SCR Calculator User Manual

Version Last modified 2024-3-21

Japan ESR - Implementation Technicals

Unique Characteristics of Japan ESR as Compared to the ICS

The Japan ESR regime is going to be implemented by 2024/25 and closely resembles the ICS v2.0. The potential differences being contemplated mainly reflect the fact that it is going to be applicable to all insurers, large and small, in Japan, instead of just the largest international players as per the ICS, therefore proportionality and local adaptability are essential:

  • Look-through will not be mandatory for subsidiary stocks.
  • MOCE (Margin-Over-Current-Estimate): the Cost-of-Capital approach will be used instead of the Percentile approach as per the ICS.
  • The principle of proportionality means calculations by smaller regional insurers will be simplified.
  • Long-term Forward Rate will be reconsidered. The real interest rate element is 1.8% in the ICS but 0.9% as per local calibration.
  • The Last Observable Term will be revised because there are 30yrs or longer bonds held by some insurers and the artificial UFR kicking-in too soon will create hedging complexities.
  • Concentration risk charge might be too much in the case of a few highly concentrated portfolios so exemptions might be granted to local, smaller sized insurers.
  • Japan gov and regional bonds are exempt from credit risk because from local perspective these are high quality issues with credible government guarantees.
  • An Equity Symmetric Adjustment, similar to that of Solvency II, is likely to be introduced.
  • Strategic equity and infrastructure equity are likely to receive SII-like favourable capital relief.
The above points, where relevant, are reflected in the SCR Calculator's implementation.

Single Asset Risk Capital

Single Asset risk capital calculation is well-explained using the "Explain this Calculation" button. Differences from the ICS in implemention are described in the last three bullet points above.

Portfolio Interest Rate Risk Aggregation

Yield curve stressing are the same as ICS 2.0.

Portfolio Concentration Risk

Japan-ESR is likely to offer exemptions on concentration risk to small-to-medium local insurers.