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AMB Country Risk Report
August 18, 2015
Our Insight, Your Advantage.
Japan
Country Risk Tier
• The Country Risk Tier (CRT) reflects A.M. Best’s assessment
of three categories of risk: Economic, Political and Financial
System Risk.
CRT-2
• Japan, a CRT-2 country, is home to the world’s third largest
economy. The industries that are dominant in Japan’s export
sector are in advanced manufacturing, which makes the
economy vulnerable to shifts in global demand.
Economic Risk
• A moderate recovery is expected for Japan in 2015 as
stronger consumer spending and exports help boost economic
growth, driven by lower oil prices and a weakening yen. Gross
domestic product (GDP) growth for Japan is expected at 1.0%
and 1.6% for 2015 and 2016 respectively. Inflation for 2015 is
expected to be 1.0%, which is below the Bank of Japan’s (BoJ)
target of 2.0%
Moderate
Low
High
Very Low
Very High
• The countries pictured below represent a great deal of
the world’s economic potential, containing two of the most
populous countries (China #1 and India #2).
Political Risk
Moderate
Iceland
Finland
Greenland
Low
Sweden
High
Norway
Estonia
Isle of Man
Russia
Russia
Latvia
Denmark
Very Low
Lithuania
Very High
Ireland
Belarus
United
Kingdom
Netherlands
Guernsey
Liechtenstein
Czech
Republic
Austria
Switzerland
France
Ukraine
Slovakia
Luxembourg
Jersey
Sakhalin
Poland
Germany
Belgium
Kazakhstan
Republic of
Moldova
Hungary
Slovenia
Financial System Risk
Bosnia & Serbia
Herzegovina
Andorra
Armenia
Albania
Portugal
Azores
Georgia
Macedonia
Spain
Moderate
Gibraltar
Tunisia
Low
Malta
Cyprus
Syria
High
Morocco
Japan
Iran
Kuwait
Libya
Egypt
Saudi Arabia
Western Sahara
Mauritania
Mali
Chad
Niger
Myanmar
India
Taiwan
Northern Mariana Islands
Hong Kong
Laos
Wake Island
Macau
Eritrea
Sudan
Thailand
Yemen
Vietnam
Philippines
Cambodia
Benin
Nigeria
Ethiopia
Equatorial Guinea
Sao Tome & Principe
Somalia
Sri Lanka
Central Africa Republic
Togo
Brunei
Gabon
Congo
Palau
Malaysia
Singapore
Cameroon
Uganda
Kenya
Sumatra
Rwanda
Dem. Republic
Burundi
of Congo
Seychelles
Tanzania
azil
Malawi
Nauru
New Guinea
Indonesia
Zimbabwe
Namibia
Mauritius
Madagascar
Reunion
Swaziland
Lesotho
South Africa
Solomon Islands
Tuvalu
Vanuatu
Mozambique
Botswana
Market Outlooks
Papua
New Guinea
Coral Sea
Islands
Comoros
Zambia
For information on companies followed
Federated States
of Micronesia
Borneo
East Timor
Angola
Marshall Islan
Guam
Dijbouti
Burkina Faso
Ghana
Guinea
Sierra
Cote d'Ivoire
Leone
Liberia
Bhutan
Bangladesh
U.A.E.
Very High
Senegal
Nepal
Qatar
Oman
Gambia
Guinea-Bissau
Pakistan
Bahrain
(Occupied by Morocco)
Cape Verde
South
Korea
China
Afghanistan
Iraq
Israel
North Korea
Tajikistan
Jordan
Algeria
Very Low
Uzbekistan
Turkmenistan
Lebanon
Canary
Islands
s
nd
la
Is
Kyrgyzstan
Azerbaijan
Turkey
Greece
Monaco
ril
Ku
Russia
Bulgaria
Montenegro
Italy
Mongolia
Romania
Croatia
San Marino
Australia
New Caledonia
CRT 1 2 3 4 5
Copyright © 2015 by A.M. Best Company, Inc.
All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.
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Norfolk Island
New Zealand
F
AMB Country Risk Report
Japan
Regional Summary: Eastern Asia
Vital Statistics 2014
• Eastern Asia is home to some of the
world’s largest and most advanced
economies. China (#2 in the world), Japan
(#3) and South Korea (#15) dominate
much of the regional economy as measured
by gross domestic product (GDP) by the
International Monetary Fund in 2014.
• Potential GDP growth is likely to slow,
reflecting weaker productivity gains,
infrastructure bottlenecks in some countries
and the effects of aging populations.
• Vulnerabilities associated with high
debt levels are increasing in the region as
past credit helped finance consumption,
government spending and investment.
Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2013 - 2014)
USD bn
mil
USD
%
%
USD mil
USD mil
%
4616.34
127.1
36,332
-0.1
2.7
371,588
108,174
-3.7
Regional Comparison
Country Risk Tier
CRT-2
CRT-3
CRT-2
CRT-2
CRT-2
CRT-2
Japan
China
Hong Kong
Macau
South Korea
Taiwan
Source: IMF, Axco, Swiss Re and A.M. Best
Economic Growth
Economic Risk: Low
• Japan, an industrialized and advanced
country, is home to the third largest
economy in the world behind those of
the United States and China.
6
Real GDP
CPI Inflation
4
2
• Decades of low growth and heavy
government spending to support the
economy has left Japan with the highest
public debt in the world, at approximately
two and a half times the size of GDP.
0
%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
-2
-4
• A planned consumption tax hike
originally scheduled for October 2015
has been delayed until April 2017. Plans
were delayed after GDP contracted in
the third quarter of 2014. While likely
helping support consumer spending, the
delay will make it more difficult for the
government to clear the deficit by 2020.
-6
-8
Source: IMF World Economic Outlook and A.M. Best
• The effects of a shrinking and ageing
population will be felt by the economy for
many years.There will be fewer workers to
contribute to economic growth or pay taxes.
Additionally, more elderly will lead to greater
expense for healthcare and pensions.
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AMB Country Risk Report
Japan
Political Risk: Low
Political Risk Summary
• The Japanese government is democratic
and advanced, with a long history of stability.
There has been significant turnover in
leadership as the populace expressed its
dissatisfaction with the state of the economy.
Score 1 (best) to 5 (worst)
Japan
World Average
International Transactions
Policy
5
4
Legal System
Monetary Policy
Fiscal Policy
• Current Prime Minister Shinzo Abe has
been in office since December 2012 and
it has been a time of relative stability for
Japanese politics.
Business Environment
• In late 2014, Mr. Abe’s party, the Liberal
Democratic Party (LDP), maintained a
large legislative majority in elections for
the country’s House of Representatives.
3
2
1
Regional Stability
0
Social Stability
Government Stability
• Partly as a result of the consumption
tax increase from 5% to 8% in April 2014,
which had a greater than anticipated
effect on consumer spending, other
economic reforms are likely to continue at
a gradual pace.
Labor Flexibility
Source: A.M. Best
Financial System Risk: Low
GDP Per Capita and Population
for Selected Countries
120,000
1600
GDP Per Capita
Population
1400
100,000
1200
80,000
USD
Millions
1000
60,000
800
600
40,000
400
20,000
• Insurance is regulated by the Financial
Services Agency (FSA). In Japan there
are 38 life insurance companies, 30 nonlife insurance companies and 9 holding
insurance companies.
• The Bank of Japan (BoJ) enacted
additional monetary policy stimulus in
late 2014 in an effort to end the country’s
long bout with deflation.The Central Bank
expanded its asset buying program by as
much as 33%, going from 60-70 trillion yen
a year to 80 trillion yen year, and including
assets, such as stock and real estate funds,
other than government bonds.
200
0
Japan
China
Source: IMF and A.M. Best
Hong Kong
Macau
South Korea
Taiwan
0
• The Japanese government continues to
work to further strengthen supervisory
standards and transparency from their
already strong bases.
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AMB Country Risk Report
Japan
GUIDE TO BEST’S COUnTry rISk TIErS
A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Best’s Credit Ratings. Countries are placed into one of five tiers, ranging from “CRT-1” (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to “CRT-5” (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurer’s financial stability, strength and performance.
A.M. Best’s Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.
Country risk Tiers
Country risk Tier
Definition
CRT-1
Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.
CRT-2
Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.
CRT-3
Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.
CRT-4
Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.
CRT-5
Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.
Country risk reports
A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a country’s Country
Risk Tier assignment. It is not intended to summarize A.M. Best’s opinion on any particular insurance market or the prospects for that market.
Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.
Category of risk
Definition
Economic Risk
The likelihood that fundamental weaknesses in a country’s economy will cause adverse developments for an insurer.
A.M. Best’s assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.
Political Risk
The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the government’s economic policies.
Financial System Risk
Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industry’s level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.
Political risk Summary
To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.
Category
Definition
International Transactions
Policy
Measures the effectiveness of the exchange rate regime and currency management.
Monetary Policy
Measures the ability of a country to effectively implement monetary policy.
Fiscal Policy
Measures the ability of a country to effectively implement fiscal policy.
Business Environment
Measures the overall quality of the business environment and ease of doing business.
Labor Flexibility
Measures the flexibility of the labor market, including the company’s ability to hire and fire employees.
Government Stability
Measures the degree of stability in a government.
Social Stability
Measures the degree of social stability, including human development and political rights.
Regional Stability
Measures the degree of stability in the region.
Legal System
Measures the transparency and level of corruption in the legal system.
Country risk Tier Disclosure
A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Best’s Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Copyright © 2015 by A.M. Best Company, Inc.
Version 091714
Copyright © 2015 by A.M. Best Company, Inc.
All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.
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