The Financial Services Agency's secretariat asked the Financial System Council's insurance working group on 30 October to consider making the government subsidy for failed life insurers permanent. The current provision, created in 2000 and extended six times, runs only to the end of March 2027. A government financial strategy dated 21 July 2026 aims to take a bill to the next ordinary Diet session.
How the backstop is layered
The Life Insurance Policyholders Protection Corporation funds the transfer of a failed insurer's contracts, in principle covering 90% of policy reserves. Its funding has three layers: a pre-funded reserve capped at ¥400bn, completed in March 2022; government-guaranteed borrowing of up to ¥460bn; and, beyond that, a subsidy within the budgeted amount under set conditions. The subsidy has never been used.
The secretariat accepts that near-term need is not necessarily high, given stable insurer finances. It argues that wars, pandemics and other uncertainty justify preparing for tail risk, and that this need will not expire within a fixed period. Permanence comes with conditions: raise the industry-funded layer, using statistical methods, to withstand a considerable change in the economy; state that investment income on the reserve feeds the safety net; and review cost-sharing periodically.
What a stress run shows
The agency's simulation, presented by an FSA counsellor who is also a professor at Waseda University, applied 100,000 market scenarios to insurers' March 2026 finances. Insurers left insolvent were treated as failed, with assets marked to market and policy reserves cut to 90%. Where net assets fell below 30% of their starting level, the model added a 30% mass-lapse shock.
| Confidence level | Frequency | Aid needed |
|---|---|---|
| 99.9% | 1 in 1,000 | ¥1.14tn |
| 99.8% | 1 in 500 | ¥830.2bn |
| 99.5% | 1 in 200 | ¥557.3bn |
| 99% | 1 in 100 | ¥410.5bn |
| 95% | 1 in 20 | Zero |
The Life Insurance Association, which asked for permanence, put the industry's past failure costs at about ¥781.1bn in cumulative aid, all met by industry funding. It cited an average solvency ratio of 215% at March 2025 against a 100% reference level. A working group member, in a written opinion, backed permanence but as an exception, with industry funding first, a larger industry buffer and a stated policy of testing executive responsibility after any failure.
Captive draft terms
The secretariat's second paper sets out draft terms for reinsurance-only captives, which would be created by amending the Insurance Business Act. The draft cuts minimum capital from ¥1bn to about ¥10mn and requires only annual business reports. It says counting parent capital or guarantees toward a simplified solvency standard is under consideration. Tax treatment of reserves would go through the tax revision process. Earlier Tokyo Brief coverage