The Financial Supervisory Agency ordered Toho Mutual Life Insurance Co. to suspend operations Friday, after the ailing life insurer failed to obtain approval from auditors on a fiscal 1998 earnings report, agency officials announced.
Toho's executives held a board meeting Friday afternoon to decide whether to end operations. The FSA issued the suspension order upon request from Toho, the officials said.
The exact reason why Toho's earnings report was rejected by its auditors was not immediately known, but FSA officials speculated that it was probably related to the firm's massive bad loans.
FSA chief Masaharu Hino told reporters that the agency, based on the Insurance Business Law, will immediately select an administrator who will continue operations and manage the firm's assets.
The administrator will also come up with plans to transfer Toho's business to a third party.
Hino added that an industry safety net established last year will compensate policyholders or take over the existing contracts from Toho.
Toho, struggling from the weight of nonperforming loans and ailing profits, failed to rebuild its health through a joint venture with U.S. nonbank firm GE Capital Services Inc.
Based on the February 1998 agreement, the two firms established a new insurance firm, to which Toho transferred all new contracts.
Japanese life insurance firms in Japan have been hurt by low interest rates in recent years because they have not been able to earn enough on their investments to meet the high fixed returns they had guaranteed policyholders.
Hino said he has not heard of any other life insurers that have had fiscal 1998 reports rejected by auditors. The nation's major and midsize life insurance firms are expected to release their reports next week.