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ACLI Assesses Japanese Postal Life Reform Plan

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The head of the American Council of Life Insurers, Washington, is giving a mixed review to efforts by Japanese Prime Minister Junichiro Koizumi to reform Japan’s Kampo postal life insurance operation.[@@]

The ACLI likes many aspects of the reform effort, but it wants the Japanese government to keep Kampo in check while the reform process is under way, ACLI President Frank Keating said here at a press conference on Japanese reform proposals.

Keating spoke in reaction to a recent move by Koizumi’s cabinet to adopt the “Basic Policy on the Privatization of the Postal Services.” The policy calls for the Japanese government to split Japan’s postal service into 4 separate entities under the control of a single holding company. Separate entities would handle postal services, postal savings, postal life insurance and a group of over-the-counter services.

The Kampo postal life operation is the largest life insurance operation in the world, and the ACLI has joined private Japanese life insurers in condemning the many special privileges it has enjoyed.

The government exempts Kampo from taxes, guarantees Kampo’s policies, frees Kampo from contributing to the policyholder protection fund and applies a looser regulatory regime when supervising Kampo’s operations.

Keating said the ACLI wants the Japanese government to keep Kampo from getting even further ahead of its competitors during the transition period, when it is preparing for privatization.

“We have consistently maintained that Kampo and its successor should not be allowed to introduce any new or modified products, unless and until the competitive playing field has been completely leveled,” Keating said. “In fact, in several places, the ‘Basic Policy’ refers to the expansion of the postal businesses into new areas of business without suggesting that any constraints will be placed on that expansion, apart from the retention of a 10 million yen ceiling as benefits for certain insurance policies ‘for the time being.’”

Keating also expressed concern that Japan might continue to offer Kampo’s private successor, the Postal Insurance Corp., special exemptions from Japan’s Insurance business Law.

The “pure holding company” concept under which the 4 postal businesses would operate might continue to keep the playing field uneven, Keating added.

“A pure holding company can serve as a mechanism for cross-subsidization between its operating businesses, and part of its purpose is to ensure that all components of its group function as a strategic unit,” Keating said. “Such arrangements, if implemented, are likely to distort competition and are prohibited for private-sector competitors.”

Keating also asked about the effects of privatization on insurance policy accounting. The Basic Plan would create a formal separation between the old Kampo policies and the new Postal Insurance policies. But the old and new contracts would be “combined and managed” jointly for each policy holder, and profits and losses from Kampo’s accounts would be transferred to the accounts of Postal Insurance, Keating said. “As a practical matter, this failure to truly separate the old and new policies means that the benefits from privileges inuring to the old policies may flow through to the new postal insurance businesses,” Keating warned.

Keating said the ACLI applauds Prime Minister Koizumi’s privatization efforts but wants the Japanese government to address its concerns.

“These are serious concerns, which we hope and expect will be directly and clearly addressed in the process of the drafting of the privatization legislation and of the system design leading up to the submission of related bills in the coming ordinary session of the Diet early next year,” Keating said.

In the shorter term, Keating said the ACLI has made its concerns clear to U.S. Trade Representative Robert Zoellick. Zoellick’s office has responded positively, Keating said.

Keating said he did not know whether Koizumi and President Bush would discuss the Kampo privatization issue during their upcoming meeting. But “all of these matters have been discussed at the highest levels in the past, and we expect they will be again,” Keating said.


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