The Japanese Institute of Certified Public Accountants (JICPA), Japan’s accounting body for CPAs, has opened a public consultation on proposed revisions that could reduce how often life insurers need to recognise paper losses on long-term bond holdings tied to policy liabilities.
The JICPA said its industry-specific committee has published an exposure draft to amend Audit Committee Report No. 21, which sets accounting and audit guidance for “policy reserve-matching bonds” (sekinin junbikin taiō saiken), with comments from the public due by 17 March.
The proposed update is intended to align the guidance with the Accounting Standards Board of Japan’s exposure draft on financial instruments released in October, including the introduction of an expected credit loss (ECL) model.
Under the revisions, reserve-matching bonds will be treated as closer in economic substance to held-to-maturity assets than other securities, reflecting insurers’ intention to collect contractual interest and principal, even if bonds may be sold at times to manage duration targets.
In practice, the draft would keep reserve-matching bonds measured at amortised cost, while making clear that insurers should recognise an allowance based on expected credit losses and follow the financial instruments standards for the calculation approach. It also proposes updated requirements for note disclosures, including information related to the ECL-based allowance.
The move comes as Japan’s biggest life insurers sit on large unrealised losses on Japanese government bonds after yields rose. Nippon Life, Dai-ichi Life, Meiji Yasuda and Sumitomo Life had combined unrealised losses of JPY13.2trn (US$86bn) on Japanese bonds at end-2025, while policy reserve-matching bonds make up the bulk of yen bond portfolios at major players, according to a Bloomberg report.
