Overview of Life Insurance Industry in Japan

FALIA Seminar Risk Management Course Overview of Life Insurance Industry in Japan November 12, 2014 The Life Insurance Association of Japan

Contents 2 I Basic Information of Japan P.3-11 P3-11 1. General Information 2. Economic Trends 3. Demographic Changes 4. Aging Population 5. Medical Expenses 6. Long-term Care Expenses 7. Employment and Asset Holdings of the Elderly II Development of Life Insurance in Japan 1. Early Development of Modern Life Insurance System 2. Innovation of Life Insurance Business 3. Contemporary Life Insurance Industry in Japan III Life Insurance Market in Japan 1. Role of Public and Private Sectors in Life Security 2. Current Situation of Life Insurance Market in Japan IV Regulatory Regime for Life Insurers in Japan 1. Supervision and Regulation 2. Bankruptcy Procedures 3. Taxation on Life Insurance 4. Recent Development on Insurance Regulation V Recent Industry s Action 1. Supervision and Regulation 2. Bankruptcy Procedures 3. Taxation on Life Insurance 4. Recent Development on Insurance Regulation VI The Life Insurance Association of Japan 1. Overview of 2. Role of P.12-21 P.22-39 P.40-56 P.57-62 P.63-75

I. Basic Information of Japan

I Basic Information of Japan 4 1. General Information Name Japan Area 377,914km2 (rank 60 th ) Population 127 million (rank 10 th ) Capital Language Main Religion Tokyo Japanese Shinto/Buddhism Government Trade Prime Minister: Shinzo Abe (Liberal Democratic Party) Import: crude oil, petroleum products, LNG (liquefied natural gas), clothes, coal, non-ferrous metal, semiconductor electric component Export: automobile, auto component, steel, semiconductor electric component, boats and ships, plastic, engines and turbines

I Basic Information of Japan 2. Economic Trends 5 Changes in Nominal GDP Stock Price (The Nikkei Stock Average) 600 45,000 (yen trillion) Source: IMF - World Economic Outlook Databases, Cabinet Office (yen) 40,000 500 35,000 400 15,783 yen (as of Oct. 7, 2014) 30,000 Source: Nihon Keizai Shimbun 300 200 100 0 Nominal GDP (2013): 478.3 trillion yen Growth Rate (2013): 1.0% GDP per capita (2013): 3.756 million yen 25,000 20,000 15,000 10,000 5,000 9.5 8.5 Interest Rate (JGB 10-year yield) Yen-Dollar Exchange Rate (%) Source: Ministry of Finance (yen) 150 140 1 dollar = 109.94 yen (as of Oct. 7, 2014) 7.5 130 6.5 0.514% (as of Oct. 10, 2014) 120 5.5 4.5 110 3.5 100 2.5 90 1.5 80 0.5 70 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Mitsubishi Research and Consulting

I Basic Information of Japan 3. Demographic Changes Population Demographics 6 Aged 19 or under Aged 20 64 Aged 65 74 Aged 75 or over Population aging rate (aged 65~ to the total population) (%) 14,000 45 12,000 10,000 8,000 6,000 4,000 2,000 (ten thousands) 9,008 8,411 107 309 4,150 139 338 9,430 164 376 9,921 189 434 12,105 12,361 12,557 12,693 12,777 12,806 12,660 12,410 12,066 11,706 717 900 597 1,160 11,662 37.7 471 1,407 11,194 1,646 11,212 36.1 366 1,879 776 892 10,467 284 699 1,109 10,728 1,301 2,179 33.4 602 10,221 1,407 2,278 224 516 1,517 30.3 2,245 1,749 29.1 2,223 1,733 31.6 2,257 26.8 1,479 1,407 7,056 7,353 6,786 7,590 7,861 4,646 5,109 5,650 6,295 7,873 17.4 14.6 12.1 10.3 9.1 7.9 7.1 49 5.7 6.3 4.9 5.3 23 1,495 1,645 20.2 1,600 7,752 7,497 7,089 6,783 6,559 6,278 5,910 5,393 4,978 38.8 9,708 2,385 1,383 4,643 39.4 39.9 9,193 8,674 2,401 2,336 1,225 1,128 4,368 4,105 40 35 30 25 20 15 10 5 0 3,846 3,883 3,781 3,648 3,432 3,517 3,578 3,501 3,249 2,857 2,596 2,409 2,287 2,176 2,015 1,849 1,698 1,562 1,467 1,386 1,297 1,199 1,104 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 Source : The Ministry of Internal Affairs and Communications; National Institute of Population and Social Security Research Note: The total population from 1950 to 2010 includes the population of uncertain age. 0

I Basic Information of Japan 4. Aging Population Total Fertility Rate and Proportion of Elderly Population 7 4.00 Papua New Guinea Total fertility rate (births per woman) ( Year 2010) 3.50 300 3.00 2.50 2.00 150 1.50 1.00 Philippines Malaysia India Mongolia Uzbekistan Indonesia Vietnam Myanmar China Singapore Aging Population and Declining Birthrate t New Zealand France USA UK Australia Thailand South Korea Germany Taipei Japan 0.50 0.0 5.0 10.0 15.0 20.0 25.0 Proportion of population aged 65 and over (% of total population) (Year 2011) Source: Asian Development Bank(ADB); National Institute of Population and Social Security Research

I Basic Information of Japan 8 5. Medical Expenses 12 10 8 6 4 2 0 (Age) Hospitalization Rate by Age Group Average Days of Hospitalization by Age Group (%) (Days) 100 90 80 70 60 50 40 30 20 10 0 (Age) (ten thousand yen) 350 300 250 200 150 100 50 0 Lifetime Medical Expenses (Estimates in Fiscal 2009) (Age) 104 Lifetime Medical Expenses Y23.00 million 57 41 34 36 46 54 59 67 82 Under 70 50% 103 131 165 204 256 286 266 200 70 or over 50% 0 4 5 9 10 14 15 19 20 24 25 29 30 34 35 39 40 44 45 49 50 54 55 59 60 64 65 69 70 74 75 79 80 84 85 89 90 94 95 99 100 107 40 Source: Ministry of Health, Labor and Welfare 9

I Basic Information of Japan 9 6. Long-Term Care Expenses Period of Unhealthy Condition = Average Life Expectancy at Birth Healthy Life Expectancy Male Female (Years) Year Average period of a life WITHOUT physical limitations Average period of a life WITH physical limitations Average life expectancy Average period of a life WITHOUT physical limitations Average period of a life WITH physical limitations Average life expectancy 2010 70.4 92 9.2 79.6 73.6 12.8 86.4 Certification Rate of Needed Long-Term Care in 2011 By Age Group Source: Ministry of Health, Labor and Welfare (ten thousand) Population Number of People Certified Certification Rate (%) 900 100 800 700 600 500 400 300 200 100 0 (Age) 786 718 29 2.9 6 23 43 614 13.6 84 449 49.1 28.4 263 74.5 145 128 129 108 65-69 70-74 75-79 80-84 85-89 90- Source: Ministry of Health, Labor and Welfare; Ministry of Internal Affairs and Communications 90 80 70 60 50 40 30 20 10 0

I Basic Information of Japan 7. Employment and Asset Holdings of the Elderly (1) Labor Force Participation Rate of the Elderly Proportion of elderly employees to population by age group 10 (%) 100 60-6464 (Male) 60-6464 (Female) 65-6969 (Male) 65-6969 (Female) 90 80 70 66.5 65.1 64.6 64.0 64.7 65.4 65.9 67.1 70.8 72.5 71.4 70.6 60 50 40 30 50.2 46.1 44.4 48.6 47.8 43.8 45.0 45.7 46.9 41.0 38.5 37.8 37.7 37.5 37.5 38.4 39.0 39.0 47.8 46.9 46.8 42.5 42.9 44.2 20 26.0 25.1 24.1 23.7 23.3 23.8 23.7 24.6 25.6 25.5 26.3 26.9 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Ministry of Internal Affairs and Communications

I Basic Information of Japan 11 (2) Assets of the Elderly (million yen) 25 Average savings of householders by age group 23.63 The Elderly 22.11 20 15.88 15 11.18 10 5.95 5 2.82 0 (Age) -29 30-39 40-49 50-59 60-69 70- Source: Ministry of Internal Affairs and Communications

II. Development in Japanese Life Insurance Industry

II Development in Japanese Life Insurance Industry 13 1. Early Development of Modern Life Insurance System (1) Beginning of modern life insurance industry The first life insurance company, Meiji Life, was set up in 1881. Many people started life insurance business following with the expansion of market, but most of them did not run its business in a statistical basis. (2) Facilitating the infrastructure of life insurance system Establishment of trade and professional associations (The Forum of Japanese Life Insurers in 1898 and the Institute of Actuaries of Japan in 1899) The Insurance Business Act was promulgated in 1900 The first mutual life insurer, Dai-ichi Life, was set up in 1902. The government started to operate the postal life insurance business in 1916 in order to provide insurance coverage to low income people. Main products were whole life insurance and endowment insurance. The war and natural catastrophes t increased public awareness of the importance of life insurance.

II Development in Japanese Life Insurance Industry 14 2. Innovation of Life Insurance Business (1) Postwar Economic Reconstruction The need for group insurance was growing with the progress of industrialization. Setting g of The Month of Life Insurance (November) in order to conduct promotion campaign for life insurance. Recruiting women as tied sales agents (2) High-Growth Period of the Japanese Economy Change of family structure re and increase of needs of death coverage Increase in number of people who feel need for insurance coverage because of the economic growth Issue of mass hiring and mass turn-over of tied agents Main products: endowment insurance with term rider, whole life insurance with term rider, insurance products with saving element What is the Month of Life Insurance Upon the proposal by J.P. Royston, the Insurance Commissioner of GHQ, the board meeting of passed the resolution to designate November as the Month of Life Insurance for the promotion of life insurance in September 1947. Since 1947, the promotion campaign for life insurance has been conducted every November as the industrial annual event, playing a key role to enhance penetration of life insurance.

II Development in Japanese Life Insurance Industry 15 3. Recent Situation of Life Insurance Industry in Japan (1) Shrinking the market size Little growth in income from 1990s invoked cancellation of insurance contracts and downsizing the coverage The amount of policies started to decrease after reaching its peak in the mind-1990s. Trend to choose to remain single or postpone marriage and progress of aging society with a declining birthrate declining the need for death coverage (Trillion yen) 2500 The amount of insurance policies in force and national income The amount of insurance policies in force (insurance coverage amount) 575 (%) 600 2000 National income 464 485 500 1500 Ratio of the amount of policies in force to national income 339 409 386 400 295.2 300 1000 214.1 200 500 0 128.5 91.8 100 52.7 31.2 16.3 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: The Life Insurance Association of Japan

II Development in Japanese Life Insurance Industry 16 (2) Low interest rate environment and bankruptcy of life insurers The decrease in stock prices, the increase of bad loans, and continued extremely low interest rates caused significant impacts on asset management. Negative spread where the actual investment returns fall below the expected interest rates, pressed the business management of life insurers. 7 life insurers failed during 1997 to 2001. Regulation regime for insurers were developed, and systems to maintain the financial soundness of insurers were revised. 400 Negative spread (billion yen) 246.3 200 0-200 -400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-135.5-196.0-107.5-37.7-286.7-276.8-292.5-600 -550.0-800 -806.8-739.8-1,000-952.3-949.3-897.5 (Note) Total of 4 companies (Nippon, Dai-ichi, Meiji Yasuda, Sumitomo) Source: Disclosure of each company

II Development in Japanese Life Insurance Industry 17 Bankruptcy case of life insurers Company Date of failure Total Assets (billion yen) Relief Company (Sponsor) Current Nissan April 1997 2200 Aoba (Artemis) Prudential Life Toho June 1999 2700 GE Edison (GE Capital) Gibraltar Life Daihyaku May 2000 1700 Manulife (Manulife) Taisho August 2000 200 Azami (Yamato Life / Softbank) Prudential Gibraltar Financial Chiyoda October 2000 3500 AIG Star (AIG) Gibraltar Kyoei October 2000 4600 Gibraltar (Prudential) Tokyo March 2001 1100 T&D Financial (Daido/Taiyo Life) Yamato October 2008 300 Prudential Financial Japan Prudential Financial Gibraltar (3) Changes in market participants The first foreign life insurance company, Alico Japan started its business for Japanese citizens in 1973. General insurers were allowed into life insurance market through their subsidiary in 1996. Number of market participants : 42 (as of October, 2014) Domestic: 19 Non-Life subsidiaries: 5 Foreign* : 18 Branch offices: 3 *Foreign stake of 50% or more and Branch offices

II Development in Japanese Life Insurance Industry 18 Changes in Market Participants i t Domestic Foreign Non-Life 60 2002: Bancassurance deregulation (in annuity sales) 2007: Complete lifting of the ban on Bancassurance (in all areas) 50 1997 2001: Financial Crisis in Japan 40 1996: Allowing non life insurers to enter life insurance market through subsidiary 11 11 11 12 13 9 10 10 9 9 9 9 6 6 6 5 10 10 10 30 20 8 9 9 9 9 9 7 5 5 6 6 8 9 10 14 16 17 1 1 2 3 3 3 3 3 4 6 6 6 6 19 18 18 16 15 16 18 19 19 18 18 18 18 10 23 25 25 25 25 25 25 25 18 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 21 21 21 21 23 20 19 14 14 13 13 13 13 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Financial Service Agency, The Life Insurance Association of Japan

II Development in Japanese Life Insurance Industry 19 (4) Changes in Product Portfolio (the number of new policies) People started to have interests in whole life insurance and individual annuities from 1980s. Insurance products with saving element became unpopular under the extremely low interest rate environment. Medical insurance and products for post-retirement security (such as individual annuities and whole life insurance with single premium payment) became popular. 100% 90% 80% 70% 60% 11.38 1.62 20.58 1.64 Endowment Term Whole Life Medical Annuties Others 10.31 12.49 16.34 14.01 13.12 18.76 20.59 19.06 4.30 1.84 1.27 5.13 35.20 7.97 1.46 8.49 3.86 14.36 13.58 7.70 21.16 1.49 12.32 5.51 17.69 14.71 7.58 6.47 10.05 13.50 33.30 35.43 50% 40% 30% 20% 10% 0% 10.79 23.00 87.00 13.52 81.81 83.35 22.45 31.53 77.78 79.36 73.79 27.75 23.02 47.00 12.52 23.79 36.64 16.39 9.80 15.89 17.68 12.51 9.83 12.63 4.58 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: The Life Insurance Association of Japan

II Development in Japanese Life Insurance Industry 20 (5) Changes in Asset Management Changes in Total Assets 350000 (Billion yen) 320,691 300000 250000 209,879 200000 187,492 191,731 150000 131,619 100000 50000 0 37 193 753 2,243 5,855 12,893 26,258 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 53,871 Source: The Life Insurance Association of Japan

II Development in Japanese Life Insurance Industry 21 Changes in Asset Management Portfolio Cash/Deposits & Call Loans Government Bonds Corporate Bonds Stocks Foreign Securities Policy Loans Financial Loans Tangible Fixed Assets Others 100% 2.66 2.07 2.62 1.10 1.94 7.98 8.81 7.91 6.28 7.04 4.80 5.93 7.74 10.40 9.64 10.26 10.0000 10.83 521 5.21 90% 5.46 4.26 2.09 3.26 17.50 12.61 80% 15.58 23.55 108 1.08 33.37 70% 41.58 35.46 1.92 40.50 14.26 21.20 55.48 2.53 60% 54.06 54.04 60.39 62.53 18.77 506 5.06 2.54 11.43 50% 2.45 7.39 7.88 8.98 3.66 40% 30% 20% 28.79 8.17 29.58 7.56 7.88 6.72 5.39 4.26 2.55 17.21 8.67 13.07 15.06 21.97 4.95 17.08 5.65 15.37 14.74 9.29 8.74 45.00 10% 0% 22.69 6.34 16.72 20.49 21.09 23.99 5.92 19.56 18.06 3.99 5.42 3.01 4.36 11.87 8.86 1.55 5.19 5.67 6.20 7.24 5.35 2.54 2.27 1.75 2.51 2.61 2.39 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: The Life Insurance Association of Japan

III. Life Insurance Market in Japan

III Life Insurance Market in Japan 23 1. Role of the Public and Private Sectors in Life Security <Social Security> Public Pension Old Age Benefit Survivor Benefit Complement Private Insurance Products Fixed Annuity Insurance Variable Annuity Insurance Whole Life Insurance Term Insurance Endowment Insurance Public Health Insurance Medical Insurance Cancer Insurance Public Long-term care Insurance Long-term care Insurance

III Life Insurance Market in Japan 24 (1) Post-Retirement Security As of the end of March, 2013 (* as of the end of March, 2014) Individual Annuity 1 : Approx. 16.4 million policyholders (estimated) Premium : Y4.31 trillion, Payment: 3.11 trillion, Policy reserves: 66.28 trillion Corporate Pension (2012) Participants²: 16.55 million Premium 3 : 3.10 trillion Payment 3 : 3.26 trillion Holding assets 3 : 67.91 trillion Public Pension (2012) Participants: 67.36million Premium: 30.1 trillion Payment: 49.7 trillion Accumulated fund:y162.4 trillion National Pension Fund 0.49 million participants Defined Contribution Plan (Individual type) 0.18 million participants* Defined Contribution Plan (Corporate type) 464million 4.64 participants* Defined Benefit Plan 7.88 million participants* i t Employees Pension Insurance 34.41 million participants Employee s Pension Fund 4.08 million participants* i t Substitutional benefits Occupational Field Mutual aid associations 4.40 million participants National pension (basicpension) 67.36 million participates House wife, etc/ Self-employed Private-sector workers Public service employees Class III insured 9.60 million people Class I insured 18.64 million people Class II insured 39.12 million people 1. Estimated by the survey of JILI 2. Total of defined contribution plan (corporate type), defined benefit plan and employee s pension fund 3. Total of employees pension fund and defined benefit plan Source: Health, Labor and Welfare Ministry, National Institute of Population and Social Security Research, Pension Fund Association, disclosures of mutual aid organizations, JILI,

III Life Insurance Market in Japan 25 (2) Medical Security (b) Co-payment for meal expense on hospital admission Average amount per day: 780 Public Medical Insurance Members: 123 million(2012) Benefit: 31.4 trillion(2011) Premium: 19.6 trillion(2011) (a) Co-payment (10~30 %) (c) Amenity Bed Charges (Private room or small-group of patients room) Average amount per day: 5,829 (d) Specialty care not eligible for public medical insurance (Advanced medical care, medical exam, preventive injection, dental materials, etc.) (e) Other Expenses (Traveling expenses, necessities for hospitalization, gifts, etc.) Out-of-pocket cost in public medical insurance (a)+(b) Need for private coverage (2013) Policyholders¹: 60 million (estimated) Other out-of-pocket cost Premium² : 6.07 trillion (c)+(d)+(e) 1. Estimated by the survey of JILI 2. Including medical, accident and long term care insurance Source: Japan Institute of Life Insurance,, National Institute of Population and Social Security Research

III Life Insurance Market in Japan 26 (3) Long-Term Care Security b. Additional services Services exceeding the amount covered by public long term care insurance, such as Amenity bed charges. Out-of-pocket cost Need for private coverage Policyholder: 7.4 million¹(estimated) Public Long term Care Insurance Member: 30.94 million (2012) Benefit: 8.1 trillion(2012) Premium: 1.7 trillion(2012) Home long term care services:services i provided d by visiting nurses or caregivers, such as long term care, bath and rehabilitation Services at long term care facilities c. Services uncovered by Public long term insurance Catering service Transfer service a. Co-payment (10 %) 1. Estimated by the survey of JILI Source: Japan Institute of Life Insurance, Health, Labor and Welfare Ministry, National Institute of Population and Social Security Research

III Life Insurance Market in Japan 27 2. Current Situation of Life Insurance Market in Japan (1) Penetration Rate of Life Insurance Changes in Life Insurance Ownership Rate per Households 100 90 (%) 88 89.4 88.5 89.6 90.5 92.3 91.3 91.6 93.7 95 93 91.8 89.6 87.5 86 85.8 80 71 70 60 50 40 1965 1968 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Source: Japan Institute of Life Insurance: Consumer Survey Note: The data includes the total of private life insurance (including Japan Post Insurance), postal insurance and JA cooperative

III Life Insurance Market in Japan 28 (2) Purpose of Life Insurance Ownership Medical or surgery expense 56.3% 59.6% 60.5% Survivor 51.7% 12.5% Funeral expense 13.7% Accident 19.4% 8.8% Educational and marriage expenses of children Post-retirement life Saving 44% 4.4% Long-term care expense 3.1% 10.9% 8.6% 8.9% 8.6% 7.1% 6.7% 2003 2012 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% <Multiple choice question> Source: Japan Institute of Life Insurance

III Life Insurance Market in Japan 29 (3) Business Results New policies Policies in Force 25 20 15 (Number; million) 17.15 17.3 1.63 1.44 17.81 1.59 21.33 1.65 20.5 1.51 180 160 140 120 100 (Number; million) 135.3939 18.34 140.9 18.99 146.97 19.76 156.45 20.43 164.36 20.48 10 15.5252 15.86 16.22 19.68 19.00 80 60 117.05 121.91 127.21 136.02 143.88 5 40 20 0 2009 2010 2011 2012 2013 0 2009 2010 2011 2012 2013 Individual Life Insurance Individual Annuities Individual Life Insurance Individual Annuities Source: The Life Insurance Association of Japan

III Life Insurance Market in Japan 30 Individual id Insurance Share by Type New policies (2013) Policies in Force (2013) (%) Variable Annuity, 1.01 Others, 3.48 Variable Annuity, 1.81 Others, 3.94 (%) Juvenile, 3.57 Fixed Annuity, 8.25 Fixed Annuity, 10.65 Whole Life, 25.56 Juvenile, 3.67 Whole Life, 30.12 Cancer, 8.80 Term Life, 14.41 Cancer, 12.88 Medical, 24.15 Term Life, 10.67 Endowment, 10.77 Medical, 18.24 Endowment, 8.03 Source: The Life Insurance Association of Japan

III Life Insurance Market in Japan 31 Premium Income (yen billion) 40,000 35,000 30,000 25,000 20,000 Individual Life Insurance Individual Annuities Group Life Insurance Group Annuities Others 36,289 37,140 34,116 34,454 3,836 3,874 4,973 4,276 3,926 3,684 1,109 3,813 1,114 3,727 1,116 4,374 1,133 4,679 4,802 6,641 34,738 2,740 3,852 1,113 4,312 15,000 10,000 17,641 20,448 22,734 24,099 22,721 5,000 0 2009 2010 2011 2012 2013 Source: The Life Insurance Association of Japan

III Life Insurance Market in Japan 32 Premium Income of Japanese Life Insurers in 2013 Japan Post 5,911.27 (Market Share:17.0%) Nippon 4,824.67 (13.9%) Dai ichi 4,016.78 (11.6%) Meiji Yasuda 3,615.58 (10.4%) Sumitomo 2,518.64 (7.3%) Prudential 2,317.74 (6.7%) Aflac T&D 1,652.90 1,606.63 (4.8%) (4.6%) Metlife 1,390.39 (4.0%) MS&AD 1,243.18 (3.6%) Sony (3.2%) 1,127.21127 21 Fukoku Tokio Marine Mitsui 706.81 641.17 544.48 (2.0%) (1.8%) (1.6%) AXA 530.09 (1.5%) 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 (yen billion) (Note) Dai-ichi: Dai-ichi+Dai-ichi Frontier+Sompo Japan DIY; Prudential: Gibraltar+Prudential+PGF; Sumitomo: Sumitomo+Medicare; T&D: Taiyo+Daido+T&D; Sony: Sony+Aegon Sony; MS&AD: Aioi+Primary; Fukoku: Fukoku+Fukokushinrai; Tokio Marine: Tokio Marine Life Insurance+Tokio Marine Financial Life Insurance * ; AXA: AXA Life+AXA Direct Source: The Life Insurance Association of Japan

III Life Insurance Market in Japan 33 Life Insurance Premium Volume by country in 2013 New Premium Written by company in 2012 Ranking Country Share in World Market 1 United States 20.43% 2 Japan 16.21% 3 United Kingdom 8.55% 4 France 6.14% 5 China 5.83% 6 Italy 4.52% 7 Germany 4.38% 8 South Korea 3.50% 9 Taiwan 2.88% Ran king Company name Ran king Company name 1 Axa S.A. 11 Nippon Life Insurance Co. 2 UnitedHealth Group Inc. 12 Kaiser Foundation Group of Health Plans 3 Allianz SE 13 WellPoint Inc. 4 Assicurazioni Generali S.p.A. 14 Prudential plc 5 National Mutual Insurance Federation of Agricultural 15 Zurich Insurance Group Ltd. Cooperatives 6 Japan Post Insurance Co.Ltd. 16 Meiji Yasuda Life Insurance Co. 7 Munich Reinsurance Co. 17 Dai-ichi Life Insurance Co. Ltd. 8 Prudential Financial Inc 18 Life Insurance Corporation of India 9 China Life Insurance (Group) Co. 19 MetLife Inc 10 Canada 2.01% 10 State Farm Group 20 American International Group Inc Source: Swiss Re; AM Best

III Life Insurance Market in Japan 34 Insurance Payment (yen billion) 40,000 Claims Paid Annuities Paid Benefits Surrender Benefits Paid Other 35,000 33,681 2,319 30,000000 5,948 25,000 4,026 20,000 2,558 15,000 32,049 2,155 5,799 3,976 2,876 33,778 31,209 31,686 2,918 2,445 3225 3,225 5,680 8,000 5,867 3,805 3,937 4,054 3,135 3,360 4,500 10,000 18,830 17,244 16,143 15,296 14,308 5,000 0 2009 2010 2011 2012 2013 Source: The Life Insurance Association of Japan

III Life Insurance Market in Japan 35 Profit Basic Profit Ordinary Profit 4000 (yen billion) 3500 3,075 3,260 3,545 3,102 3000 2,849 2500 2,629 2,551 2,564 2000 1,860 1,842 1500 1000 500 0 2009 2010 2011 2012 2013 Basic profit represents the profitability of the life insurance business. *Basic Profit = Ordinary Profit - Capital Gain/Loss - Nonrecurring income/loss Source: The Life Insurance Association of Japan

III Life Insurance Market in Japan 36 Total lassets and Portfolio Yields Total Assets: 350 Trillion Yen (As of the end of March 2014) Tangible Fixed Assets, 1.80 Cash & Deposits, 1.26 Others, 9.57 (%) Portfolio Yields by Type of Assets Bonds Domestic Stocks Foreign Securities Financial Loans Real Estate 2009 1.64 2.33 2.52 2.05 2.87 2010 1.86 1.25 2.06 1.98 2.52 Policy Loans, 0.89 Other Foreign Securities, 2.38 Foreign Stocks, 1.50 Financial i Loans, 997 9.97 2011 191 1.91 156 1.56 291 2.91 194 1.94 227 2.27 JGB, 42.73 2012 2.00 0.61 5.25 2.18 2.35 Foreign Corporate Bonds, 8.27 2013 1.95 5.14 4.60 2.15 2.43 Foreign Government Bonds, 5.37 Stocks, 5.14 Corporate Bonds, 710 7.10 Local Government Bonds, 4.00 Source: The Life Insurance Association of Japan

III Life Insurance Market in Japan (3) Distribution Channel Share of Distribution Channel 37 2007 2013 Tied Sales Agents 56.7 49.7 House visit 38.8 31.4 Workplace 17.9 18.3 Direct Sale 5.7 5.8 Internet 1.0 1.5 TV, Newspaper, p Magazine 4.7 4.3 Office of Insurer 11.2 15.8 Bank/Securities Firm 2.8 2.5 Bank 2.7 2.4 Securities Firm 0.1 0.1 Sales Agency 3.8 9.4 At the Counter - 3.4 Sales Representative - 6.1 Via Workplace or Labor Unions 6.3 6.6 Others 9.9 7.1 Source: Japan Institute of Life Insurance

III Life Insurance Market in Japan 38 Number of Life Insurance Sales-Person tied sales agents sales representatives at agencies 1,200 (Thousand) 1,000 912 949 1,005 989 971 1,011 1,015 800 693 714 722 747 777 600 445 442428 400 421 400 395 390 354 342 330 313 298 200 181 204 232 296 163 284 268 264 259 249 246 248 251 241 237 234 229 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: The Life Insurance Association of Japan

III Life Insurance Market in Japan (4) Other Insurance Providers Cooperatives (Kyosai) 39 While Insurance does not limit the scope of policyholder, Kyosai is a scheme, formed by residents in the same region or persons engaged g in the same occupation, which provides a certain amount of benefits from the pooled financial contributions of the membership for disaster, death or accident with the aim of mutual assistance. Major kyosai: National Mutual Insurance Federation of Agricultural Cooperatives, National Federation of Workers and Consumers Insurance Cooperatives, Federation of Japanese Consumer Cooperatives and etc. Small llamount & Short-term t Insurance After the revision of the Insurance Business Act in 2006, unregulated Kyosai was required to be either an insurance company or a small-amount and short-term insurance company to continue its business within two years from the effective date of revised IBA. The number of small amount and short-term t insurance companies is 77 as of April 2014. The number of policies i in force is 5.18 million, and the amount of premium income is 51.7 billion yen. Postal Life Insurance Postal life insurance is a state-owned business established in 1916 with aim to provide low premium insurance with simple enrollment procedure. Various new postal insurance products were developed, following the development of new products and services of private life insurance companies. In 2005, Postal Service Privatization Act was enacted with the aim of promoting public convenience through various types of high-level postal services by enhancing the autonomy, creativity and efficiency of its business management. In 2007, Japan Post Holdings was established, which consists of five companies including Japan Post Insurance Company. Japan Post Insurance Company was established in October 2007 based on the Postal Services Privatization Act. Taking into account government funding to JP Insurance, a certain level l of limitations it ti is imposed on its business operation such as maximum limit on payable benefits and requirement to conduct new business.

IV. Regulatory Regime for Life Insurers in Japan

IV Regulatory Regime for Life Insurers in Japan 41 1. Supervision and Regulation (Insurance Business Act) (1) Licensing No insurance business shall be operated without having obtained a license due to its characteristics of underwriting contracts from a large amount of people. The license consists of two types; the life insurance business license and the general insurance business license. (2) Restriction on Other Business and Scope of Business An Insurance Company may not conduct business other than these conducted pursuant to the Insurance Business Act and other relate acts. An insurance company may conduct the following businesses under the Insurance Business Act (IBA): 1. Proper Businesses Underwriting insurance policies and asset investment 2. Incidental Businesses Representing the businesses or carrying out services on behalf of other insurance companies and others operating financial businesses Guarantee of obligation Underwriting of National Government Bonds or handling of public offerings of the National Government Bonds Acquisition or transfer of monetary claims Underwriting g of specified company bonds issued by special purpose p companies and any other securities or handling of public offering of the specified company bonds Acquisition or transfer of short-term company bonds Handling of a private placement of securities Financial futures transactions at exchange Financial derivative transactions Over-the-counter t transactions ti of securities-related t derivatives 3. Statutory Other Businesses Subscription or commissioning the administration of bonds, dealings in public bonds, life insurance trust, securities investment trust, sales and purchase of foreign investment trusts and its intermediary, investment advisory business

IV Regulatory Regime for Life Insurers in Japan 42 (3) Subsidiary There are certain limits on business conducted by a subsidiary company as follows: 1. Definition of subsidiary company A company of which voting rights exceeding fifty hundredths of the voting rights of all the shareholders are held by another company A company of which voting rights exceeding fifty hundredths of the voting rights held by all shareholders of another company, are owned by the company and one or more of the subsidiary companies of such company. 2. Scope of subsidiary company A (foreign) life insurance company, a (foreign) general insurance company, a (foreign) small amount and short term insurance provider, a (foreign) bank, a (foreign) security company, a (foreign) trust t company, companies which h exclusively l engage in dependent business or finance-related business, a venture company which is held through venture capital, holding companies whose subsidiary companies consist exclusively of those-already-mentioned companies Also, there are limits on business conducted by a subsidiary/affiliate (not a subsidiary company but has business relation with it). (4) Requirement on documentation and authorization for documents To obtain a license, following documents shall be attached to the written application for a license (articles of incorporation, statement of business procedures, general policy condition, and statement of calculation procedures for premiums and policy reserves). To change matters prescribed in those documents, an insurance company shall obtain the authorization from the Commissioner of the FSA. With respect to matters specified as being not very likely to impair the protection of policyholders, an insurance company shall give advance notification. (5) Asset Investment An insurance company shall conduct asset investment by following financial instruments; Securities, real estates, monetary claims, short-term corporate bonds, gold bullion, loan of funds (money/securities), contribution to labor union contracts, deposit and savings, money/monetary claims/securities/real estate in trust, derivative transactions for asset investments, derivative transactions other than that, financial derivative transactions, forward foreign exchange transactions, and any other equivalent transactions

IV Regulatory Regime for Life Insurers in Japan 43 (6) Policy Reserves An insurer shall set aside a certain amount of money as policy reserves to prepare for future performance of obligations under its insurance contracts for each accounting period. Standard Policy Reserve: The Commissioner of the FSA may set necessary requirements for the method of funding the policy reserves pertaining i to the long-term insurance contracts t as well as for the levels l of the coefficients i that t should constitute the basis for calculating the amount of policy reserves, such as expected mortality. 1. Method of funding the policy reserves: Net level premium method 2. Expected mortality rate: Developed by the Institute of Actuaries of Japan, and verified by the Commissioner of the FSA. Contracts concluded during April 1, 1996 and March 31, 2007: Calculated based on Standard Mortality Table 1996 (For death insurance contracts, for annuity contracts after the beginning of payment) Contracts concluded during April 1, 2007: Calculated based on Standard Mortality Table 2007 (For death insurance contracts, for annuity contracts after the beginning of payment) and calculated based on Standard Mortality Table 2007 for third sector products 3. Assumed interest rate: Contracts concluded on or before March 31, 1999 = 2.75% per year Contracts concluded between April 1, 1999 and March 31, 2001 = 2.00% per year Contracts t concluded d between April 1, 2001 and March 31, 2013 = 1.50% per year Contracts concluded on or after April 1, 2013 = 1.00% per year (Note) For the calculation of the standard assumed interest rate, whichever lower will be used in the calculation: (1) the average rate of the 10-year JGBs yield to subscribers, which were issued for the past three years from the previous month of the reference date, or (2) the average rate of the 10-year JGBs yield to subscribers, which were issued for the past ten years from the previous month of the reference date.

IV Regulatory Regime for Life Insurers in Japan 44 (7) Supervisory Power To require an insurer to submit reports or materials concerning the status of its business or property to protect policyholders by ensuring the sound and appropriate management of the insurer, the Commissioner of the FSA may conduct following; 1. Submission of reports or materials: Require the insurer to submit reports or materials concerning the status of its business or property. 2. Inspection: have its officials enter a facility of the insurer, ask questions on the status of its business or property, or inspect relevant objects such as books and documents. 3. Order to change matters prescribed in Statement of Business Procedures 4. Submission of an improvement program, suspension of business, etc. :request the insurer to submit an improvement program by identifying matters for which measures shall be taken as well as due dates, or, within the limit necessary, order the full or partial suspension of the business of the insurer with due dates. Prompt Corrective Action System The Commissioner of the FSA may require an insurer whose solvency margin ratio is under 200% to take following corrective actions by each category: Category Solvency Margin Ratio Corrective Measure Category 1 Category 2 100% to less than 200% 0% to less than 100% Submission and implementation of a business improvement plan Submission and implementation of a plan for adequate solvency of the insurer, etc. Category 3 Partial or full suspension of the Less than 0% business with due dates

IV Regulatory Regime for Life Insurers in Japan 45 (8) Solvency Margin Ratio The reserves of insurers are sufficient to cover normal expected risks. However, unexpected events such as catastrophic disasters or plunging stock prices can happen. In order to determine whether an insurer has a sufficient "margin of solvency" to cover such unexpected risks, the solvency margin ratio was introduced as an index of administrative supervision. Since the fiscal year ending in March 1998, life insurers in Japan have been disclosing their solvency margin ratio. It is calculated as follows: Total Amount of Solvency Margin a Solvency Margin Ratio (%)= * 100 1/2 Sum Total of Risks b a The Total Amount of Solvency Margin (numerator) is the total of the following: = Total Capital + Price Fluctuation Reserve + Contingency Reserve + General Bad Debt Reserve + 90% of Variance of the Estimate of Other Securities* + 85% of Unrealized Gain or Loss on Real Estate* + Debt Capital Instruments + Deductible Items, and others. * If these values are negative, 100% of the value is applied instead of 90% or 85%. b The Sum Total of Risks (denominator) is calculated as follows: = ( R1 R8) ( R2 R3 R7) 2 2 R 4 R 1 : Underwriting Risk Risk of massive insurance payouts following a disaster or catastrophe R 8 : Underwriting Risk of third-sector insurance Risk of massive third-sector insurance payouts such as health insurance and cancer insurance R 2 : Assumed Interest Rate Risk Risk that investment return falls below the assumed interest rate R 3 : Asset Management Risk Risk of a drastic devaluation of assets because of a crash in stock prices or sharp fluctuation in the currency market, and risk of a sharp increase in irrecoverable loans due to failures of borrowing companies R 4 : Business Management Risk Business risk in excess of normal expectations R 7 : Minimum Guarantee Risk Risk related to the minimum guarantee for benefits of variable insurance and variable annuity products Reference: Risk factor for each asset category on the solvency regulation (price fluctuation risk) Risk assets Risk factor Domestic stocks 20% Foreign stocks 10% Domestic Bonds (excluding policy reservematching bonds) Domestic Bonds (policy reserve matching bonds) 1% Foreign bonds and foreign loans 1% 2% Risk assets Risk factor Real estates (land) 10% Gold metal 25% Trading account securities 1% With currency risks 10%

IV Regulatory Regime for Life Insurers in Japan 46 (9) Appointed Actuary An insurer shall appoint an actuary at the board of directors. 1. Requirement for appointment of actuary: Fellows of the IAJ with a certain amount of experience with regard to actuarial science 2. Related matters: An insurer shall get involved with following matters based on the relevant laws calculation method of insurance premiums, calculation method of policy reserves, calculation method of policy dividends or dividends of surplus to members, calculation method for refund and other accumulated fund for policyholders, calculation of uncollected premium, calculation l of reserve for outstanding t claim, planning for insurance solicitation, it ti development of rules regarding salaries of life insurance solicitors, and other necessary matters to carry on the operation of actuaries 3. Duties: The actuary shall check the following matters and submit to the board of directors a written opinion describing its findings for each accounting period. Whether the policy reserve has been funded according to sound actuarial practice. (Note) Future cash flow analysis verifies the sufficiency of accumulated policy reserves, and if it is expected that the loss will be incurred, actuaries shall describe the need of additional policy reserve accumulation in a written opinion. Whether policy dividends or dividends of surplus to members have been distributed in a fair and equitable manner. Whether it is difficult for an insurer to continue its business according to a result derived from rationally calculated future cash flow based on the actuarial mathematics or not. The Commissioner of the FSA may order an insurer to dismiss its actuary when it has violated any provision of IBA and etc.

IV Regulatory Regime for Life Insurers in Japan 47 (10) Solicitation There are regulation specified in IBA in order to regulate solicitation activities by an insurer as follow; 1. Restrictions on insurance solicitation, Registration of life insurance solicitors Persons allowed to conduct insurance solicitation business are limited to life insurance solicitors registered with the Commissioner of the FSA. Life insurance solicitor: an officer or employee of a life insurer, person entrusted by a life insurer, an officer or employee of such person entrusted (Note) Ban on bancassurance was lifted in 2001. 2. Prohibition on life insurance solicitors to work for more than one life insurer A life insurer shall not entrust a life insurance solicitor of another life insurer with any insurance solicitation business on its own behalf. (Note) As an exception, an insurance agent which has at least 2 a responsible officer for education/training and a responsible officer for business management is excluded from this restriction. 3. Prohibited acts Prohibited acts pertaining to insurance solicitation are specified. False statement and not disclosing any important matters, encouraging to breach disclosure obligation, inappropriately inducing to apply for a new insurance contract, provision of any special advantage, misleading comparison, making a conclusive statement on such as dividend uncertain. 4. Supervision by the FSA The Commissioner of the FSA may order a life insurance solicitor to submit any report or data, and conduct on-site inspection. The Commissioner of the FSA may order for improvement of business operation when it finds any fact that might harm the interest of policyholders. The IBA has provisions requiring life insurers to take measures to ensure sound and appropriate business operation (e.g. explanation of important matters to customers). The detailed contents to be explained are prescribed in Ordinance for Enforcement of the IBA and Comprehensive Guidelines for Supervision of Insurance Companies (which describes basic concept for the supervision by FSA, valuation items, points to be mentioned)

IV Regulatory Regime for Life Insurers in Japan 2. Bankruptcy Procedures 48 Resolution Scheme Bankruptcy of life insurers Administrative procedure based on the Insurance Business Act (FSA) - Management order - Appointment of insurance administrator Judicial procedure based on Rehabilitation Law (courts) (since 2000) - Commencement of rehabilitation procedure - Appointment of rehabilitation trustee Types of relief Transfer of insurance contracts to a relief company Merger with a relief company Acquisition q of stocks by a relief company Transfer of policies to PPCJ or subsidiaries Measures for resolution General debts reduction Policy reserves reduction Expected interest rate reduction Early surrender charge Policyholder Protection Corporation of Japan Functions Guarantee Coverage Financial Aid Representation of policyholders in rehabilitation procedures -Preparation of a list of policyholders ld -Exercise of voting rights 90% of policy reserve (in principle) i

IV Regulatory Regime for Life Insurers in Japan 49 Policyholder Protection Scheme When a relief company exists Insolvent insurance company PPCJ Transfer of insurance contracts, merger or stock acquisition Financial aid Relief insurance company When a relief company does not exist 1. Transfer of contracts to a bridge insurance company 2. Contracts undertaken directly by the PPCJ Insolvent insurance company PPCJ Insolvent insurance company PPCJ Transfer of contracts Investment in stocks (more than 50%) Transfer of contracts Bridge insurance company

IV Regulatory Regime for Life Insurers in Japan 50 Funding scheme The size of protection funds based on the assumption of few bankruptcies in a decade Contribution Contribution of life insurers (per year): Y33 billion The amount is allocated to each member based on policy reserves and premium incomes Financial resources: Y400 billion Designed as pre-funded regime; however, post-funded in practice because of several bankruptcies in the early stage Loan and government assistance When the amount of financial aid exceeds its financial resources Borrow money from financial institutions (debt cap: Y460 billion) government guarantee is available The government subsidy is available if the amount of financial aid exceeds the debt cap extended until the end of March 2017

IV Regulatory Regime for Life Insurers in Japan 51 3. Taxation on Life Insurance (1) Life Insurance Premium Deduction Tax deduction scheme for life insurance premiums is a preferential tax treatment which deducts a certain amount of premium paid from the policyholder s income, which leads to reduction of income tax and resident tax. Tax Deduction Scheme for Life Insurance Premiums Total Deductible Limits i Income tax: 120,000000 Life Insurance Long-term care/medical Insurance Individual Annuity Deductible limits Deductible limits Deductible limits Income tax: 40,000000 Income tax: 40,000000 Income tax: 40,000000 (2) Tax Exemption for Death Benefits Tax exemption emption is applied to death benefits with the limits of 5 million yen multiplied by the number by legal successor since the death benefit is considered the inheritance to provide coverage for deceased s family. (3) s Request on Tax Reform In order to improve the environment to promote the independence and self-help efforts of people with the aim of ensuring the establishment of sustainable social security system, the requested that the tax deduction scheme for life insurance premiums be expanded, following the on-going review of the social security system. s Proposal Deductible limits of insurance premiums from taxable income should be raised to 50 thousand yen for national income tax and to 35 thousand yen for local income tax for each category of life insurance products (i.e. life insurance, long-term/medical insurance and individual annuity). Life Insurance Long-term Care/ Medical Insurance [Deductible limits] Income tax: 150,000 Individual Annuity Income tax: 50,000 Income tax: 50,000 National tax: 50,000

IV Regulatory Regime for Life Insurers in Japan 4. Recent Development on Regulation (1) Revision in Solicitation Regulations (Amendment to IBA in June 2014) 52 Changes in business environment of life insurance industry Increasingly complicated insurance products/further diversified distribution channels New types of agencies which offer insurance products of multiple insurance companies Need for reestablishment of solicitation regulations corresponding to the changes in business environment Establishment of Basic Rules for Insurance Solicitation With the aim of providing thorough services at every stage of whole insurance solicitation procedures (e.g. from ascertaining customer s wishes to concluding insurance contracts), new solicitation regulations to require active attitude for customer services will be introduced, in addition to the existing regulations which only prohibits companies from conducting inappropriate practices. Introduction of Obligation to ascertain customer s wishes To require insurers to ascertain customer s wishes and propose appropriate products in accordance with their wishes/intention Introduction of Obligation to provide necessary information To require insurers to provide necessary information to determine whether or not to conclude suggested insurance contract (e.g. detailed information on insurance products) Establishment of Regulations on Insurance Solicitors In light of increase of independent insurance agencies, new regulations to require insurance solicitors to improve solicitation systems reflecting their actual practices will be introduced, in addition to the existing solicitor regulations which place supervisory responsibility on insurance companies. Introduction of Obligation to insurance solicitors to improve their solicitation system To require insurance solicitors to improve their solicitation system in light of characteristics/scale of responsibilities of insurance solicitors (e.g. whether they offer insurance products of multiple l insurance companies.

IV Regulatory Regime for Life Insurers in Japan 53 (2) Orderly Resolution Regime for Financial Institutions (Enforcement in March 2014) In order to prevent financial crisis which may spread across financial market and pose significant impact on the real economy (e.g. failure of Legman Brothers), a new orderly resolution regime for financial institutions was introduced in accordance with endorsement of the G20. Scope Whole financial industry (depository financial institutions, insurance companies, financial instruments business operators, financial holding companies, and etc.) Procedure & Condition for Initiating the Regime The Prime Minister declares and confirms the need to implement the orderly resolution regime for financial institutions, following deliberations by the Financial Crisis Response Council. (Note) Financial Crisis Response Council: Consisting of Prime Minister (Chairman), Chief Cabinet Secretary, Finance Minister, Minister in charge of financial affairs, Bank of Japan Governor, Financial Services Agency Commissioner Resolution Measures When it is considered necessary to prevent significant disruptions to the market Oversight by the Deposit Insurance Corporation of Japan Provision of liquidity and financial assistance * Capital injection may be undertaken as necessary provided the financial institutions are not insolvent. The measures reduce market transactions, while ensuring the performance and continuation of obligations which are critical for stabilization of the financial system, thereby achieving orderly resolution of financial institutions and preventing severe disruption to the market. (Note) When the measure above implemented, contractual bail-in options (writing down of unsecured debts or converting unsecured debts into equity) are exercised. Funding The government provides guarantees for the DICJ s funding. If losses are incurred, in principle the expenses need to be borne ex post by the financial industry s participants. The government may provide financial support in exceptional cases.

IV Regulatory Regime for Life Insurers in Japan (3) Basic Policy for Financial Monitoring: Revision of Financial Inspections (Publication in Sep 2013) 54 Ex-post snapshot of individual financial institutions Mainly verify whether institutions comply with standards and provisions under laws, regulations and the inspection manual (minimum standard). Track up-to-date information concerning financial institutions and financial markets to deal with any potential risks Ascertain/Analyze reality regarding important theme in cross-industrial basis, identify common issues, consider resolutions, and reflect those consideration into governmental approach. For major financial institutions, conduct monitoring to encourage better business management (best practices) for those institutions. Financial System Monitoring (Macro prudence) Continuously obtain up-to-date information about what is happening or what may happen, by analyzing reporting documents of financial institutions and by interviewing major financial institutions on their business trend. Compare the analysis with macro-economic/market analysis, identify potential risks in financial systems, and if necessary, consider future necessary procedures to take to deal with those risks. Financial Monitoring of Systemically Important Financial Institutions (SIFIs, i.e. the three major financial groups) Establish a SIFIs monitoring team, which examines the three major banks under a uniform point of view by inspection items which are common issues to all the banks (e.g. group governance and overseas expansion) as well as examining practices of foreign SIFIs (horizontal review). Compare practices of institutions, feed back the positioning of each financial institution, and achieve self-improvement of their business management Financial Monitoring of Insurance Companies For major life/general insurance companies, perform horizontal reviews regarding important issues (e.g. ideal business management considering potential of life insurance industry and overseas expansion), taking into account the progress of aging population with lower birthrate, increase in natural disasters, diversification of forms of solicitation.

IV Regulatory Regime for Life Insurers in Japan 55 (4) Changes in Standard Assumed Interest Rate 3.00% 1996-1998: 2.75% 2.50% 2.00% 2001-2012: 1.5% 1.50% 1999-2000: 2.00% 1.00% 0.50% 2013-: 1.0% 0.00% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

IV Regulatory Regime for Life Insurers in Japan 56 (5) International Regulations Regulations on G-SIIs ComFrame Economic value-based solvency regime Foreign Account Tax Compliance Act / OECD Standard for Automatic Exchange of Financial Account Information

V. Recent Industry s Actions

V Recent Industry s Actions 58 1. Initiatives toward Promotion of Consumer Understanding regarding Life Insurance These initiatives are joint projects by and Japan Institute of Life Insurance (JILI) toward the establishment of cross-generational package designed to boost consumer understanding. Education Activities for Students, Free Seminars, and Publications for Consumers below are activities conducted by JILI as part of projects to boost consumer understanding and to provide related information. Information Booklet for the Elderly Note: Distributed to consumer centers/organizations, and used/informed at life insurance study sessions, etc. Free Seminars across the country Offer free seminars for high school students, university students, employees and consumers to boost accurate consumer understanding regarding social security system and private life insurance with a focus on such as how-to-utilize life insurance, life planning, and pension/health/long-term care. S.P/N.A Education Activities for Students Practical lectures on life insurance for students of high school, Publications for Consumers Guidebook on Survivor Security Educational DVD featuring university, junior college and professional training college Guidebook on Medical Security cartoon character, Chibi Summer seminars for high-school home economics teachers Guidebook on Public/Private Pension Maruko-chan Sending instructors to workshops for high-school teachers Guidebook on Long-Term Care Security Educational tools for high schools Basics of Insurance Note: Distributed to all Supplementary educational materials (supplementary Information Booklet on Life Planning elementary schools/public readers/dvd/educational tools) Must Read on Life Insurance and Tax libraries in Japan Essay competition for junior-high students Go to Retirement Life!~what to think in 40s-50s~ Preschool / Elementary Junior-high High College Adult

V Recent Industry s Actions 59 Three Important Stories: Learning with Chibi Maruko-chan Story 1: Realize the importance of money Maruko gets attracted to a mechanical pencil. Does she really want it, though? She learns the importance of putting money to good use through the experience of earning money by helping with housework. Story 2: Spend money with planning The owner of a store called Mimatsu ya injured his leg in an accident. While Maruko worries about his livelihood, he said I ve prepared for it. Besides, Maruko finds that her father is also thinking ofhis life plan. She realizes the importance of spending money with proper planning. Story 3: Prepare for unexpected events Maruko meets staffs of an insurance company. By listening to them about their job, Maruko learns about the importance of preparation for unexpected events and about one of its tools life insurance.

V Recent Industry s Actions 60 2. Launching of New Initiatives by Empowering the Next Generation ~Building a Sustainable and Vibrant Society for the Future~ Empowering Women & Health: For Further Advancement Project in Support of Working Parents with Small Children Awareness-Raising Project for Health Promotion Empowering Peace of Mind: For Greater Security Promotion of efforts to improve the management quality of life insurance companies, such as their services for the elderly Empowering Insurance: For Greater Trust in the Life Insurance Industry Making recommendations for establishing a sustainable social security system and developing better infrastructure to help life insurance industry grow along with the global economy

V Recent Industry s Actions Launching of New Initiatives by ~ Empowering Women & Health ~ Promoting Active Participation by Women Awareness Raising for Health Promotion 61 Bottom up initiatives in the life insurance industry Consider developing guidelines to share and penetrate the philosophy h among the industry Collect and share initiatives of life insurers to promote women s active participation and to support child rearing Bottom-up initiatives in the life insurance industry Collect and share life insurers initiatives, such as social contribution activities for health promotion and health supporting services for their customers Collect and share initiatives of insurers regarding awareness raising for health promotion for their employees Project in Support of Working Parents with Small Children Consider initiatives to contribute to the government s plan to accelerate the elimination of childcare waiting lists Awareness-Raising Project for Health Promotion Consider the national deployment of the project, to contribute to the government s Health Japan 21 initiatives Consider supporting to create environment where Consider nation-wide initiatives to facilitate working mothers do not have to give up their job awareness raising for health promotion due to child rearing. Contribution to Building a Sustainable and Vibrant Society

V Recent Industry s Actions 62 3. Insurance Business Operation in Overseas Germany Daido Life Nurnberger(5%(expected)) Poland Meijiyasuda Life Europa Group(33.46%) Warta Group(30%) South Korea LifeNet Kyobo Lifenet Life(34%) Thailand Nippon Life Bangkok Life(25%) Dai-ichi Life Ocean Life(24%) Meijiyasuda Life Thai Life(15%(expected)) India Nippon Life Reliance Life(26%) Dai-ichi Life Star Union Dai-ichi Life(26%) Indonesia Dai-ichi ichi LIfe PT Panin Dai-ichi Life(40%) Sumitomo Life PT BNI Life(40%) Meijiyasuda Life PT Avrist(29.87%(expected)) Nippon Life PT Asuransi Jiwa Sequis Life 20% (expected)) China Nippon Life Nissay Greatwall Life(50%) Sumitomo Life PICC Life Meijiyasuda Life Founder Meiji Yasuda Life(29.2%) Vietnam Dai-ichi Life Dai-ichi Life Vietnam(100%) Sumitomo Life Bao Viet Holdings(18%) Australia Dai-ichi Lie TAL Dai-ichi Life(100%) USA Nippon LIfe Nippon Life Insurance Company of America(100%) Meijiyasuda Life Pacific Guardian Life(100%) Dai-ichi Life Protective Life Corporation (100% (expected)) * ( ) is ownership rate.

VI. The Life Insurance Association of Japan

VI The Life Insurance Association of Japan 64 1. Overview of Foundation The started as an incorporated association with formal authorization by the authorities concerned on the 7 December 1908. Member 42 Companies (as of October 2014) Company The consists of life insurance companies which are licensed under the Insurance Business Act. (Enrollment is not obligated by the law.) Board Member Representatives of life insurance companies and the association s s full-time executives Number of offices Purpose Main Activities 54 offices The main office in Tokyo and 53 branch offices in all the prefectures. To strive for the sound development of the life insurance industry and the maintenance of its reliability Representing the opinions of life insurance industry Conducting research and taking statistics Development of voluntary guidelines Education Public relations Social contribution Consultation and Alternative Dispute Resolution Operating Life Insurance Network Center

VI The Life Insurance Association of Japan 65 <History> Year Item 1898 The Forum of Japanese Life Insurers was founded. 1905 The Forum of Japanese Life Insurers was reorganized into the Association of Japanese Life Insurers. 1908 The Association of Japanese Life Insurers was authorized as an incorporated association. 1942 The Life Insurance Control Association was founded. The Association of Japanese Life Insurers was renamed the Life Insurance Network, and most of its operations were transferred to the Life Insurance Control Association. 1945 The Life Insurance Council of Japan was founded to take over the operations of the Control Association after it was dissolved. The Life Insurance Network was renamed the Life Insurance Association of Japan (). All the operations of the Life Insurance Network were transferred to the. 2008 The marked the 100th anniversary since its foundation.

VI The Life Insurance Association of Japan 66 Organization Chart: General Meeting Auditors Board of Directors Committees Local Committees Association Secretariat General l Affairs Dept. Public Relations Dept. Administration & Education Dept. Planning Dept. International Affairs Dept. Research Dept. Joint System Office Life Insurance Consultation Office Housing Loan Credit Life Insurance Management Office Information Service Office Life Insurance Consultation Center Arbitration Advisory Committee Arbitration Council

VI The Life Insurance Association of Japan 67 <Organization of Association> There are seven committees under the Board of Directors because the wide range of technical issues including solicitation and conclusion of insurance contract, maintenance and insurance payment, asset management and accounting are required to be discussed. Each committee is looking into its technical issues. The committees consist of representative from all member companies since the committees deal with the issues related to the entire industry. Current Issue Committee Agency Management & Educational Committee Financial Management Committee Group Pension and Insurance Committee Information Systems Committee Working Committee on Planning Working Committee on Agency Management Working Committee on Financial Management Working Committee on Group Pension Insurance Working Committee on Information Systems Working Committee on Legal Affairs Working Committee on Education Working Committee on Group Insurance Working Committee on General Affairs Working Committee on PR Operation Management Committee Working Committee on insurance for supporter of M&PHD Accounting Committee Working Committee on Accounting Actuarial Working Committee Working Committee on Underwriting Working Committee on Contract Maintenance Working Committee on Insurance Payout Working Committee on Medical Affairs

VI The Life Insurance Association of Japan 68 2. Role of (1) Research and study of theories and practices relating to life insurance a. Research on taxation and consumer protection measures relating to insurance b. Research on insurance regulations and supervisions of other countries in order to enhance the infrastructure of life insurance industry in Japan c. Research on matters of laws and accounting relating to life insurance business (2) Representing the Opinions of Life Insurance Industry a. Policy recommendation on tax breaks relating to life insurance contracts and for fulfillment of regulatory reform requests b. Representing the opinions on act amendments proposed by FSA and relevant ministries c. Representing the opinions and submitting recommendations to international organizations such as IAIS d. Representing the opinions on deliberations and exposure drafts of IASB

VI The Life Insurance Association of Japan 69 (3) Developing voluntary guideline In order to fulfil social responsibilities and business roles, the has defined a code of conduct for life insurance companies and their management/employees to follow and provides voluntary guidelines for practical handling and points to consider, to be reflected in their operations. <List of voluntary guideline> For appropriate representation of life insurance products Guidelines for Appropriate Representation of Life Insurance Products Guidelines for System related to Reviewing Materials for Soliciting Life Insurance Products For appropriate insurance payouts Guidelines for Appropriate Insurance Payout Procedures Guidelines for Advising Customers on How to File a Claim Guidelines for Developing Medical Certificates Guidelines for Insurance Claim Procedures on Great East Japan Earthquake For appropriate solicitation it ti Guidelines for Policy Overview Guidelines for Warming Information Guidelines for Pre-contact Documentation Guidelines for the Sales of Life Insurance with Market Risks Guidelines for Appropriate Application or Underwriting of Life Insurance Policies i Targeting Minors as the Insured For personal information protection Procedural Guidelines for Personal Information Protection in the Life Insurance Business Practical Guideline for Life Insurers Security Control Measures to Secure Personal Data Protection

VI The Life Insurance Association of Japan 70 (4) Life Insurance Consultation Center The was designated by the FSA as a designated dispute resolution body based on the Insurance Business Act, and therefore handles complaints and resolves disputes related to life insurance business and foreign life insurance business. In order to conduct those activities, iti the Life Insurance Consultation ti Center was established within the. The Center and its offices provide consultation and receive inquiries or complaints from policyholders or consumers. *Financial ADR system: Alternative conflict resolution procedures in financial sectors. The competent authority shall appoint the dispute resolution organization based on the law (came into force in October 2010) 1) Appropriate Handling of Inquiries and Complaints In the Life Insurance Consultation Center, expert consultants deal with inquiries and complaints from a neutral position. When the Center receives a request to resolve a complaint, it strives to reach an early settlement such as by making requests for a settlement and by mediating settlements with the life insurers involved. <Number of inquiries and complaints> 25,000 20,000 15,000 10,000 5,000 0 6,898 4,362 8,908 10,148 7,616 6,458 7,076 6,623 5,697 5,463 12,966 14,256 11,110 9,989 10,100 8,156 9,593 7,844 7,437 6,083 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 General Inquiries Complaints

VI The Life Insurance Association of Japan 71 2) Operation of Arbitration Council When a customer files a complaint with the Center, the Center arranges the negotiation between the life insurer involved and the customer to reach a settlement. In principle, if they cannot reach a settlement within one month, the Center convenes the Arbitration Council to resolve the dispute. The Arbitration Council consists of 10 members (4 lawyers, 4 consumer advisors and 2 staff of the Life Insurance Consultation Center) and strives to achieve an appropriate resolution of the dispute. Complaint Refusal If not settled Receive complaint Settlement Settlement Arrange discussion Screening of eligibility Verify the facts by reports or hearings Trial Develop and present proposed settlement Not settled Arbitration Council Settlement by award 71 <Number of Filings for Procedures of the Arbitration Council> FY 2008 2009 2010 2011 2012 2013 Number 82 122 172 260 208 202

VI The Life Insurance Association of Japan 72 (5) Common-to-Industry Educational System for Life Insurance Solicitors Under the laws and regulations, tied sales agents and sales representatives at agencies need to be registered with the FSA to sell life insurance products as life insurance solicitors. The administers the General Course Exam to check the knowledge, quality and capacity of examinees required for their registration. The also operates the examination system for the Professional Course, Advanced Professional Course and College Course in order to better meet policyholders needs. In addition, the administers the Variable Life Insurance Sales Qualification Course Exam for insurance solicitors to sell variable life insurance/annuities. Orientation 1 Minimum: 1 day at a branch or other office of an insurer/ agency - Employment - Pre-registration Training Minim. 30 subjects for 8 days, 32 hours Trainings and Exams after being employed 3 Initial 3-month Training Period (In total 45 subjects for 15 days, 60 hours) General Course Exam After passing the exam Registration as Agent with each Regional Finance Bureau 2 Post-registration Training Period Minim. 15 subjects for 7 days, 28 hours OJT (on the job training) for 1 month 1st Year 2nd Year 3rd Year Professional Course Exam Advanced Professional After training for After Course Exam After 2 days,10 hours or more passing passing College Course Exam (In total t 6 subjects) Note: Variable Life Insurance Sales Qualification Exam After training for 2 days, 10 hours or more After passing Registration with the 2 1. In the case of agencies, they will hold a briefing session for business consignment before pre-registration training starts. 2. The registration after passing the General Course Exam will be made at each examinee s Regional Finance Bureau, while the registration after passing the Variable Life Insurance Sales Qualification Exam will be made at the. 3. This is a suggested sample training schedule to acquire sales skills in three years.

VI The Life Insurance Association of Japan 73 (6) Anti-Moral Hazard Measures In order to promote sound management of a life insurance system, the industry is making efforts to prevent moral hazards such as fraud related to hospitalization benefits and fraudulent procurement of insurance money. Main countermeasures are as follows. 1) Policy Data Registration System A policy data registration system was established to help detect those trying to receive insurance claims illegally by enrolling in several insurance policies for short periods. When life insurance companies receive an insurance policy (including riders like death benefit and hospitalization benefit), the relevant data of policyholders may be stored at the registration center within the. Life insurance companies refer to the registered details to judge whether to accept the contract or whether to pay claims for death or hospitalization benefits. 2) Policy Data Inquiry System Life insurance companies and National Mutual Insurance Federation of Agricultural Cooperatives (Zenkyoren) have cooperatively operated the Policy Data Inquiry System aiming to contribute the continuous development of sound life insurance and cooperative system since April 2002. Under the system, the data held by National Mutual Insurance Federation of Agricultural Cooperatives and the data registered in the Policy Data Registration System by the can be cross-referenced. They refer to the registered details to judge whether to accept the contract or whether to pay claims for death or hospitalization benefits. 3) Cross Reference System for Assessing Insurance Claims Upon receiving insurance claims, participating insurance companies and three co-operatives (National Mutual Insurance Federation of Agricultural Cooperatives, National Federation of Workers and Consumers Insurance Cooperatives and Japanese Consumers Co-operative Union) cross-reference other organizations data on policyholders. They then use the information when deciding whether to accept a claim from a policyholder or to terminate or cancel an existing contract.

VI The Life Insurance Association of Japan (7) Others Social Service Activities Activities to Enhance Family Bonds by Reading Picture Books to Children Activities to Enhance Family and Community Bonds through Environmental Education Financial Aid for Child-rearing Support Organization Scholarship Shl hi Program for Pi Privately-funded tl d International ti Students t in Japan Scholarship Program for Education of Care Workers Operating Life Insurance Network Center The life insurance industry established an industry-wide network called the Life Insurance Network Center, or LINC in 1986. This network enables insurers to provide more efficient services and to improve information security in the insurance industry, and also reduces the burden of clerical work at a client company. With several improvements to the network system since its establishment, the Center currently operates the following 12 systems. Inter-network settlement system among member companies Data exchange system on individual policies whose monthly premiums are collected through payrolls Data exchange system on asset-formation insurance Registration systems on medical care insurance Registration system on licensed life insurance solicitors Registration system on policy data Data distribution system on National Pension Fund insurance Data exchange system on life insurance business statistics Data exchange system on joint Employee s Pension Fund Insurance Report Cross referencing system for assessing insurance claims Data exchange system on corporate pension plans among principal companies Statistics collection system on incidence rates including mortality 74

VI The Life Insurance Association of Japan 75 (9) GFIA Name Global Federation of Insurance Associations (GFIA) Foundation The GFIA was established on 9 October 2012 as the first formal representative body for the global insurance industry. Member 38 Associations in each jurisdiction (as of September 2014) Associations *GFIA represent insurers that account for around 87% of total insurance premiums worldwide. *Asian member associations :, GIAJ, KLIA, KNIA, NLIA. Secretariat Mission Located in Brussels (Insurance Europe) Represent member association's interests to international regulatory groups, standardsetters and governments to increase the industry's effectiveness Contribute to an international dialogue on issues of common interest by formalizing contact, cooperation and dialogue among national and regional insurance associations Co-operate with other international organizations Share non-commercially sensitive information and research Provide information on positions taken by the federation

76 Thank you y If you have any question, please feel free to contact me at kokusai@seiho.or.jp