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Insurance Regulatory Landscape and Key Considerations for M&A Transactions
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Insurance Regulatory Landscape and Key Considerations for M&A Transactions Start Comparison
Who is the main regulator with oversight of insurance companies?

Financial Services Agency (FSA)

Are there foreign ownership limitations for insurance companies? Are there shareholding caps on individuals and/or corporate bodies for insurance companies? If in the affirmative, is this encapsulated within statute or a matter of policy?

No.

Can an insurance company carry on a composite business (i.e., life and non-life)? Is this encapsulated in statute or a matter of policy?

No (a matter of law).

The Insurance Business Act of Japan (IBA), however, allows either type of insurance company to operate other insurance business through a subsidiary, i.e., a life insurance company can have a non-life insurance company as its subsidiary and vice versa.

Are there other conditions imposed by the regulator in doing an M&A transaction?

There are no conditions imposed by the FSA that are peculiar to a foreign investor in connection with M&A of insurance companies.
As a matter of general conditions (not peculiar to a foreign investor) for the approval for investment into an insurance company, the FSA requires the applicant to fulfill the following conditions:

Approval for an "insurance major shareholder"

  • No risk of impairing sound and appropriate management of the insurance company in light of the funds for the acquisition, the purpose of the investment and the status of assets and income, and expenditure
  • Have sufficient understanding of the public nature of the insurance business
  • Have sufficient social credibility

Approval for an "insurance holding company"

  • Have good prospects for income and expenditure
  • Have sufficient knowledge and experience to carry out the business management of the insurance company
  • Have sufficient social credibility
Is dispensation given for fulfillment of these conditions and in what circumstances?

Generally no.

Is there a single presence policy and is it imposed under statute or policy? Is dispensation given and what criteria will the regulator consider?

No.

What approvals are required for a foreign entity to take a stake in an insurer? Is there a distinction between a share deal or an asset deal?

Share deal

If the foreign investor is to constitute an "insurance major shareholder" for the purpose of the IBA, it must obtain the FSA’s approval prior to investing in a Japanese insurance company. Ownership of a 20% (or 15% in certain circumstances) voting shareholding in an insurance company is the trigger threshold for an insurance major shareholder.

If the foreign investor is to acquire the majority shares in the insurance company, and if the value of the acquired shares in the insurance company, together with any other Japanese subsidiaries, exceeds 50% of the total assets of the foreign investor, it must obtain FSA approval to become an "insurance holding company" for the purpose of the IBA prior to the change of control.

Asset deal

If the foreign investor is to acquire the business from an insurance company, it must obtain FSA approval in order to effect the acquisition of the business.

How long will regulatory approvals typically take for a share deal versus an asset deal?

Share deal

It varies on a case-by-case basis. Under the IBA, the FSA should issue an approval for a share transfer, which results in the foreign investor being an "insurance major shareholder," within 30 days.

Asset deal

It varies on a case-by-case basis. The IBA and the enforcement ordinance do not stipulate any standard review period. Practically it could take several months from submission to the FSA to obtain an approval.

How open is the regulator to private equity participation in an insurer?

There is no statutory restriction but may attract additional scrutiny.

Although the IBA does not stipulate any special rules for review of private equity participation, the FSA’s supervisory guidelines for banks mention certain points they will carefully review on an acquisition of shares in a bank by a private equity fund, such as impact on the soundness and sustainability of the bank's business operations. The FSA may take a similar approach to private equity participation in an insurance company.

Is there a financial holding company concept (FHC) or other equivalent status? What are the implications?

Yes, there is an "insurance holding company" concept under the IBA. A company that intends to become an insurance holding company must obtain approval from the FSA. Also, an insurance holding company is subject to various regulations under the IBA as well as supervision by and reporting to the FSA.

Regulations applicable to an insurance holding company include, among others, limitation of scope of business (generally management of its subsidiaries) and submission of business report and other materials regarding status of the business and assets to FSA.

What are the typical modes of distribution for insurance companies?

Sales employees, agency force, direct sales through the Internet, bancassurance and brokers

Is bancassurance a popular mode of distribution? What approvals are required? What are the main parameters in negotiating a bancassurance agreement?

Yes, bancassurance is a popular mode of distribution.

A bank serving as an insurance agent must be registered with the regional financial bureau.

The salient terms are:

  • Remuneration
  • Products
  • Term and renewal
  • Risk allocation
What are the top challenges in closing an insurance M&A transaction (share deal versus asset deal)?

Share and asset deals

  • Approval from the FSA
  • Compliance review of the target company
  • Change of control clause in material agreements (e.g., reinsurance)

Asset deal

  • Approval from the FSA
  • Transfer of all other business undertakings
  • Transfer of employees
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