The Life Insurance Association of Japan will sell Aoba Life Insurance Co. to Artemis, a holding company of major French retailer Pinault Printemps Redoute, for 25 billion yen, the association announced Friday.
Aoba Life was set up by the industry group in June 1997 with funding from member insurance companies to take over the healthy assets and operations of Nissan Mutual Life Insurance Co., which collapsed in April that year. Aoba collects premiums from Nissan’s policyholders but does not handle new contracts.
The association, Aoba’s sole shareholder, will transfer all its stocks to a subsidiary of the French group on Nov. 30. At the end of March, the insurer had about 1.19 trillion yen in total assets.
The deal, brokered by Morgan Stanley Dean Witter, came seven months after the association announced in February that its negotiations with potential buyers fell through. Artemis’s name had surfaced in media reports during those negotiations.
The deal marks the first time that a failed Japanese financial institution has been sold to a foreign company. Foreign firms have been showing increasing interest in purchasing or bailing out failed or ailing Japanese financial institutions.
Long-Term Credit Bank of Japan, which went bankrupt in October 1997 and is now under state control, is in the final stages of its sellout negotiations. U.S. investing firm Ripplewood Holdings is reportedly leading the race to buy the bank. The Financial Reconstruction Commission is expected to decide on a buyer as early as this month.
The sale of Aoba is expected to pave the way for another failed life insurer to be sold — Toho Mutual Life Co.
Toho Mutual, which collapsed in May under the weight of bad loans, has been taken over by a team of administrators that include representatives from the association. The administrators are now looking for a buyer for the failed midsize insurer.
Many of the nation’s life insurers are on shaky financial ground as they are saddled with massive bad loans as well as contracts from the bubble economy period that promised high yields. The insurers now suffer from what is called “gyaku-zaya,” or negative spreads, in which their actual investment returns underperform promised yields.
In recent years, some insurers have tied up with foreign firms in a last-minute attempt to bail themselves out.
In April 1998, Toho Mutual transferred most of its business to a joint venture with U.S. nonbank firm GE Capital Services Inc.
The deal transferred the rights of attracting new contracts to GE Capital, and Toho was left with outstanding contracts. The agreement, however, could not stop policy cancellations, leading to the firm’s failure in May.
In February, midsize insurer Daihyaku Mutual Life Insurance Co. agreed with Toronto-based Manulife Financial to transfer its business right in a scheme similar to the Toho-GE deal.