Tokio Marine Cancels Asahi Merger Plan

February 1, 2002

Japan’s largest insurer, Tokio Marine & Fire Insurance Co. Ltd., has dropped plans to to merge its life insurance units with the country’s 6th largest life insurer, Asahi Mutual Life Insurance.

Asahi, like many Japanese insurers and banks, suffers from loan defaults, an erosion of its capital base due to declining equity values and real estate investments, and, more recently a significant number of policy cancellations. Its capital surplus ratio is dangerously low. Both Standard & Poor’s and Moody’s Investors Service reacted to the news by downgrading their ratings on Asahi form ‘B-‘ to ‘BB-‘ and from ‘B2’ to ‘Caa1’ respectively.

The proposed merger with Tokio Marine would have provided much needed capital stability. When first announced last November Tokio agreed to provide Asahi with several types of interim funding, and expected a definitive deal to be concluded by January 2002. S&P promptly put Tokio “on CreditWatch with negative implications.”

The collapse of the deal was blamed on Asahi’s increasingly precarious capitalization, and the inability of the parties to agree on plans for restructuring its operations, which would have meant significant reductions in its 22,000 marketing agents.

Asahi’s main creditor Dai-Ichi Kangyo Bank indicated that it would continue to support Asahi while it sought a solution to its capital problems. The company still plans to demutualize, and join the Millea Insurance Group, a cooperative alliance which includes Tokio Marine, Nichido Fire & Marine and Kyoei Fire & Marine.

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