Members of the Liberal Democratic Party will set up an informal study group to examine whether life insurers should be allowed to cut the interest rates they guaranteed their policyholders, LDP lawmakers said Thursday.
The controversial idea is being proposed as low interest rates and falling premiums continue to eat away at insurers' profitability in what is known as a "negative spread," in which the yields from companies' investments fail to keep up with those promised to their policyholders.
"Every year, there is a negative spread of 1.5 trillion yen to 1.6 trillion yen in the (domestic) life insurance industry," said lawmaker Tatsuo Sato, who heads the LDP's finance division. "Taking care of this is the responsibility of politics."
Sato said the issue was not one that could be discussed at a leisurely pace and the LDP group will look into the possibility of revising laws on the matter.
Life insurance companies are prohibited from changing rates guaranteed to policyholders under the Insurance Business Law, which was revised in 1995.
"Taking into consideration the gravity of the issue, we will debate the matter thoroughly before it's too late," Sato said.
The study group, which will be set up sometime after the current Diet session closes today, will be attended by executive members of the finance division, he said.
According to financial statements recently released by 10 major life insurance companies in the fiscal first half ending Sept. 30, combined losses from the negative spread between the guaranteed yields and returns on investments are expected to amount to about 1.39 trillion yen by the end of next March.
Meanwhile, some members of the panels, frustrated by the sagging stock market, also reiterated dissatisfaction with the Bank of Japan's decision in August to end its 18-month "zero-interest-rate" policy.