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Japan quake plan puts US deal at risk

By Michiyo Nakamotoin Tokyo

Published: May 29 2007 03:00 | Last updated: May 29 2007 03:00

Japan risks breaching a trade agreement with the US with plans to change the
country's earthquake reinsurance system to require non-life insurance companies
to increase their share of liability coverage, when that is raised from a
current Y5,000bn to Y6,000bn as proposed.

The Japanese government has held discussions since last August with the
General Insurance Association of Japan, the domestic non-life insurance industry
association, regarding its plans to increase the private sector's share of
liability coverage.

However, foreign life insurance companies, which hold a relatively small
market share of 5 per cent in Japan, were informed of the discussions only two
weeks ago, in breach of a key element of the 1994 US-Japan Insurance
Agreement.

The US-Japan agreement states that the Japanese government "will ensure that
foreign as well as domestic insurance providers and intermediaries are accorded
meaningful and fair opportunities to be informed of, comment on and exchange
views with officials regarding measures relating to or affecting the provision
of insurance in Japan".

However, foreign insurance groups have been surprised by the finance
ministry's proposal to raise the re-insurance coverage to Y6,000bn ($49.2bn,
€36.6bn, £24.8bn) and to shift a large part of the burden on to the private
sector.

The ministry of finance plans to make a decision on the matter "soon",
according to a representative.

Foreign companies are worried that, given the short notice, they will not be
able to figure out the impact on their businesses of the new rules before a
decision is made, as soon as within the next two weeks.

Currently the private sector shoulders 17.6 per cent of the Y5,000bn in
reinsurance under the scheme, with the government putting up the remaining 82.4
per cent.

The proposal is to reduce the government's contribution to 76.8 per cent and
raise the private sector's contribution to 23.17 per cent, when the aggregate
liability is raised to Y6,000bn, according to the General Insurance Association
of Japan. The finance ministry said yesterday no decision had been made on what
the ratio would be.

The plan, which foreign insurers were informed of just two weeks ago, is
potentially in breach of the US-Japan Insurance Agreement, which states "foreign
insurance providers will be accorded access to information by the government of
Japan on a national treatment basis that affords fair, competitive
opportunities".

The finance ministry said yesterday it was not aware that the information had
not been relayed to foreign insurance groups.

"We do not talk to individual companies but to the industry association.
There is no way we would talk to just the domestic insurance companies and not
to international companies," a finance ministry official said.

Foreign non-life insurers formed the Foreign Non-Life Insurance Association
to represent their interests, since the General Insurance Association of Japan
does not admit foreign companies.

However, the finance ministry has not offered "regular meetings with and the
provision of advance information to" the foreign non-life insurance community as
stipulated in the US-Japan agreement.

Copyright The
Financial Times Limited 2007

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