From the end of fiscal year 2025, reporting by insurance companies in Japan will need to be based on a new regulation to show financial soundness. This solvency regulation incorporates an economic value-based approach, based on the International Capital Standards (ICS) developed by the International Association of Insurance Supervisors. To avoid early corrective actions, companies must have a minimum economic value-based solvency margin ratio (ESR) of 100% under the new framework, versus a solvency margin ratio of 200% before it. This paper offers a comparison of metrics used before and after the revision and discusses the methodology behind the ESR.
Highlights
- ESR calculation: An in-depth description of calculating ESR for life insurance companies under the new regulation (J-ICS), comparing it with ICS and Solvency II.
- Results: ESR on an industry basis as of the end of March 2024.
- Sample calculation: Sub-risks of life insurance—mortality, longevity, morbidity/disability, and lapse risk.
- Summary table: The main differences among J-ICS, ICS, and Solvency II in the ESR calculation.