Consolidated Solvency Margin Ratio
As insurers expand its operation to diversify profit sources in light of the recent global financial crises and the sluggish Japanese financial market, it has become critical to recognize various risks related to insurers’ financial group taken as a whole. Considering the circumstances surrounding insurers, in 2011 Financial Services Agency of Japan (“FSA”) had announced a plan to amend the Ordinance for the Enforcement of the Insurance Business Law to introduce a consolidated solvency margin ratio which was enacted to be applied from the statutory fiscal year ended March 31, 2012 for insurers domiciled in Japan. Under the new consolidated basis standard, insurance companies and insurance holding companies are subject to the new solvency margin standard on a consolidated basis in addition to the standalone basis. The new consolidated basis standard requires insurers to cover its group subsidiaries contained in the scope of the consolidated financial statements as well as all financial subsidiaries regardless of whether or not they are in the scope of consolidation under the relevant accounting requirement. In order for insurers to calculate the solvency margin ratio on consolidated basis, they are required to consider even the risks associated with their non-insurance subsidiaries that may be substantially different from the risks taken into account under the previous solvency margin ratio requirements. The new consolidated basis standard also aims to encourage insurers to introduce group level risk management.
Please refer to “FSA News Letter No.22 January 28, 2011” page (http://www.fsa.go.jp/news/22/hoken/20110128-2/01.pdf) for further information on the background of the new rule (Japanese only) and "Reports to the Diet No.174" (http://www.fsa.go.jp/en/refer/diet/174/01.pdf) for the outline of the bill for the amendment approved in the 174th Diet on May 22, 2010.