Risk Management Systems
Economic, demographic and other conditions surrounding the life insurance industry business environment are dramatically changing. As a life insurance company, Japan Post Insurance needs to ensure the financial stability and soundness of business operations now and into the future in order to manage precious funds entrusted to us by customers and ensure payment of the sum insured to secure their living in times of need. In particular, as we have a social mission to take part in constantly providing the universal service products of endowment and whole life insurance through the post office network, appropriate risk management is extremely important.
We have formulated the “Risk Appetite Statement” as part of our risk-taking strategies. In addition, we recognize effective risk management according to the various risk profiles of the life insurance business as one of management’s highest priorities. Our Basic Risk Management Policy stipulates fundamental matters that include our basic principle for risk management and risk management systems and techniques, and we implement risk management in accordance with this policy. As our basic principle, we undertake risk management with an aim to achieve a higher capital efficiency and risk-return ratio, while maintaining financial soundness based on management strategies, in addition to avoiding unforeseen losses. Our risk management systems perform comprehensive risk management and risk management by risk category.
Outline of Risk Management Systems
In accordance with the “Basic Risk Management Policy,” we have set up and regularly convene the Risk Management Committee headed by the Chief Risk Officer (CRO), while formulating rules of risk management.
The Risk Management Committee deliberates on risk management policies and matters concerning the establishment and operation of risk management systems as well as on matters concerning the implementation of risk management. This committee also performs appropriate risk management by monitoring and analyzing the status of each risk and other related matters. The CRO submits and reports on important matters to the Executive Committee for discussion.
Also, the CRO controls the Company’s risk management and builds, verifies and upgrades risk management systems in accordance with changes in risk management circumstances and the operating environment. The Risk Management Department is in charge of overall control of risk management and under the direction of the CRO executes affairs concerning building, verifying and upgrading risk management systems. At the same time, it regularly verifies the status of risk management by monitoring, analyzing and managing the state of risk management in sections responsible for performing risk management in each risk category (“risk management sections”).
Each of the Executive Officers in charge of risk management sections operate and upgrade the systems for managing their respective assigned risks by ascertaining the presence, types and profile of risk, as well as the risk management techniques and systems as prescribed by the Basic Risk Management Policy. While operating a mutual checks and balances system with departments of the Head Office and branches in charge of business execution, risk management sections appropriately fulfill their monitoring role and manage their assigned risks in accordance with risk management standards. As investment risk and operational risk have multiple subcategories, we have designated the Risk Management Department for handling comprehensive risk management in conjunction with the risk management sections for respective sub-categories.
In order to strengthen our risk management systems, the Internal Audit Department conducts internal audits and examines the appropriateness and effectiveness of our risk management systems.
In enforcing risk management, we collaborate with the risk management sections of Japan Post Holdings and JAPAN POST INSURANCE SYSTEM SOLUTIONS Co., Ltd. the Company’s subsidiary.
Risk Management Structure
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Comprehensive Risk Management(Enterprise Risk Management (ERM))
We ascertain risk on an overall basis, which encompasses latent significant risks, for any risk we face and compare and contrast various risks with our capital and other areas in managing risk for our overall business.
As our basic principle, based on the characteristics of the life insurance business, we manage company-wide risks by comparing the risk amount with the capital amount on an economic-value basis, in compliance with current solvency margin regulations applicable to insurance companies, with a view to improving capital efficiency while maintaining financial soundness.
In addition, we promote the sophistication of our ERM system through the application of ERM to the management plans and others, in an effort to attain stable profit and sustainable increases in our corporate value.
Implementation of Stress Tests
We implement periodic stress testing to ascertain the impact of an event that has a low but certain probability of occurring and could have a significant effect on the Company.
In establishing stress scenarios we undertake the following:
- We cover all risk categories that could have a significant impact on the Company taking into consideration the Company’s risk profile status.
- Besides historical scenarios that have occurred in the past, we simulate forwardlooking hypothetical scenarios that could occur in the future.
- We consider the impacts on the Company under a combined (comprehensive) stress scenario.
Specifically, we add sub-scenarios (financial market turmoil, mass lapse, etc.) into four main scenarios (a rise in interest rates, a decline in interest rates, the occurrence of a major earthquake and the widespread outbreak of a new strain of influenza).
The results of stress tests are periodically reported to the Risk Management Committee and the Executive Committee to be used in management judgments.
Principal Risk Categories and Definitions
We classify and define types and details of managed risks into the following categories, and have established a management system and rules in accordance with each characteristic and are appropriately carrying out risk management.
|Insurance Underwriting Risk||The risk of losses due to changes in economic conditions, incidence rates of insured events or other factors contrary to the projections made at the time when premiums were set.|
|Investment Risk||The risk of losses arising from fluctuation in the value of assets and liabilities (including off-balance-sheet assets or liabilities).|
|Market Risk||The risk of losses arising from fluctuations in the value of assets and liabilities (including off-balance-sheet assets or liabilities) as well as the risk of losses arising from fluctuations in profits generated by assets and liabilities due to fluctuations in various market risk factors such as interest rates, foreign exchange and stock.|
|Credit Risk||The risk of losses arising when the value of assets (including off-balance-sheet assets) decreases or becomes worthless due to a deterioration in the financial condition of a borrower or counterparty.|
|Real Estate Investment Risk||The risk of losses due to a decline in profitability of real estate caused by factors such as the change of rents, or due to a decrease in the value of real estate itself caused by factors such as changes in market conditions.|
|Funding Risk||The risk of losses due to being forced to carry out transactions at an extremely lower price than normal as a result of a deterioration in cash management caused by factors such as a decrease of premium income following the decline of new policies caused by factors such as worsening financial conditions, an increase in payments of termination refunds following a large amount of policy surrenders and lapses and cash outflows following a significant natural disaster.|
|Market Liquidity Risk||The risk of losses due to being forced to conduct transactions at extremely unfavorable prices compared to normal or being unable to conduct market transactions due to factors including market turmoil.|
|Operational Risk||The risk of losses due to improper business processing, inappropriate behavior by executives and employees improper computer system operations or external events.|
|Processing Risk||The risk of losses due to executives, employees and others neglecting to conduct proper operations, resulting in accidents or engaging in unlawful activities.|
|Computer System Risk||The following types of risk are included:
a) the risk of losses due to system failures or malfunctions, system defects or any other causes.
b) the risk of losses due to unauthorized use of computers.
c) the risk of losses due to delayed computer system development.
|Legal Risk||The risk of losses arising from any legal conflicts associated with our business activities or due to our improper response to the establishment of or revisions to any relevant laws and regulations.|
|Human Risk||The risk of losses due to unequal, unfair or discriminatory actions, in terms of personnel management.|
|Reputational Risk||The risk of losses due to the spread of vague information such as rumors, speculations, reputation, with regard to the Company, and the spread of misunderstandings, misperceptions, exaggerated interpretations, associated with an accident or unlawful acts among policyholders or the mass media.|
|Tangible Asset Risk||The risk of losses due to damage to tangible assets caused by disasters or other events.|
|Outsourcing Risk||The risk of losses due to default of an outsourcing agreement and/or unlawful acts, etc., committed or conducted by an outsourcee (including any re-outsourced party) with regard to an operation outsourced externally.|