Chairman's Statement (Translation)
released on June 19, 2003
(Jan. 13, 2004

Current Situation

Though the Japanese economy shows some signs of recovery in stock prices and there has been an increase in corporate capital investment, we can not expect quick and substantial economic recovery because there are still so many uncertainties such as currency exchange risks.

Looking to international issues, sadly, two Japanese diplomats who were engaged in post-war reconstruction assistance in Iraq, have been murdered. Though Saddam Hussein, the ex-Iraqi president, has been captured and is in custody, political instability in Iraq is expected to continue. This situation has forced Japanese nationals and corporations to recognize the risks of terrorism.

Mr. Ken Matsuzawa, Chairman
Mr. Ken Matsuzawa, Chairman

Business Results in the First Half of This Year

According to the fiscal half-year financial statement of our 10 member companies released in November, net premium income increased by 4.0 %. This increase was mainly due to the revision of the Compulsory Automobile Liability Insurance (CALI) system enforced on April 1, 2002.* Without the effect of the CALI revision, net premium income would have decreased slightly. Loss ratio during this period was generally flat. Expense ratio decreased by 2.0% points due to the efforts to seek further operational efficiency by each company. At current income levels, each company posted profits following the recent upgrades in stock prices.

Notes

1. The scheme where CALI premium portfolio was reinsured with the government on a 60% quota share basis was abolished on March 31, 2002. As a result, all the CALI premium portfolio is now reinsured with the CALI Reinsurance Pool in which all insurers operating the CALI business in Japan participate.
2. The CALI premiums were raised by 14.6 % on average in fiscal 2002.

Progress of Activities

1. International Issues

(1) Submission of Comments on ED5 Insurance Contracts

The General Insurance Association of Japan submitted comments on the Exposure Draft, ED5 Insurance Contracts released on July 31, 2003 to the International Accounting Standard Board (IASB) on October 31, 2003.

IASB's project on insurance contracts intends to introduce the concept of fair value accounting for insurance liabilities. It is expected to enhance the faithfulness and comparability of financial statements of insurers and usefulness to their policyholders, investors, etc. We believe that a resolution of practical issues such as the reliability of insurance liability measurement, cost-effectiveness, etc. is necessary.

This draft has been designed as an interim standard and will be applied in 2005 when the International Accounting Standard will be imposed on the EU nations and others. It basically permits insurers to use existing accounting practices, and it will not require major changes that may need to be reversed when the Board completes this project.

The Association considers it inappropriate to decide timetable for disclosure of fair value of insurance liability while the standard to measure fair value has not been completed with various practical issues to be discussed. In addition, careful consideration should be given so that the change in accounting practices may not be reversed and may not generate additional system costs when the Board completes the standard. The interim standard should be consistent with other existing accounting standards. With this in mind, we submitted our comments. Points of our comments are as follows.

1. Disclosure of Fair Value (effective as from 2006)
2. Valuation Standard of Bonds Held to Back Insurance Contracts
3. Ban on Accounting Catastrophe Provisions as Liabilities
4. Definition of Insurance Contract

(2) Participating in the Annual Meeting of the IAIS

The 10th International Association of Insurance Supervisors (IAIS) annual meeting was held in Singapore October 2003. The Association participated in the meeting as an observer. The IAIS revised and expanded its Insurance Core Principles and Methodology, offering new guidance for the effective operation of supervisory systems around the world. The IAIS also adopted a standard on the supervision of reinsurers that builds on principles adopted in October 2002. The standard focuses on areas where the supervisory framework can be strengthened. As the IAIS Core Principles and Methodology is reflected in Japanese insurance supervision at a rapid pace, we will actively observe the IAIS activities and submit our comments to them to reflect our views in the Core Principles and Methodology.

(3) International Relationship

The General Insurance Association of Japan and the Korea Non-Life Insurance Association signed a Cooperation Memorandum in Tokyo on November 25, 2003. We hope that this will deepen mutual understanding between the two markets and improve the expertise of the Associations. In response to the advancement of internationalization, the Association has concluded this type of cooperative agreement with 5 associations. They are Federation Francaise des Societes d'Assurances (FFSA) in October 1997, the Association of British Insurers (ABI) in April 2001, Gesamtverband der Deutschen Versicherungs-wirtschaft e. V. (GDV) in May 2001, the Insurance Association of China (IAC) on May 20, 2003 and the American Insurance Association (AIA) on June 10, 2003.

2. Requests and Proposals

(1) Request for Fiscal 2003 Regulatory Reform

The Council for Regulatory Reform which was established under cabinet order, set November as the month to promote receiving the regulatory reform requests from the public. In addition to the 32 reform requests to which the GIAJ submitted to the Council in June 2003, we newly submitted 5 requests including unauthorized cooperatives (Kyosai) problems* to the Council.

Notes

Cooperatives called Kyosai basically cover people with a common interest, such as doctors, teachers, train drivers, etc. providing benefits like funeral expenses with relatively low premiums. Some Kyosai are regulated but others are unregulated and cover people without common interests, like a normal insurance company. So, we asked the Council to subject unregulated Kyosai, which cover people without common interests, to the same legal and regulatory requirements as normal insurance companies. This includes the Insurance Business Law, Financial Services Agency supervision, taxes, and policy reserve requirements.

(2) Request for Fiscal 2004 Tax Reform

The large package of tax revisions for fiscal 2004 which was drawn up by ruling parties, was released. Our requests such as "Elimination of double taxation on received dividends"*, "Improvement of the system for catastrophe reserves"** were adopted and included in the package.

Notes

1: To exempt interest generated by saving premiums accounts of general insurance companies from the deduction of interest on borrowed funds is now exempt from taxes. 5 year extension of this system was approved by the ruling parties and included in the large package of tax revisions.
2: Now, 3% of the net premiums on fire insurance and others are exempt from taxes as catastrophe reserves. This system was approved to extend for 3 years by ruling parties as a provisional measure.

3. Personal Information Protection Law

The Association has discussed how to comply with the Personal Information Protection Law establishing a task force under the Compliance Committee. The task force is going to discuss the interpretation of the Law from the aspect of the general insurance business and compile practical measures by March 2004 and will incorporate the measures in the Association's compliance guidelines by June 2004.

4. Social Issues

(1) Automobile Theft Prevention

The number of cumulative automobile thefts from January to November 2003 reached a record high of about 59,000, up 4.0% over the previous year even though the numbers in October and November decreased over the previous year. (Sources: The National Police Agency)

The Association has strongly promoted following anti-automobile theft activities.

a. Nationwide Anti-Theft Campaign on October 7
The Association set October 7* as Theft Prevention Day and launched an anti-theft campaign all over the nation in order to raise public awareness against these crimes.

Notes

This is a kind of pun. The pronunciation of "October 7" in Japanese is similar to the Japanese word for theft. The Association named October 7 as Theft Prevention Day and conducted a nationwide campaign.

b. Phase 3 of the Automobile Theft Prevention Campaign
The Association started phase 3 of the Automobile Theft Prevention Campaign from November 1, 2003. The aim of the campaign is to raise public awareness about the frequent occurrence of automobile thefts and to give easy and effective automobile theft prevention information to the public such as "Don't walk off and leave your ignition keys inside" and " Don't walk off and leave your valuables inside".

c. Lobbying to Establish Automobile Theft Prevention Councils
The Association has actively participated in the prevention of automobile thefts and insurance related crimes in order to realize a sound and healthy society by cutting off the sources of finance of criminal organizations.
To take pertinent preventive measures in local communities, the Association has been lobbying local police departments to establish Automobile Theft Prevention Councils. We successfully increased the number of Councils from 5 at the end of June 2002, to 39 to date. We exchanged information and opinions with the Councils in Aichi, Gifu, Mie on December 9, and Chiba, Kanagawa and Saitama on December 15. These prefectures have a high incidence of automobile thefts and show an upward trend.

(2) Crime Prevention

The Association publicly solicited true stories of lock-picking burglaries, snatch-and-run, etc, suffered by the public in October 2003. Now, we solicit crime prevention activities by communities under the auspices of the National Police Agency. These stories and activities will be shown on our Web site to which the public has access.

(3) Natural Disasters

The Association announced that claims payment for the Tokachi-oki Earthquake in 2003 reached about 5.7 billion yen* for about 10,000 policyholders as insurance claims on earthquake insurance on dwelling risks. This is the third largest claims payment following the Great Hanshin-Awaji Earthquake (78 billion yen paid out to about 65,000 policyholders) in 1995 and the Geiyo Earthquake (17 billion yen paid out to about 24,000 policyholders) in 2001. Claims payment is one of the most important roles for general insurance companies and is central to their function. Our member companies continuously make efforts for prompt and proper claim payments. The national average dissemination rate* of the Earthquake Insurance on Dwelling Risks remains at low levels of 16.4% (as of March 31, 2003), the Association will further promote earthquake insurance to raise both public awareness and the dissemination rate.

Notes

The dissemination rate = the number of contracts in force / the number of households based on the Basic Resident Registers

5. Customer Service

(1) Round-table Meeting with Counselors of Local Consumer Centers

The Association had round-table meetings with counselors of local consumer centers to hear opinions directly from them. Consumers had some concerns such as insufficient explanation of insurance products when we make a contract with customers and/or revise a contract. We will take action on this information for future business.

(2) Education in Schools

The Association held a general insurance essay contest with the aim of raising students' awareness of security and disaster protection to promote an understanding of general insurance. In fiscal 2003, more than 10,000 applicants took part in the 41st essay contest entitled "Safety and Security in Life". In November, we held a commendation ceremony and presented awards to prizewinners. On October 8, we held experience-based local disaster preparedness lectures at social studies classes in a local elementary school. Through these activities, we would like to be involved in school education to promote an understanding of general insurance. We, the general insurance industry, will continuously conduct our missions proactively to make general insurance more reliable to our customers. We hope for your continued support of the industry.