Japan’s two major insurance associations have submitted feedback to the International Association of Insurance Supervisors (IAIS) on its proposed changes to the Individual Insurer Monitoring (IIM) methodology, part of the Global Monitoring Exercise (GME).
The Life Insurance Association of Japan (LIAJ) and the General Insurance Association of Japan (GIAJ) said they support the direction of the reforms but stressed that adjustments must avoid creating instability, double-counting risks, or imposing undue compliance burdens.
The LIAJ expressed support for revising the definition of Level 3 assets but warned that simultaneous changes to both the numerator and denominator of indicators could cause significant swings in assessment scores.
“For the 2025 data, calculate the scores based on the updated definition (to the extent possible) and disclose the methodology for converting scores from the previous definition to the updated one,” it said. “For the 2026 data, calculate the scores based on both the previous and updated definitions to highlight the differences.”
On the introduction of a complexity indicator, the LIAJ agreed in principle but said the approach could lead to risk being counted more than once, particularly in relation to Level 3 assets.
The group asked the IAIS to align any changes with its draft paper on structural shifts in the life insurance sector.
Liquidity assessments were another area of concern. The LIAJ said current metrics do not adequately reflect Japanese market conditions, noting that actual surrender rates in Japan have historically been well below 50%.
It called for lower retail factors, differentiation between protection and savings products, and recognition that insurers could extend surrender payment periods during crises.
The association also requested further disclosure and consultation on the proposed Liquidity Ratio Threshold, haircuts, multipliers, and changes in indicator weighting, arguing that these could affect score continuity.
The GIAJ backed the IAIS’s effort to improve cross-border comparability but cautioned that accounting differences pose challenges.
It noted that unlisted equities are valued at acquisition cost under Japanese rules but at fair value under IFRS, leading to material inconsistencies.
“While some consistency would be desirable from an accuracy perspective, unification is difficult due to differences in accounting standards across jurisdictions and among insurers. Therefore, it is important to note the difficulty of simply comparing the valuation amounts of Level 3 assets resulting from the amendment,” it said.
The GIAJ also said fair value calculations may not be feasible for all insurers and suggested that simplified valuation methods or acquisition cost could be permitted.
It urged the IAIS to ensure reporting requirements do not impose excessive administrative burdens.
On liquidity risk, the GIAJ supported the use of the Insurance Liquidity Ratio (ILR) as a benchmark but cautioned that thresholds and multipliers should be carefully set to avoid score volatility.
The group also suggested that gains and losses from derivative contracts be netted, rather than reported separately, to ease reporting demands.
On broader systemic risk monitoring, the GIAJ agreed that periodic reviews and refinements are necessary.
It stressed, however, that new data requests should follow the principle of proportionality and, where systems are lacking, insurers should be allowed to submit information on a best-effort basis.
Both associations asked the IAIS to clearly communicate its methodologies, provide continuity measures, and give stakeholders further opportunities to comment on technical thresholds and weightings before they are finalised.
They also encouraged simplification of data requirements to help insurers maintain compliance across different jurisdictions.
