The insurance industry in Japan
=====================
During the first half of the nineties, like the rest of its economy, and the heydays 80 growing insurance industry in Japan Kaltagot. The massive size of the premium income and asset formation, sometimes comparable with the United States even the mightiest and the reduction of domestic investment opportunities, the Japanese insurance companies to look abroad for investment. Position in the industry a major international investor, from the eighties of the last century, it brought under the scanner analysts around the world.
Global insurance giants tried to set a foothold in the market, and looks forward to the giant size of the market. But the restrictive nature of the Japanese insurance laws have led to intense negotiations, and are sometimes acrimonious, between Washington and Tokyo in the mid-nineties. Bilateral and multilateral agreements that led to coincide with the great explosion of financial reforms and deregulation in Japan.
Based on the results of these talks insurance the United States and Japan in 1994, a series of trade liberalization measures and deregulation since been carried out. But deregulation process was very slow, and more often than not, very selective in protecting the interest of local companies and market share. Although the Japanese economy compared with its counterpart in the United States in size, based on the efficiency of financial markets-sound rules and regulations for economic competitive environment-was conspicuously absent. Institutional structure and different, too, from the rest of the developed countries.
The structure of Keiretsu-group companies with cross holdings in a large number of companies in different industries-a phenomenon unique in Japan. As a result, the stock activity necessary to compel companies to adopt the optimal business strategy for the company was absent. Although initially touted as a model one in the days of prosperity in Japan, the weakness of this system became very clear when I went bubble economic boom that exploded in the nineties. It also works against Japan was their inability to keep up with software development in other parts of the world. The engine of growth in the global economy programs in the last decade, and the underdeveloped countries in this area is facing declining economies in the nineties.
Japan, the world leader in the industry, "bricks and mortar", surprisingly lagged in the economy, "the new world" after the Internet revolution. Now nineties Japan calls the "lost decade" of its economy, which lost in the gloss after three recessions in the last decade. Interest rates strained to historic lows, to thwart the deteriorating economy-to no avail. For insurance companies, which is the lifeblood of the attention that has spread in the investment, and this has wreaked havoc. A few large insurance companies went bankrupt in the face of "negative spread", high senseless asset size. While Japanese insurers have largely escaped the scandals that hit the brethren in the banking and securities industries, they are currently suffering financial difficulties unprecedented, including bankruptcies disastrous.
Institutional weaknesses
The Japanese market is a giant, however, it consists of a few companies. Unlike its counterpart in the United States, competing companies about two thousand ferocity in the life segment, the market consists of Japanese companies only twenty-nine is classified as a domestic and a few foreign entities. The same prevailing in the non-life sector, the situation with the twenty-six local and foreign companies Thirty-one offers its products. So, that consumers are far less than their American counterparts choices in selecting a carrier. There is also less variety on the product side. Every life companies and non-life insurance in Japan featuring performances "plain vanilla." This is more pronounced in the automotive and insurance where, until recently, did not allow premiums to reflect the differential risks, such as, by gender, driving record etc.. Classified drivers in three age groups only for the purposes of determining the premium, while the rates of the United States long have reversed all of these factors and others, as well.
Demand varies for different kinds of products, as well. Japanese insurance products more oriented towards savings. Similarly, despite the availability of many Japanese companies Life Insurance Co., a few types of variable life policies (in the benefits that reflect the underlying value of financial assets and beyond the contract from the insurance company, which insured exposed to market risk), there are few takers for such policies . Japanese Yen 100 = $ 1.00, variable life policies of the Japanese in force as at 31 March 1996, the value of only $ 7.5 Bellion, representing a small percentage of 0.08 life insurance all. On the contrary, American policies were changing life took effect in 1995, an amount worth 2.7 trillion, almost 5 per cent of the total, with many options, such as variable universal life, are available.
Japanese insurance companies have competed in both parts of the industry less than their American counterparts. In an environment in which a small number of companies offer a limited number of products to the market that a new entry in the coordination of price regulation closely, and implicitly restrict competition it would be expected. However, reducing the distinctive factors of Japan as well as the competition.
This means a lack of price competition and product differentiation that the insurance company can seize the business of the company and then to keep them almost indefinitely. US analysts may sometimes pointed out that the relations between the one (group of companies) this is just a pretext. Member of the Mitsubishi group of companies, for example, typically may shop around for the best deal on hundreds or thousands of goods and services it buys. But in the case of non-life insurance, such relative prices would be useless, because all the companies that provide much the same product at the same price. As a result, gives the subsidiary of Mitsubishi Corporation, more often than not, business to Tokyo Marine & Fire Insurance Co., Ltd., a member of one of Mitsubishi for several decades.
On paper, and life insurance premiums were more flexible. However, the role of government in this part of the industry-waving well as in the way that affect the pricing of insurance products. Mail system in the country works, in addition to its own rules to achieve tremendous savings, popularly known as the postal system Kampo Life Insurance. It conducts transactions for Kampo in the windows of thousands of post offices. As of March / March 1995, it was Kampo 84.1 million outstanding policies, or almost one per household, and about 10 per cent of the life insurance market, when measured against the policy in force.
Money invested in Kampo mostly go into a huge fund called the Trust Fund, which, in turn, invest in the many government financial institutions, as well as many units Sameyboblak that are involved in a variety of government-related activities, such as ports and highways. Although the Ministry of Post and "telecommunications" (MPT) bears direct responsibility for Kampo, the Ministry of Finance manages the trust fund. And then, in theory MOF can influence the yields Kampo able to earn and by extension, the premiums that are likely to charge.
Kampo has a number of characteristics that affect the interaction with the private sector. As an institution run by the government, by far less efficient and increase their costs, which makes it different, and what means decreasing market share over time. However, since can not fail Kampo, it has carries a high risk that can bear ultimately taxpayers. This means a market share of an expanding as far as the postal system for life insurance is to reduce its products. While the growth scenario is assumed to prefer MPT, the Finance Ministry is apparently only interested in protecting the insurance companies under the wing of the competition "excessive."
The net effect of these incentives conflicting appearance of Kampo to rein in the premiums charged by insurance companies. If prices rise excessively, then Kampo will acquire an additional stake. In response, the insurance companies may roll back insurance premiums. On the contrary, if the return on investment, or increase the efficiency of reducing insurance premiums in the private sector for basic insurance, Kampo will lose market share, but he adjusts.
The life insurance sector in Japan is also lagging behind their US counterparts in the drafting of the cooperative approach between the companies against threats of anti-fraud activities of choice and individuals. Although the number of companies is much lower in Japan, resulting in mistrust and discord between them isolated approach in dealing with these threats. In the United States, the existence of the care sector entities such as medical information bureau (MIB) works as a first line of defense against fraud and in return the industry saves about $ 1 Bellion annually in terms of a protective effect on the value of the goalkeeper. Late, major Japanese companies are embarking on a similar approach to stop the formation of shared data storage and sharing of data.
Analysts often complain against insurance companies for its reluctance to adhere to the wisdom of international standards concerning the disclosure of financial statements to the investment community and their holders of insurance policies. This is particularly true because the mutual property companies compared to their counterparts, "the public" in the United States. For example, a mutual insurance company in April of life, failed in 1997, overall net assets and profits in recent years, even though it acknowledged the company's president after failing in that the company was insolvent for years.
Foreign participation in the life insurance
Since February 1973, when the American company Life Insurance went (ALICO) First to Japan to participate in the market, and fifteen foreign life insurance companies (with more than 50% foreign capital) are currently in business. However, companies such as the American Family Life (fallow) initially allowed to operate in the third sector, but a "supplement the medical area," such as plans incurable diseases and cancer, which were not attractive to Japanese insurance companies only. Home Business Life Insurance kept out of the reach of foreign carriers. However, the turmoil in the industry in the late nineties left many local companies in severe financial trouble. Schori in their protection, Japan has allowed foreign companies to get those sick and keep it floating.
Continue to foreign operators to enter the Japanese market. As one of the insurance markets to life are the highest in the world, Japan is considered to be of strategic importance, the North as America and the European Union. Consolidation in the Japanese life market, and easy due to the collapse of the local insurance companies and the abolition of the current restrictions, provides global insurance companies with the prime minister opportunities to expand their business in Japan. The total market share of foreign players is gradually increasing, with global insurance companies accounting for more than 5 per cent in terms of premium income at the end of fiscal year 1999, and more than 6 per cent of the individual business in force. These figures are almost twice higher than the previous five years.
In 2000, the group has strengthened AXA base of operations in Japan through the acquisition of Dante's Nippon Life Insurance Co. Ltd., a local second-class insurance with weak financial profile company. To this end, AXA formed the first holding company in the Japanese life sector. Aetna Insurance Company followed the life, the acquisition of a life insurance company in Haifa, while the group bought Winterthur bought Nikos Life Insurance and Prudential UK "Arco Life Insurance." Also newly active in the Japanese market is the Life Insurance Company of Hartford, secure the US-based company known for its business commercial insurance variable, ensuring Cardiff competed in France.
In addition, Manulife century, belonging to the life insurance company inherited manufacturers operations and assets owned life insurance Diiaco Mutual, which failed in May / May 1999. In April / April 2001, took over AIG Insurance Company Life operations Chiyoda life, take precautions Finance Limited life insurance lifelong kiwi. Both Japanese companies submitted for court protection in October / October last.
Foreign arrivals bring with them their reputations as part of the international insurance groups, supported by a favorable global track record and strong financial capacity. And also free of negative margins that have plagued the Japanese insurance companies for a decade. Foreign players are in a better position to improve business opportunities despite the turmoil in the market. Although still several large Japanese insurance companies dominate the market in terms of share, such as business dynamics change existing shift blocks of local insurance companies, including the failed companies, new entrants in accordance with the flight to quality policyholders. List of companies with foreign participation, which is as follows:
Ina Himawari Life Prudential Life Manulife Century Life
Skandia Life GE Edison Life Oba life
Aetna Haifa life life life Nichidan Zurich
Alico Japan life of American family life AXA Nichidan
Prudential compete life LG life Cardiff confirmation
Nikos life
It is expected to be able to prevail over local rivals to a certain extent with respect to the distribution and innovative products, as they can count on the widest experience in the global insurance markets and foreign insurance companies. It will be one of the immediate challenges of foreign insurance companies how to create a big enough franchise in Japan so that they can take advantage of these competitive advantages.
Among them in the life insurance industry?
Apart from the lack of its own operational efficiency, the life insurance sector in Japan is also a victim of the government's policies aimed partly to save banks from financial distress. To keep short-term rates low, "Bank of Japan" encouraged in the mid-nineties on relatively widely spread between short-term rates and long-term. The banks benefited, which tends to push short-term rates on deposits and the rates of long-term shipping loans.
However, it was the same policy, hurting companies life insurance. The insurance customers is relatively high rates on insurance policies of long-term investment type normally. The mean decrease in interest rates that generally yields insurers fell on assets. By late 1997 for the insurance company officials to ensure the rates of return of 4 per cent, while return on assets of a favorable, long-term Japanese government bonds, fluctuated less than 2 per cent.
Insurance companies do not compensate for negative even with the increase in the size of the spread. In fiscal year 1996 tried to get out of this dilemma is to cut off the proceeds of pension investments of some kind, only to witness a huge influx of funds under management to competitors.
To add insult to injury, the insurance companies bear the life part of the cost of cleaning up the mess in the banks' troubled assets. Beginning in 1990, the Ministry of Finance allowed the subordinated debt that Tamer for banks issued. You can count any money that is collected through these tools as part of the capital, making it easier than otherwise to meet the capital / asset ratio requirements in place. This treatment can be logical to say, as long as the owners of this debt, such as shareholders, the last almost stand in line in the event of bankruptcy.
Subordinated debt carries higher interest rates specifically for the higher risk of default. In the early nineties were the insurance companies, the bank revealed Defaults next to impossible and the lure of high returns available, large sums of money to banks and other financial institutions made on the basis of dependency. Smaller firms, perhaps keen to catch up with the larger counterparts, large and private participants. Tokyo was Insurance Company Mutual Life, which occupies ranked 16th in the life insurance industry in Japan on the basis of assets, about 8 percent of its assets secondary such as debt as of March 31, 1997, while she was a pioneer in this industry, "Nippon Life" 3 per cent Just.
The rest, of course, is history. And it began to banks and securities, insurance companies, which also provided companies fail in the mid-nineties. The collapse of Sanyo Securities Co., last fall was precipitated in part by the refusal of life insurance companies to renew a subsidiary of brokerage loans. And he complained about life insurance companies that were sometimes not paid even when the circumstances of the failure of the bank implies that it should be done. For example, the life insurance company Meiji might be said that 35 Bellion yen ($ 291.7 million) in outstanding subordinated debt to Hokkaido Takushoku Bank, Ltd. When the rivers of the World Bank in November. Although the Hokkaido Bank has some good loans that were transferred to the North Pacific Banking Corporation Limited, was not compensation, "Meiji Life" of these assets. It seems that it will have to write off the remaining amount of the entire loan.
Follow the religion is not only part of the bad debt story. The role of insurance companies in nearly every lending on a large scale system, immature collapsed along with the bubble economy in the early nineties. For example, they are lenders Yassin (housing finance companies) and was to participate in the clean up is expensive because the chaos. Moreover, such as banks, insurance companies count on unrealized profits from stock holdings guaranteeing them if they got in trouble. Bought these stocks are relatively high prices, leading to the insurance companies less than the bubble period, at the end of 1997, the decline in stock prices, but every couple of middle-class life (order of magnitude 9 to 16) Insurance companies have net unrealized losses.
What lies ahead
Analysts have identified the following short-term challenges for the sector:
New entrants in the market;
Pressure on income;
Poor asset quality; and capitalization.
The last high-profile failure of many life insurance companies turned the pressure on life companies address these challenges quickly, and ways to identify.
The investment market even worse than expected. And increased interest rates from historically low levels. The Nikkei has fallen since January 2001, and dropped to 9-year low following the terrorist attacks on US territory. Unrealized gains used to provide some protection for most insurance companies, but depending on the adoption of the insurance companies on unrealized gains, the volatility of retained earnings now affect the levels of capitalization and financial flexibility and so on.
Table 1 the main risks facing the Japanese life insurance companies
Business risks Financial risks
Pressure strong earnings weakness of the Japanese economy
Lack of confidence and the policyholder, flying at low quality benefit, and exposure to the vagaries of the local investment market, and overseas
Deregulation, competition has risen poor asset quality
Policyholders safety net undercapitalization debilitating
Accelerate standardization within the life sector, with other financial sectors limited financial flexibility
=====================
Global insurance giants tried to set a foothold in the market, and looks forward to the giant size of the market. But the restrictive nature of the Japanese insurance laws have led to intense negotiations, and are sometimes acrimonious, between Washington and Tokyo in the mid-nineties. Bilateral and multilateral agreements that led to coincide with the great explosion of financial reforms and deregulation in Japan.
Based on the results of these talks insurance the United States and Japan in 1994, a series of trade liberalization measures and deregulation since been carried out. But deregulation process was very slow, and more often than not, very selective in protecting the interest of local companies and market share. Although the Japanese economy compared with its counterpart in the United States in size, based on the efficiency of financial markets-sound rules and regulations for economic competitive environment-was conspicuously absent. Institutional structure and different, too, from the rest of the developed countries.
The structure of Keiretsu-group companies with cross holdings in a large number of companies in different industries-a phenomenon unique in Japan. As a result, the stock activity necessary to compel companies to adopt the optimal business strategy for the company was absent. Although initially touted as a model one in the days of prosperity in Japan, the weakness of this system became very clear when I went bubble economic boom that exploded in the nineties. It also works against Japan was their inability to keep up with software development in other parts of the world. The engine of growth in the global economy programs in the last decade, and the underdeveloped countries in this area is facing declining economies in the nineties.
Japan, the world leader in the industry, "bricks and mortar", surprisingly lagged in the economy, "the new world" after the Internet revolution. Now nineties Japan calls the "lost decade" of its economy, which lost in the gloss after three recessions in the last decade. Interest rates strained to historic lows, to thwart the deteriorating economy-to no avail. For insurance companies, which is the lifeblood of the attention that has spread in the investment, and this has wreaked havoc. A few large insurance companies went bankrupt in the face of "negative spread", high senseless asset size. While Japanese insurers have largely escaped the scandals that hit the brethren in the banking and securities industries, they are currently suffering financial difficulties unprecedented, including bankruptcies disastrous.
Institutional weaknesses
The Japanese market is a giant, however, it consists of a few companies. Unlike its counterpart in the United States, competing companies about two thousand ferocity in the life segment, the market consists of Japanese companies only twenty-nine is classified as a domestic and a few foreign entities. The same prevailing in the non-life sector, the situation with the twenty-six local and foreign companies Thirty-one offers its products. So, that consumers are far less than their American counterparts choices in selecting a carrier. There is also less variety on the product side. Every life companies and non-life insurance in Japan featuring performances "plain vanilla." This is more pronounced in the automotive and insurance where, until recently, did not allow premiums to reflect the differential risks, such as, by gender, driving record etc.. Classified drivers in three age groups only for the purposes of determining the premium, while the rates of the United States long have reversed all of these factors and others, as well.
Demand varies for different kinds of products, as well. Japanese insurance products more oriented towards savings. Similarly, despite the availability of many Japanese companies Life Insurance Co., a few types of variable life policies (in the benefits that reflect the underlying value of financial assets and beyond the contract from the insurance company, which insured exposed to market risk), there are few takers for such policies . Japanese Yen 100 = $ 1.00, variable life policies of the Japanese in force as at 31 March 1996, the value of only $ 7.5 Bellion, representing a small percentage of 0.08 life insurance all. On the contrary, American policies were changing life took effect in 1995, an amount worth 2.7 trillion, almost 5 per cent of the total, with many options, such as variable universal life, are available.
Japanese insurance companies have competed in both parts of the industry less than their American counterparts. In an environment in which a small number of companies offer a limited number of products to the market that a new entry in the coordination of price regulation closely, and implicitly restrict competition it would be expected. However, reducing the distinctive factors of Japan as well as the competition.
This means a lack of price competition and product differentiation that the insurance company can seize the business of the company and then to keep them almost indefinitely. US analysts may sometimes pointed out that the relations between the one (group of companies) this is just a pretext. Member of the Mitsubishi group of companies, for example, typically may shop around for the best deal on hundreds or thousands of goods and services it buys. But in the case of non-life insurance, such relative prices would be useless, because all the companies that provide much the same product at the same price. As a result, gives the subsidiary of Mitsubishi Corporation, more often than not, business to Tokyo Marine & Fire Insurance Co., Ltd., a member of one of Mitsubishi for several decades.
On paper, and life insurance premiums were more flexible. However, the role of government in this part of the industry-waving well as in the way that affect the pricing of insurance products. Mail system in the country works, in addition to its own rules to achieve tremendous savings, popularly known as the postal system Kampo Life Insurance. It conducts transactions for Kampo in the windows of thousands of post offices. As of March / March 1995, it was Kampo 84.1 million outstanding policies, or almost one per household, and about 10 per cent of the life insurance market, when measured against the policy in force.
Money invested in Kampo mostly go into a huge fund called the Trust Fund, which, in turn, invest in the many government financial institutions, as well as many units Sameyboblak that are involved in a variety of government-related activities, such as ports and highways. Although the Ministry of Post and "telecommunications" (MPT) bears direct responsibility for Kampo, the Ministry of Finance manages the trust fund. And then, in theory MOF can influence the yields Kampo able to earn and by extension, the premiums that are likely to charge.
Kampo has a number of characteristics that affect the interaction with the private sector. As an institution run by the government, by far less efficient and increase their costs, which makes it different, and what means decreasing market share over time. However, since can not fail Kampo, it has carries a high risk that can bear ultimately taxpayers. This means a market share of an expanding as far as the postal system for life insurance is to reduce its products. While the growth scenario is assumed to prefer MPT, the Finance Ministry is apparently only interested in protecting the insurance companies under the wing of the competition "excessive."
The net effect of these incentives conflicting appearance of Kampo to rein in the premiums charged by insurance companies. If prices rise excessively, then Kampo will acquire an additional stake. In response, the insurance companies may roll back insurance premiums. On the contrary, if the return on investment, or increase the efficiency of reducing insurance premiums in the private sector for basic insurance, Kampo will lose market share, but he adjusts.
The life insurance sector in Japan is also lagging behind their US counterparts in the drafting of the cooperative approach between the companies against threats of anti-fraud activities of choice and individuals. Although the number of companies is much lower in Japan, resulting in mistrust and discord between them isolated approach in dealing with these threats. In the United States, the existence of the care sector entities such as medical information bureau (MIB) works as a first line of defense against fraud and in return the industry saves about $ 1 Bellion annually in terms of a protective effect on the value of the goalkeeper. Late, major Japanese companies are embarking on a similar approach to stop the formation of shared data storage and sharing of data.
Analysts often complain against insurance companies for its reluctance to adhere to the wisdom of international standards concerning the disclosure of financial statements to the investment community and their holders of insurance policies. This is particularly true because the mutual property companies compared to their counterparts, "the public" in the United States. For example, a mutual insurance company in April of life, failed in 1997, overall net assets and profits in recent years, even though it acknowledged the company's president after failing in that the company was insolvent for years.
Foreign participation in the life insurance
Since February 1973, when the American company Life Insurance went (ALICO) First to Japan to participate in the market, and fifteen foreign life insurance companies (with more than 50% foreign capital) are currently in business. However, companies such as the American Family Life (fallow) initially allowed to operate in the third sector, but a "supplement the medical area," such as plans incurable diseases and cancer, which were not attractive to Japanese insurance companies only. Home Business Life Insurance kept out of the reach of foreign carriers. However, the turmoil in the industry in the late nineties left many local companies in severe financial trouble. Schori in their protection, Japan has allowed foreign companies to get those sick and keep it floating.
Continue to foreign operators to enter the Japanese market. As one of the insurance markets to life are the highest in the world, Japan is considered to be of strategic importance, the North as America and the European Union. Consolidation in the Japanese life market, and easy due to the collapse of the local insurance companies and the abolition of the current restrictions, provides global insurance companies with the prime minister opportunities to expand their business in Japan. The total market share of foreign players is gradually increasing, with global insurance companies accounting for more than 5 per cent in terms of premium income at the end of fiscal year 1999, and more than 6 per cent of the individual business in force. These figures are almost twice higher than the previous five years.
In 2000, the group has strengthened AXA base of operations in Japan through the acquisition of Dante's Nippon Life Insurance Co. Ltd., a local second-class insurance with weak financial profile company. To this end, AXA formed the first holding company in the Japanese life sector. Aetna Insurance Company followed the life, the acquisition of a life insurance company in Haifa, while the group bought Winterthur bought Nikos Life Insurance and Prudential UK "Arco Life Insurance." Also newly active in the Japanese market is the Life Insurance Company of Hartford, secure the US-based company known for its business commercial insurance variable, ensuring Cardiff competed in France.
In addition, Manulife century, belonging to the life insurance company inherited manufacturers operations and assets owned life insurance Diiaco Mutual, which failed in May / May 1999. In April / April 2001, took over AIG Insurance Company Life operations Chiyoda life, take precautions Finance Limited life insurance lifelong kiwi. Both Japanese companies submitted for court protection in October / October last.
Foreign arrivals bring with them their reputations as part of the international insurance groups, supported by a favorable global track record and strong financial capacity. And also free of negative margins that have plagued the Japanese insurance companies for a decade. Foreign players are in a better position to improve business opportunities despite the turmoil in the market. Although still several large Japanese insurance companies dominate the market in terms of share, such as business dynamics change existing shift blocks of local insurance companies, including the failed companies, new entrants in accordance with the flight to quality policyholders. List of companies with foreign participation, which is as follows:
Ina Himawari Life Prudential Life Manulife Century Life
Skandia Life GE Edison Life Oba life
Aetna Haifa life life life Nichidan Zurich
Alico Japan life of American family life AXA Nichidan
Prudential compete life LG life Cardiff confirmation
Nikos life
It is expected to be able to prevail over local rivals to a certain extent with respect to the distribution and innovative products, as they can count on the widest experience in the global insurance markets and foreign insurance companies. It will be one of the immediate challenges of foreign insurance companies how to create a big enough franchise in Japan so that they can take advantage of these competitive advantages.
Among them in the life insurance industry?
Apart from the lack of its own operational efficiency, the life insurance sector in Japan is also a victim of the government's policies aimed partly to save banks from financial distress. To keep short-term rates low, "Bank of Japan" encouraged in the mid-nineties on relatively widely spread between short-term rates and long-term. The banks benefited, which tends to push short-term rates on deposits and the rates of long-term shipping loans.
However, it was the same policy, hurting companies life insurance. The insurance customers is relatively high rates on insurance policies of long-term investment type normally. The mean decrease in interest rates that generally yields insurers fell on assets. By late 1997 for the insurance company officials to ensure the rates of return of 4 per cent, while return on assets of a favorable, long-term Japanese government bonds, fluctuated less than 2 per cent.
Insurance companies do not compensate for negative even with the increase in the size of the spread. In fiscal year 1996 tried to get out of this dilemma is to cut off the proceeds of pension investments of some kind, only to witness a huge influx of funds under management to competitors.
To add insult to injury, the insurance companies bear the life part of the cost of cleaning up the mess in the banks' troubled assets. Beginning in 1990, the Ministry of Finance allowed the subordinated debt that Tamer for banks issued. You can count any money that is collected through these tools as part of the capital, making it easier than otherwise to meet the capital / asset ratio requirements in place. This treatment can be logical to say, as long as the owners of this debt, such as shareholders, the last almost stand in line in the event of bankruptcy.
Subordinated debt carries higher interest rates specifically for the higher risk of default. In the early nineties were the insurance companies, the bank revealed Defaults next to impossible and the lure of high returns available, large sums of money to banks and other financial institutions made on the basis of dependency. Smaller firms, perhaps keen to catch up with the larger counterparts, large and private participants. Tokyo was Insurance Company Mutual Life, which occupies ranked 16th in the life insurance industry in Japan on the basis of assets, about 8 percent of its assets secondary such as debt as of March 31, 1997, while she was a pioneer in this industry, "Nippon Life" 3 per cent Just.
The rest, of course, is history. And it began to banks and securities, insurance companies, which also provided companies fail in the mid-nineties. The collapse of Sanyo Securities Co., last fall was precipitated in part by the refusal of life insurance companies to renew a subsidiary of brokerage loans. And he complained about life insurance companies that were sometimes not paid even when the circumstances of the failure of the bank implies that it should be done. For example, the life insurance company Meiji might be said that 35 Bellion yen ($ 291.7 million) in outstanding subordinated debt to Hokkaido Takushoku Bank, Ltd. When the rivers of the World Bank in November. Although the Hokkaido Bank has some good loans that were transferred to the North Pacific Banking Corporation Limited, was not compensation, "Meiji Life" of these assets. It seems that it will have to write off the remaining amount of the entire loan.
Follow the religion is not only part of the bad debt story. The role of insurance companies in nearly every lending on a large scale system, immature collapsed along with the bubble economy in the early nineties. For example, they are lenders Yassin (housing finance companies) and was to participate in the clean up is expensive because the chaos. Moreover, such as banks, insurance companies count on unrealized profits from stock holdings guaranteeing them if they got in trouble. Bought these stocks are relatively high prices, leading to the insurance companies less than the bubble period, at the end of 1997, the decline in stock prices, but every couple of middle-class life (order of magnitude 9 to 16) Insurance companies have net unrealized losses.
What lies ahead
Analysts have identified the following short-term challenges for the sector:
New entrants in the market;
Pressure on income;
Poor asset quality; and capitalization.
The last high-profile failure of many life insurance companies turned the pressure on life companies address these challenges quickly, and ways to identify.
The investment market even worse than expected. And increased interest rates from historically low levels. The Nikkei has fallen since January 2001, and dropped to 9-year low following the terrorist attacks on US territory. Unrealized gains used to provide some protection for most insurance companies, but depending on the adoption of the insurance companies on unrealized gains, the volatility of retained earnings now affect the levels of capitalization and financial flexibility and so on.
Table 1 the main risks facing the Japanese life insurance companies
Business risks Financial risks
Pressure strong earnings weakness of the Japanese economy
Lack of confidence and the policyholder, flying at low quality benefit, and exposure to the vagaries of the local investment market, and overseas
Deregulation, competition has risen poor asset quality
Policyholders safety net undercapitalization debilitating
Accelerate standardization within the life sector, with other financial sectors limited financial flexibility
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