Updated as of November 2005

Foreign Affiliates Acquire Stack in Local Market.

Life insurance contract value in force with private life insurance companies in Japan as of the end of March 2004 totaled 1,569 trillion yen, down 2.5 percent from that of FY2003, and down 27.1 percent from 2,153 trillion yen in FY1995. The number of life insurance companies in Japan as of July 2004 was 39. The number was 27 as of FY1985 and 31 as of FY1995.

The total contract value in force with non-life insurance companies in Japan as of December 2003 was 7,170 trillion yen, up 0.8 percent from 7,111 trillion yen in FY2001. These contracts were written by 26 domestic non-life insurance companies, as of December 2003.

For both life and non-life insurance, premium income moderately increased over the last four years, with more or less of 5 percent annual growth. The industry enjoyed higher growth during the latter half of the 1980s until 1991, when the annual growth rate was between 6 and 10 percent. But life insurance contracts peaked in FY1995, then started declining every year, reflecting the difficulty of providing promised dividends due to the sharp decline of interest rates and the start of a deflation cycle.

The Big Bang and the Insurance Industry

In 1997, the Japanese government announced its intention to promote financial system reform, the Japanese version of the so-called "Big Bang," with the aim of revitalizing the Japanese financial market through liberalization.

The Big Bang brought about competition in the financial industry that had hitherto been tightly regulated, and was primary domain of traditional Japanese financial institutions. At the same time, the Big Bang dismantled the borders separating specific sectors of banking, insurance and securities business out of diverse financial activities, and also removed the barriers which protected domestic financial institutions against the inroad by foreign based financial institutions. In the non-life insurance industry, the liberalization of premium rates, which had been fixed, were liberalized in 1997. Until that time, premium rates were set by industry panels under the direction of the government, ruling out price competition, and the types of policies offered were limited. Japanese consumers have since begun to have a broader selection of policies to choose from at more competitive rates.

Up until April 1996, Japanese insurance companies established new subsidiaries, mergers and acquaintances to surmount the regulatory borders separating the types of insurance previously limited to the respective Life and Non-Life sectors. But the amendment enacted in 1996 to the insurance law permitted the industry to offer both life and non-life insurance products. Thus, the number of Japanese life insurers increased from 27, adding to those non-life insurance companies which started to carry life insurance, to 39 as of March 2004.

But as the competition and deflationary economic pressures increased, insurance businesses in Japan, since 2000, have had to restructure and start to affiliate with foreign insurance companies such as Prudential Financial and American International Group, Inc. (AIG).