Japanese Insurers Feel The Squeeze

June 5, 2000

Japan’s leading life insurers are feeling the effects of increased competition due to deregulation and low Japanese interest rates, reporting falls in premium income and losses stemming from sluggish returns on investments.

The most recent to succumb to the difficult business climate is Chiyoda Mutual Life Insurance Co., Japan’s largest mid-tier life insurer. The company has asked Tokai Bank Ltd for a capital infusion. The bank is reportedly considering the request.

“Chiyoda is in a difficult situation, with its solvency margin ratio falling,” a senior official told reporters at a briefing on the insurer’s earnings for the business year ended March 31.

Chiyoda Life’s solvency margin ratio fell to 263.1 percent as of March 31, from 396.1 percent the previous year. The company said the decline was due largely to losses on domestic shareholdings.

In February, Chiyoda announced a restructuring plan, aiming to cut the number of domestic branches from from 55 to 10, and shedding 800 jobs. Japan’s life insurers have been hit hard in recent years by low returns on invested assets, which often fall short of returns promised to policyholders.

Last week mid-sized insurer Daihyaku Mutual Life Insurance Co became the third Japanese life insurer to fail in three years. And Kyoei Life Insurance, Japan’s 10th largest life assurer, said its solvency margin had also fallen from 343.2 percent at the end of March 1999 to 210.6 percent this year, while the return on investment assets fell from 2.01 pe cent to 1.54 pe cent.

Prudential Insurance Company of America said last week that it would invest $278 million in Kyoei in return for a stake of not more than 20 percent. Tokyo Mutual’s solvency ratio fell from 478.7 percent in 1998-99 to 446.7 percent this year, however its return on investment assets rose from 3.2 per cent to 3.3 percent.

Nichidan Life Insurance, which came under the control of Axa, the French insurance group, earlier this year, saw its solvency ratio rise from 377.5 per cent at the end of March 1999 to 425.9 percent. But its investment return fell from 4.23 per cent to 0.51 per cent.

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