire & Marine Insurance merged to form Property & Casualty Insurance Japan Co., Ltd. In December 2002, Daesung Fire & Marine Insurance was merged into Japan Property & Casualty Insurance Co., Ltd. In 2001, Nippon Fire & Marine Insurance and Koya Fire & Marine Insurance merged to form Nippon Koya. In 2002, Sun Fire Marine Insurance was also merged into Nippon Koya. In 2010, Nippon Koya and Japan merged to form NKSJ Holdings. In September 2014, it was renamed SOMPO Holdings. The holding company was also formed by the repeated merger of six property insurance companies after 1996.
Change 5: Liberalization of property insurance rates.
In July 1948, Japan learned from the United States and enacted the "Law on Property Insurance Rate Calculation Groups" (Japanese: 損害保険料率算出団体に関する法). In August 1948, the Property Insurance Rate Calculation Association was established. In the decades after 1948, all companies in Japan's property insurance industry were required to adhere to the rates published by the Calculation Commission. This avoids excessive competition. In July 1998, the rate compliance obligation of the property insurance industry in Japan was abolished.
Change 6: Non-financial companies are starting to enter the insurance industry.
In the 45 years between 1950 and 1995, there was no change in the number of domestic insurance companies in Japan. Foreign insurance companies entered the Japanese insurance market in 1973, but their overall influence was small. Mainly the Japanese regulatory authorities, which do not allow new forces to join the insurance industry.
Since 1996, many Japanese companies have entered the insurance industry through acquisitions or license applications. For example, in 1998, Seacom, Japan's largest security company, acquired Toyo Fire & Marine Insurance Company. In 1999, Sony applied for a property insurance company license.
Change 7: Segmented competition.
Before 1996, most of the insurance industry in Japan sold homogeneous products, and the competition was more about the scale and the strength of the chaebol to which it belonged. For example, Tokio Marine, the largest property insurance industry in the post-World War II era, was a member of the Mitsubishi zaibatsu. Most of the property insurance business of Mitsubishi zaibatsu companies was given to Tokio Marine, and most of the property insurance business of Sumitomo Zaibatsu's companies was given to Sumitomo Marine.
After 2000, a number of property insurance companies specializing in pet insurance were born in Japan. In 2007, Japan's first property insurance company specializing in pet insurance, Ayoukang Co., Ltd. (Japanese name: アニコム損害保険虺衡社) was born. In 2012, iPET Property Insurance Company was established as a company specializing in pet insurance (Japanese: アイペット損害保険虺術會社). It should be pointed out that both companies started their pet-related business around 2004 and then obtained insurance licenses.
In April 2008, Japan's SBI Holdings, France's AXA Japan Branch, and Japan's SoftBank Group jointly established SBI AXA Life Insurance Company, which is now renamed AXA Direct Life Insurance Company. In May 2008, Lifenet, Japan's first independent Internet life insurance company, began operations. These two companies are the first of its kind to be an Internet life insurance company in Japan.
Change 8: A large number of mutual insurance companies have changed to joint-stock systems.
Of the 20 Japanese insurance companies between 1950 and 1995, only one was a joint-stock company, and the others were mutual companies. In April 2004, Mitsui Life Insurance was transformed into a joint-stock company. First Life Insurance was transformed into a joint-stock company in 2010.
From the perspective of the principle of insurance, mutual insurance companies are also in line with the principle of mutual assistance and mutual assistance in insurance. However, mutual insurance companies have deficiencies in capital accumulation and external information disclosure. In addition, when an insurance company is in operational difficulties, it is difficult to reorganize its management by bringing in external shareholders. These are a few of the reasons why mutual life insurance companies in Japan have been transformed into joint-stock companies since 2000.
Change 9: The use of funds is more conservative.
The use of insurance funds has become more conservative, shifting from loans and stocks to treasury bonds.
Asset allocation in the Japanese life insurance industry in 1980: cash 1.7%, short-term dismantling (call
loan) 0.8%, loans 59.7%, securities 30.4% (Chinese bonds 2.3%, local government bonds 3.0%, corporate bonds 5.4%, stocks 17.2%, foreign securities 2.5%), real estate related 6.3%,
Other 1.1%.
In 2007, the asset allocation of the Japanese life insurance industry was as follows: cash 1.5%, trust 1.4%, short-term dismantling 0.9%, loans 16.6%, securities 73.8% (36.4% government bonds, 2.8% local government bonds, 9.1% corporate bonds, 7.3% stocks, 18.2% foreign securities), real estate 2.0%, and other 3.9%.
Change 10: Internationalization began to deepen.
After 1996, more European and American insurance companies entered the Japanese insurance market. The essential reason for this is that the Japanese regulatory authorities have greatly deregulated the market. On the other hand, a large number of small and medium-sized insurance companies in Japan have gone bankrupt or are in danger of bankruptcy, making it easier for foreign insurance companies to enter the Japanese market through the acquisition of these small and medium-sized insurance companies.
Since the 80s of the 20th century, Japanese insurance companies have begun to go overseas sporadically. Around 2006, Japan's insurance industry was reshuffled and restructured in Japan. Began to seek new development through the acquisition of overseas insurance companies. In the life insurance industry, Nippon Life acquired the Australian MLC company in 2016. Meiji Yasuda Life acquired Stancorp in 2016. First Life acquired Protective in 2015. Sumitomo Life acquired Symetra in 2016.
Property and casualty insurance industry. In 2015, Tokio Marine acquired HCC Corporation of the United States. In 2015, Sumitomo Mitsui Marine acquired Amlin in the United Kingdom.
Change 11: Bancassurance began to be lifted gradually.
In the 50 years since World War II, Japan has implemented a policy of strict separation of industries. The sale of insurance products at the bank window will be gradually liberalized in three phases. The ban was lifted for the first time in April 2001 (Heisei 13). In October 2002, the ban was lifted for the second time.
The ban was lifted in December 2007.
Change 12: Diversification of sales channels.
In the 50 years after the war, the sales of Japanese life insurance companies were characterized by the existence of a large number of "life insurance ladies". In the decades after World War II, the husband worked outside the company, and the wife took care of the children and did housework at home. In this case, a very strong demand for death insurance was born, because the husband was the only one in the family who had an income. When the children grow up, a large number of housewives join the work of selling insurance.
Since 1996, the external environment in Japan has undergone many changes: the birth of the Internet, more women entering the workplace, and changes in the insurance industry. Prior to 1996, insurance brokers were not allowed to exist in Japan.
With the spread of the Internet, a number of insurance product comparison websites have also been born in Japan.
In the late 90s of the 20th century, there were many store-based insurance sales companies in Japan. One of the most representative companies is the "window of insurance" (Japanese: 保険の窓口). The company's first insurance store opened in March 2000, and in February 2008, the number of stores nationwide reached 100. In June 2023, the number of stores reached 780.
Change 13: The birth of "Jane Bao Life".
After the Meiji Restoration, Japan imitated subdivisions to form a modern post office system. This system has always been run by the government, and there are three main businesses: postal business, postal savings business, and simple insurance. The so-called simple insurance is a simple life insurance business that does not require a physical examination, has no age limit, and covers a maximum amount of 10 million yen. Around 20005, Japan privatized the postal service, and in October 2007, the insurance business of the postal system was established as "Simplified Life".
Change 14: Insurance companies began to focus on large-scale entry into the pension industry.
In the early 90s of the 20th century, there were some insurance companies in Japan that held hospitals and pension institutions on a small scale. However, it was only after 2008 that Japanese pension companies entered the pension industry on a large scale through acquisitions. At present, in Japan's insurance industry, the insurance company that holds the largest number of pension institutions is Japan Insurance. SOMPO Holdings acquired Wazumin's pension company in 2015 and Message Inc., Japan's largest pension company, in 2016. In 2022, Nexus Care was acquired.
Change 15: The birth of the small short-term insurance system.
In 2005, Japan's Insurance Business Act was amended on a minor scale. The main content of this revision is the birth of the "small short-term insurance system". In Japan, outside of the insurance industry, there are a large number of organizations that play an insurance role, and this is called "mutual aid".
The 2005 revision of the Insurance Law implemented the method of "opening the front door and blocking the back door". Mutual aid organizations that have not been established under the law must be converted into "small short-term insurance companies". The peculiarity of this type of company is that both life insurance and property insurance can cover, but the property insurance coverage is capped at 10 million yen and death insurance is capped at 3 million yen.
Cause: The "Wave of Bankruptcies" under the Huge Interest Rate Spread Loss
In the late 90s of the 20th century, there were many small and medium-sized life insurance companies that went bankrupt, and the reasons for the bankruptcy of these companies were varied, but there was one thing in common, that is, after the bubble economy, with the continuous decline of market interest rates, the life insurance industry as a whole had a huge deficit loss (Japanese: 反ザヤ).
Generally speaking, there are three sources of profit for a life insurance company, which are the so-called fee differential, death differential, and interest rate differential (Japanese: expense difference, death difference, and interest rate difference).
Since 1992, the Japanese life insurance industry as a whole has experienced huge interest rate spread losses. In the early 90s, the Japanese life insurance industry could cover part of the deficit loss through the income of the fee difference and the death difference. In addition, many insurance companies can sell a portion of their shares to finalize their profits. Because many of the stocks held by Japanese insurance companies were held before the 80s, and the price at which they were purchased was very low, even if the Japanese stock market halved after the bubble economy, there was still a floating profit. It is also possible to solve the problem of insufficient funds by selling part of the real estate.
In the late 90s of the 20th century, life was even more difficult for insurance companies. The deficit is growing, but the assets that can be sold are decreasing. Japan's population has gradually peaked, peaking in 1992 when the adult population of 18 years old in Japan has been declining every year. In 1994, the number of new policies in Japan's insurance industry reached an all-time high, and then began to decline. After the bursting of the bubble economy in 1992, the Japanese economy as a whole was in a downturn, people's ability to pay declined, and the insurance industry as a whole fell into a downturn. The way to repay old debts (the payment of existing policies) by selling new insurance products is also in trouble.
Under these circumstances, it is not surprising that there are a large number of bankruptcies of small and medium-sized life insurance companies in Japan, although there are exceptions. The first company to go bankrupt was Nissan Life, which went bankrupt in 1997, and the small and medium-sized life insurance company that has been relatively stable is Datong Life. The comparison of these two companies may be a good illustration.
Nissan's first bankruptcy was due to the fact that in addition to the external environment, it was inseparable from its own aggressive course in the bubble economy period. During the bubble economy in the late 80s, the overall growth rate of the Japanese life insurance industry was about 20%. Nissan Life's total assets grew by as much as 50 percent in 1986 and 90 percent in 1987, and its aggressive sales put more pressure on its operations than other insurance companies.
After the 70s of the 20th century, Daido Life has taken a relatively unique business path, focusing on special insurance products that serve the presidents of small and medium-sized enterprises in Japan. Of the 2 million or so companies in Japan, less than 1% are large and less than 2% are medium-sized. About 97% of businesses are small businesses. Small businesses tend to be family-owned or first-generation businesses. The life safety and health of the president (called the president of a Japanese company) has a very significant impact on the survival of a small business. In addition, in terms of Japan's tax system, there are certain tax incentives for small and medium-sized business owners to join life insurance products.
Insurance products are not protected by patents, and every insurance company can launch a similar insurance product. Insurance companies are competing more in terms of sales ability and investment ability. In the 70's, Daido Life established a cooperative relationship with the TKC National Association and many accountants and accountants. The TKC National Association is a cooperative organization of Japanese tax accountants with tens of thousands of tax professionals. The ingenuity of this strategy is that all small and medium-sized enterprises in Japan are required to pay taxes every year. An external tax accountant must be hired. Half of Japan's largest companies work with the so-called Big Four accounting firms. If you catch a tax accountant, you are a business owner of a small and medium-sized enterprise throughout Japan.
Cosmos Life adheres to the life insurance market that focuses on small and medium-sized business owners. Don't explore the huge individual life insurance market. As a company, it is inferior to the insurance giants Nippon Life, Daiichi Life, and Meiji Yasuda Life. But in terms of profit margins, it is not inferior to these large enterprises.
The same is true for the property insurance industry, where companies that are too aggressive and have heavy deficits have also gone bankrupt. Daiichi Fire Marine, which went bankrupt in 2000, was the first property and casualty insurance company in Japan to go bankrupt after World War II. Several other weaker P&C insurers avoided bankruptcy by making new shareholders.
In 1997, Asahi Fire & Marine Insurance Company received financial support from Nomura Securities. In 2011, it became a subsidiary of Nomura Holdings. In February 1998, Sun Fire Marine Insurance Company became a subsidiary of Sun Life Insurance. Toyo Fire & Marine Insurance became a subsidiary of Seacom, Japan's largest security company. Chiyoda Fire & Marine Insurance became a subsidiary of Toyota Motor Corporation in September 1998. In June 1999, Towa Fire & Marine Insurance became a subsidiary of Nippon Life Insurance Company. In September 1999, Nisshin Fire & Marine Insurance received a 10% stake from Meiji Life Insurance. These weak insurance companies, in this way, avoid the situation of collapse.
In 2002, Dacheng Fire Marine Insurance Company went bankrupt. The main reason for the company's bankruptcy was the impact of the terrorist attacks that occurred in the United States on 11 September 2001. The company's reinsurance business, participating in some of the insurance business of American Airlines, crushed the Dacheng Fire Marine Insurance Company with huge compensation.
Mirror: Risk and original intention, freedom and competition
As mentioned above, after the 90s of the 20th century, Japan's insurance industry underwent a once-in-a-century change. Overall, there are two important lessons for the insurance industry in China.
First, it is necessary to pay attention to the overall risk problem of China's insurance industry.
There are three factors in China today, which are very similar to those in Japan in the early 90s. The first is the declining birthrate and aging of the population. The second is the end of the real estate era. The third is the obvious macroeconomic downturn and the tendency to low interest rates. These three factors are all negative factors for the development of the insurance industry.
As mentioned above, between 1996 and 2008, 8 Japanese life insurance companies went bankrupt and 2 property insurance companies went bankrupt. In addition to the deterioration of the external environment, the main reasons for this are the huge deficit loss and the problem of risk management (business control and investment control). Signs of these risks also exist in China's insurance industry. In the case of a further decline in the macro environment, there is a possibility of rapid manifestation.
Second, we must adhere to the principle of "free competition in insurance."
In the 10 years after 1996, Japan's insurance industry gradually formed a new regulatory pattern and industry structure. The so-called "insurance surname insurance" is to understand the essence of the insurance industry, adhere to the principle of prudential supervision, and protect the interests of consumers. The so-called "free competition" of free competition means that under the rules of the legal system, full international competition is carried out to form an insurance market with depth and breadth that fully meets the needs of consumers.
(The author is the chief researcher of Beijing Chengshi Technology Co., Ltd.; Editors: Yuan Man, Yang Rui)