Economic Value-Based Solvency Regulation for Life Insurance

This technical report discusses the new economic value-based solvency regulation for life insurance companies in Japan, referred to as J-ICS, which will be implemented from the end of March 2026. The document outlines the background of the current solvency regulation, which was revised in 1996 and has utilized the solvency margin ratio (SMR) as a key indicator of financial soundness. The report details the transition from the SMR to the economic value-based solvency margin ratio (ESR), which has a minimum requirement of 100%. It explains the principles behind the ESR calculation, including the framework, valuation approach, and various risks associated with life insurance, such as mortality, longevity, and market risks. The report also introduces the three pillars approach adopted under J-ICS, which parallels the EU Solvency II framework, emphasizing solvency regulation, internal management, and disclosure. The document is intended for stakeholders in the insurance industry to understand the implications of the new regulation.