The Effect on Reducing Insolvency
The Effect on Reducing Insolvency
by Asset Mix of Life Insurance Company
by Asset Mix of Life Insurance Company
Yoshio Omori, Yuji
Yoshio Omori, Yuji
Ide
Ide
,
,
March 21 2002
March 21 2002
Nobuyuki
1.1
1.1
Shift of GDP & Interest
Shift of GDP & Interest
7.5 6.57.3 9.3 13.3 11.9 8.68.8 11.2 5.7 10.2 11.1 11.12.9 0 10.3 4.4 8.48.0 -1.2 3.1 4.04.4 5.35.5 2.82.83.1 2.3 3.84.4 3.0 4.5 6.5 5.35.3 3.1 0.9 0.41.0 1.6 3.5 1.8 -1.1 0.1.85 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0
1956
1961
1966
1971
1976
1981
1986
1991
1996
4.00 5.50 6.00 6.25 5.75 3.75 2.752.00Total Assets (Unit:billion yen) No Life Ins. Company Time of Insolvency 1995 1996 1997 1998 1999 2000 1 Nissan Apr.1997 2,499 2,060 - - - - 2 Toho Jun.1999 4,167 4,509 3,001 - - - 3 Daihyaku May 2000 3,527 3,318 2,762 2,467 - 1,193 4 Taisho Aug.2000 238 233 228 231 204 104 5 Chiyoda Oct.2000 6,442 5,816 5,028 4,359 3,501 - 6 Kyoei Oct.2000 5,763 5,725 5,245 5,080 4,609 4,099 7 Tokyo Mar.2001 1,556 1,468 1,328 1,239 1,095 - Total of Insolvent Life Ins. 24,689 23,132 17,595 13,379 9,411 5,397 Total of traditional Life
Ins.(except Insolvent 7Com)
184,976 160,464
(12.6%)
165,219 167,325 166,955 166,316
1.2
1.2
Shift of Total Assets of Insolvent Life
Shift of Total Assets of Insolvent Life
Insurance Companies
1.3
1.3
Shift of Total Assets of Merger Life
Shift of Total Assets of Merger Life
Insurance companies
Insurance companies
Total Assets (Unit:billion yen)
No
Life Ins.
Company
Time of
Merger
1995
1996
1997
1998
1999
2000
1
Meiji
16,629 16,709 17,045 17,281 16,846 17,469
2
Yasuda
Apr.2004
9,200
9,233
9,474
9,745 10,080 10,256
3
Daido
5,011
5,059
5,346
5,482
5,733
5,900
4
Taiyo
Apr.2004
6,445
6,703
6,825
6,969
7,081
7,266
Total Assets (Unit:billion yen) No Life Ins. Company Time of Insolvency 1995 1996 1997 1998 1999 2000 1 Nissan Apr.1997 2,499 2,060 - - - - 2 Toho Jun.1999 4,167 4,509 3,001 - - - 3 Daihyaku May 2000 3,527 3,318 2,762 2,467 - 1,193 4 Taisho Aug.2000 238 233 228 231 204 104 5 Chiyoda Oct.2000 6,442 5,816 5,028 4,359 3,501 - 6 Kyoei Oct.2000 5,763 5,725 5,245 5,080 4,609 4,099 7 Tokyo Mar.2001 1,556 1,468 1,328 1,239 1,095 - Total of Insolvent Life Ins. 24,689 23,132 17,595 13,379 9,411 5,397 Total of traditional Life
Ins.(except Insolvent 7Com)
184,976 160,464
(12.6%)
165,219 167,325 166,955 166,316
1.4
1.4
Shift of Total Assets of Insolvent Life
Shift of Total Assets of Insolvent Life
Insurance Companies
4% 46% 39% 2% 74% 12% 8% 70% 4% 3% 50% 35%
0%
20%
40%
60%
80%
100%
Traditional Life Ins. Non-Life faction Life Ins. foreign affiliated Life Ins.Insolvent Life Ins.
Cash,Deposits and Savings Call-Loans Securities Loans Real Estates and Movables Others
1.5
1.5
Share of Assets in Life Insurance
Share of Assets in Life Insurance
Company
55%
14%
30%
87%
8%4%
100%
0%
0%
57%
9%
33%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Traditional Life Ins. Non-Life faction Life Ins. foreign affiliated Life Ins. Insolvent Life Ins.Individual
Insurance
Individual
Annuities
Group
Insurance
Group
Annuities
Asset-Formation ins.
& Ann.
Others
1.6
1.6
Share of Liabilities in Life Insurance
Share of Liabilities in Life Insurance
Company
2.Effect of Assets Mix & Product
Mix on Reducing Risk
2.1
2.1
Risk-Return plane & Insolvency-Return
Risk-Return plane & Insolvency-Return
plane
plane
Risk
Return
Risk-Return Plane
Asset Mix
+Product Mix
Product Mix
Insolvency
Return
Insolvency-Return Plane
Asset Mix
+Product Mix
Product Mix
(1)
(2)
10%
(2)
(1)
Fig1.2
Fig1.3
(0.02987,0.0311)
(0.00041,0.0285)
(0.1,0.0311)
(0.1,0.0285)
3.1
3.1
Base Rate of Calculating
Base Rate of Calculating
( Policy Term 15 years, from Age 30 )
Interest
rate
Mortality
Operating
expense rate
2.7%
l996 life table
Expected Rate
P
×
e
Actual Rate
interest rate based on
general probability model
the process of mortality based
on binomial distribution
the process of operating
expense rate based on inflation
rate
(=3% (r
0)
×
0.9)
(10% probability
of Insolvency)
3.2
3.2
Amounts of scheduled payment at
Amounts of scheduled payment at
maturity and at death
maturity and at death
( gross premium = 1 )
Endowment
Special
Endowment
Term
12.24 %
expected
operating
expense rate
Sums
payable at
maturity
11.67 %
12.20 %
S’= 16.232
S’= 13.508
S’= 0
S= 16.232
S= 135.08
S= 697.90
Sums
payable at
death
3.3
3.3
General Probability Model
General Probability Model
a
b
σσσσ
0.5
0.5
0.5
1.0
γγγγ
Invest 1
Invest 2
Invest 3
Inflation
rate
1.0
1.367
1.6545
1.0
1.0
1.0
1.0
1.0
1.0
1.1
1.2
1.0
3.0
3.0
3.0
1.0
0.5
0.5
0.5
0.5
αααα
ββββ
general form
•
dr
= a
(
b
α
- r)dt + r
γσβ
dZ
1.0
ρ
ρ
1.0
Invest 1
Invest 2
Invest 3
Invest 1
Invest 2
Invest 3
Inflation
rate
Inflation
rate
1.0
1.0
1.0
ρ
ρ
1.0
3.4
3.4
Correlation Coefficient (
Correlation Coefficient (
ρ
ρ
)
)
Assume the correlation coefficient (
ρ
) between investment
3.5
3.5
Asset Share Simulation
Asset Share Simulation
2 Probability of insolvency
1 Risk / Return
Probability of insolvency is defined as the probability
that the asset share (at maturity) is below the liability reserve.
* Return is defined as the average of return rate.
* Risk is defined as standard deviation of return rate.
4.1
4.1
Effect of Product Portfolio on
Effect of Product Portfolio on
Reducing Risk
Reducing Risk
Figure 3.3 Effe c t of produc t portfolio on re duc ing ins olve nc y i in ris k- re turn re lations hip j
0.030 0.031 0.032 0.033 0.034 0.035 0.036 0.000 0.002 0.004 0.006 0.008 ris k
4.2
4.2
Effect of Product Portfolio on
Effect of Product Portfolio on
Reducing insolvency
Reducing insolvency
Figure3.4 Effect of product portfolio on reducing ins olvency i in ins olvency- return relations hip j
0.030 0.031 0.032 0.033 0.034 0.035 0.036 0 2 4 6 8 10 12 ins olvency( “)
4.3
4.3
Probability of Insolvency by source of
Probability of Insolvency by source of
profit for Product Portfolio
profit for Product Portfolio
Profit from
all source
Investment
Profit
Mortality
Profit
Expense
Profit
Endowment Special
Endowment
Term
Product
Portfolio
(E:T=7:3)10.0 %
10.0 %
10.0 %
4.4 %
35.5 %
35.1 %
32.0 %
34.2 %
35.7 %
36.1 %
36.2 %
36.3 %
0.0 %
0.0 %
0.0 %
0.0 %
Single Product
5.Structure Analysis of the
5.1
5.1
Correlation Coefficient by Source
Correlation Coefficient by Source
of Profit
of Profit
Correlation Coefficient Endow ment Term Invest Mortality Expense ExpenseMortality Expense Invest Mortality
Endowment Term Invest Mortality Expense Invest 1.000 -0.008 0.665 0.476 0.475 -0.029 1.000 -0.011 -0.006 -0.005 0.856 -0.268 1.000 1.000 -0.034 1.000 -0.027 -0.019 -0.034 1.000 1.000
5.2
5.2
Relation between Sources of Profit and
Relation between Sources of Profit and
Total Profit
Total Profit
Endowment insurance
Term insurance
eac h source of pro fi t eac h source of pro fi t