Viewpoint of The Life Insurance Association of Japan (LIAJ) on JWG

1. Viewpoint of The Life Insurance Association of Japan (LIAJ) on JWG Makoto Okubo On Behalf of The Life Insurance Association of Japan Paris, June 26th 2001, Before the IAIS Accounting Subcommittee

2. What is The Life Insurance Association of Japan (LIAJ)? • Established in 1908 • Purpose • To Strive for the sound development of the life insurance industry and the maintenance of its reliability • Membership • 44 (as of June, 2001) • Main Activities • Representing the opinions of life insurance industry • Conducting surveys, research and taking statistics • Education, Network Center, Public Relations, Consulting and others

3. The LIAJ’ s position on JWG • Disagree to the proposal which means “full recognition of fair value changes of all financial instruments in the income statements”. • A “insurance” project should be maintained and even developed to tune the standards be fit to the insurance business as a whole, not to insurance contracts. • The project should involve people in the practice and in the supervision of insurance industry in order to reflect deeper understanding of the industry. • Opposed to the application of the standards in present forms to life insurers, absent a change in the current proposal to consider specificities of insurance business.

4. Why LIAJ is opposed to the recognition of fair value change in the income statement? • Treatment of fair value change in the same manner as operating gains or losses • is not an appropriate performance representation • Volatility of profit and loss due to fair value fluctuation • Obscures business operation figures, the most important accounting information • Is not consistent with the long term nature of the business • Interferes sound and stable corporate management • Will deprive policyholders and investors of profit opportunities, by forcing insurers to sell out their stock portfolios

5. Why should unique aspects of insurance business be considered in accounting? • Life insurers are more than the firms acquiring and holding insurance contracts • Engaged in a series of risk management, spreading both the amount and timing of risks • Spreading the timing of risks is a focus of the insurance industry • Even under the framework of asset-liability method, it is necessary for life insurance accounting to adopt a system that incorporates a deferral and matching approach based on the spreading of the timing of risks

6. Why should unique aspects of insurance business be considered in accounting? • Insurance is the regulated industry. The focus on policyholders and the claim-paying ability is needed in general-purpose accounting for investors. • Insurance business is conducted more and more on a global basis. However, insurance products are widely diversified, deeply tied to the national and cultural traits. • Introducing fair value accounting would make drastic and definite changes to the existing infrastructure. • Hasty adoption of such standards without careful discussions could result in serious damage to some country’s insurance system, and pose a huge threat to both policyholders and trading partners.