Industry Of Japan Insurance

The large volume of sales and training assets, sometimes comparable to even the most powerful opportunities the United States and limited to domestic investment, led to the Japanese insurance companies to look out for investment. Global giants assurance tried to get a foothold in the market, eyeing the huge market size. Bilateral and multilateral environment that resulted coincided with Big Bang financial reforms and deregulation Japan.

The kieretsu structure - the group of companies with cross-shareholdings in many companies in different industries - is a unique phenomenon in Japan Consequently, shareholder activism to compel companies to adopt the ideal business strategy for company was absent. . Very few large insurance companies went bankrupt face the "negative margin" and the increased volume of non-performing assets.

Institutional weaknesses

The Japanese market is a giant, however, it consists of only a few companies. The same situation prevailed in the non-life sector of twenty-six national and thirty companies and foreign companies offering their products. Both life insurers and non-life Japan are characterized by offers "plain vanilla". Japanese insurance products are more oriented economy. Similarly, although many Japanese life insurance companies offer certain limited types of variable life policies (where benefits reflect the value of the underlying financial assets held by the insurance company, exposing the insured market risk), there are few buyers for such policies. In ¥ 100 = $ 1.00, the Japanese variable life policies in force as of March 31, 1996 had a value of only $ 7.5 billion, representing a 0.08 percent hardly any insurance life. Japanese insurance companies in both parts of the industry have participated in less than their American counterparts. The lack of differentiation of price competition and product implies that an insurance company can pick up the affairs of a company and keep it indefinitely. Consequently, a company of the Mitsubishi group, usually, gives Tokio Marine & Fire Insurance Co., Ltd. companies, Mitsubishi keiretsu member for decades.

On paper, the life insurance premiums have been more accommodating. Postal system of the country works, and its enormous savings system, postal life insurance system popularly known as Kampo. While the growth scenario is probably what MPT prefer, MOF is apparently so interested in protecting the insurance companies under its "excessive" competition wing.

In response, insurers can reverse the premiums. Life insurance industry in Japan also lags behind its US counterpart in the formulation of approaches inter-businesses against adverse selection threats and fraudulent activity by individuals. Analysts often complain against insurance companies for their reluctance to join international prudential standards for disclosure of financial information to the investment community and its policyholders.

Foreign participation in the life insurance

February since 1973, when the American Life Insurance Company (Alico) was the first in Japan to participate in the market, fifteen foreign life insurance companies (with foreign capital of over 50%) are currently active. However, companies such as American Family Life (AFLAC) were first allowed to operate in the third sector, namely medical Supplement area as critical illness plans and cancer plans, which are not attractive for Japanese insurance companies. The traditional life insurance business was kept out of reach of foreign operators. foreign operators continue to enter the Japanese market. As one of the two major life insurance markets in the world, Japan is regarded as strategically important as North America and the European Union. Consolidation in the market of Japanese life, facilitated by the collapse of the national insurance and the ongoing deregulation, provides global insurance companies with excellent opportunities to expand their business in Japan. In 2000, the AXA Group has strengthened its base of operations in Japan through the acquisition of Nippon Life Insurance Co. Ltd Dantai second division of a national insurer with a weak financial profile. To this end, AXA formed the first holding company in the Japanese life sector. Aetna Life Insurance Co. followed suit, acquiring Heiwa Life Insurance Co., while Winterthur Group bought Nicos Life Insurance and Prudential Life Insurance bought UK Orico. As recently active in the Japanese market are Hartford Life Insurance Co., an insurer based in the United States known for its variable insurance and France Cardiff Life Insurance.

In addition, Manulife Century, a subsidiary of Manufacturers Life Insurance Company inherited the business and assets of Daihyaku Mutual Life Insurance Co., which failed in May 1999. In April 2001 AIG Life Insurance Co. has taken over the activities of life Chiyoda and Prudential life Insurance Co. Ltd. Kyoei has taken the life. The two Japanese companies have applied for court protection in October.

Foreign players are better able to optimize business opportunities, despite the market turmoil. Although several large Japanese insurance companies still dominate the market in terms of share, the dynamic is changing as existing trading blocks are changing domestic insurers, including bankrupt companies, newcomers with online theft assured quality.

The list of companies with foreign participation is as follows:

INA Life Himawari
Prudential Life
Manulife Century Life

Skandia life
GE Edison Life
Aoba life

Aetna Life Heiwa
Life Nichidan
Zurich life

Alico Japan
American family life
AXA Life Nichidan

Prudential Life
ING life
CARDIFF Life Insurance

NICOS life

Foreign insurers should be able to prevail over their domestic rivals, to some extent, in terms of innovative products and distribution, where we could enjoy the greatest experience in global insurance markets. What the industry of life insurance?

In addition to its own operational inefficiencies, Japan's life insurance industry is also victim of government policies designed partly to rescue banks in financial trouble. By keeping interest rates low in the short term, the Bank of Japan encouraged the mid-1990s a large enough gap between short rates and long rates. The same policy, however, was detrimental to the life insurance companies. Declining interest rates generally means that yields on the assets of insurance companies have declined. At the end of 1997, officials of the insurance company reported that the guaranteed rate of return averaged 4 percent, while bond yields, has favored the Japanese long-term government assets hovered au below 2 percent.

Insurance companies can not make a negative difference, even with the increased volume. To add insult to injury, the life insurance companies are taking part of the cost of cleaning the mess of non-performing assets of banks. The subordinated debt carries high interest rates, precisely because the default risk is higher. Tokyo Mutual Life Insurance Co., which ranks 16th in the life insurance industry in Japan, on the basis of assets, was about 8 percent of its assets as subordinated debt, March 31, 1997, while life industry leader Nippon was 3 percent.

Last fall was precipitated in part by the refusal of life insurance companies roll subordinated loan brokerage company. For example, Meiji Life Insurance Co. would have had 35000000000 ¥ (291.7 million dollars) of subordinated debt Hokkaido Takushoku Bank, Ltd., when the bank collapsed in November. Recent failures of high level of several life insurance companies have shown the pressure on life insurance companies to meet these challenges with urgency and recognizable form.

Table 1
 
Increased risks for Japanese companies for life insurance

Business risk
 
Financial risks

Weakness of the Japanese economy
 
High pressure gains

The lack of confidence insured, flight to quality
 
Low interest rates, exposure to fluctuations in the home of the foreign investment market

Deregulation, mounting competition
 
Poor quality of assets

Safety net of the insured inadequate
 
Capitalization weakened

Consolidation of the acceleration in the life sector with other financial sectors
 
Limited financial flexibility

Most analysts would probably agree that Japan's life insurers face problems of solvency and liquidity at a time. As Mr. Yasuo Satoh, director of the insurance sector of the program, the financial sector, IBM Japan, said, "The industry needs to change the business model."

Japanese life insurers are actively seeking greater segmentation, while seeking to establish unique strategies, both in life and the lives of non-traditional business. In the long term, Japanese insurers are likely to forge business alliances based on demutualization. Widespread consolidation in Japan's financial markets in the short term will bring a review of the life insurance industry as well. Long-term outlook looks good, given the rate of Japanese high savings population. But in the short term, Japan is about to see some companies succumb to more insurance sector tightens its bottom line with deep reforms and investments and prudent disclosure standards.