1. ASIA-PACIFIC FINANCIAL FORUM INSURANCE AND RETIREMENT INCOME WORKSTREAM Policies and Regulations to Promote the Long- term Business Roles of Insurance and Pensions and the Development of Retirement Systems Seattle, July 7 2014 Makoto (Mack) Okubo 大久保 亮 Nippon Life Insurance Company 1

2. To help develop policies/regulations to support long-term business roles of insurance and pensions and development of retirement systems –Helping to develop policy and regulatory frameworks that will enable insurers and pension funds to: effectively provide long-term funding; support financial stability and economic and infrastructure development and; serve the needs of aging society –Seeking to help in identifying and addressing regulatory, accounting, market and operational issues that constrain insurers and pension funds from playing these roles –Participants include experts from the insurance, pensions and financial sector, academics, regulators and regional and international organizations 2 APFF Insurance and Retirement Income Workstream

3. Unintended consequences might occur if banking regulations were copied for insurers  Insurers play an important role as long term investors  Life insurers play an increasing role in the social security system  Diversity needed to support a sound development of the environment Economic-based regime should have a long-term vision If a short-term-minded economic regime were implemented  Significant volatility for long term products  Driven to transfer risks over to customers  Refrain from investing in non-fixed income assets （ Photo – Sydney, Australia) （ Source – APEC Seattle) Regulatory issues 3 （ Photo – Santiago, Chile)

4. Investment-type products Protection-type products Longevity risk Mortality risk “One-size-fits-all” models would not work Different business models by jurisdiction  Consumers’ risk preference  Expected roles of the insurers  State of development of financial markets 4 Regulatory Issues (cont.)

5. Volatility in the balance sheet  Assets-liabilities interaction should be reflected for a wide range of participating contracts sold in the Asia Pacific region  Discount rate should reflect the business model  Short-term fluctuation should be avoided Volatility in the income statement  The (optional) use of OCI for insurance liabilities and corresponding assets Accounting issues 5 The proposed IFRS contains other significant issues for traditional long-duration products (i.e. consistency, complexity, transition requirements, presentation)  Unnecessary complexity should be removed  Economic reality and long-term business model of insurance contracts should be reflected  Metrics should reflect the need of general users （ Photo – Buenos Aires, Argentina)

6. Market issues Underdeveloped long-term capital market Few viable projects that can attract market financing Lack of infrastructure financial instruments Lack of market instruments (i.e. derivative, hedging tools) to manage portfolio risk Constraints on long-term insurance business (both demand side and supply side) Operational issues Weakness in credit rating Lack of experience Uncertainty in legal framework (i.e. creditors rights, resolution) Collaboration with Capital market/FMI/PPP work is the key 6 Market and operational Issues （ Photo – Auckland, New Zealand)

7. A holistic framework to support the long-term roles of insurance and pension industry in the Asia Pacific region APFF Insurance and Retirement Income Work Stream 7 Macro economy Macro economy Sustainable development Sustainable development Insurance coverage Insurance protection Insurance industry Insurance and pension industry Financial stability Financial stability Social security Social security Regulation and accounting Capital market and long-term investment Longevity Solutions

8. Makoto Okubo, Nippon Life Insurance Company Any questions? email to m-okubo@nliinter.com or visit www.insurance-finance.com APFF Insurance and Retirement Income Workstream Issues for the Asia Pacific Region APFF Insurance and Retirement Income Workstream Issues for the Asia Pacific Region 8