Japan’s regulator steps up disclosure duties for life insurers

Japan’s financial watchdog, the Financial Services Agency (FSA), is asking life insurance companies to become more scrupulous investors by adhering to a new stewardship code.Eugenio Montesano Under the terms of the code, which the market authority revised in May, life insurers, asset management companies and trust banks have been asked to publicise specific votes they cast at shareholders’ meetings, or otherwise explain the decision to not disclose their actions. The move “clearly has regional banks in its crosshairs, and life insurers are being pulled into the effort”, a report by the Nikkei Asian Review explained. The FSA wants Japanese life insurers – which are often the big shareholders in regional banks – to step up their oversight and become a driver of reform. It aims to do so by discouraging insurers from having “cosy relationships” with firms they have invested in, and with the local banks in particular.

Need for reform

Life companies will instead be pressed "to monitor management as an institutional investor entrusted with managing assets paid by customers as premiums", the report said. The guidelines are aimed at improving the conduct of Japanese regional banks in light of difficult times expected in the future, as these lenders struggle against a backdrop of narrow lending margins and weaker loan demand from an ageing and waning population, particularly in rural areas.

Nippon Life says no

Nippon Life Insurance was the first to reveal its stance in regards to the new rules. The insurance giant decided against disclosing its votes due to its substantial presence in the stock market. "By spurring short-sighted trading, the disclosure might hamper the mid- to long-term growth of companies," Nippon Life director Hiroshi Ozeki told a general meeting of representatives on July 4.

Opting for disclosure

However, other companies have chosen to comply with the FSA's recommendations. Dai-ichi Life and Sumitomo Life have decided to fully disclose their votes, starting in the autumn. Meiji Yasuda Life is also considering disclosure, initially with special-account investments. The FSA is also urging life insurers to disclose the commissions of insurance sales, among other insurer-specific information. This article was originally published by International Adviser