The Financial Supervisory Agency has ordered Taisho Life Insurance Co. to recapitalize and improve its management after an agency inspection found the small life insurer to be financially weak, industry sources said Saturday.

Taisho Life, based in Tokyo, is the first life insurance company to which the FSA has issued an order for prompt corrective action under the Insurance Business Law.

The FSA found the company's solvency margin, the gauge of an insurer's capability to pay insurance claims, has dropped below 200 percent. An insurer with a solvency margin of less than 200 percent is regarded as financially weak and is issued by the agency a business improvement order.

In response to the FSA's order, Taisho Life is exploring various options, including increasing its capital through the help of its corporate business partners, tying up with a foreign financial institution or restructuring to enhance its profitability, the sources said.

The company's balance sheet has been deteriorating because its return on investment has not grown enough to meet its future insurance payment obligations.

If a solid restructuring plan can be worked out, the FSA appears ready to offer appropriate assistance to Taisho Life, the sources said.

The agency "cannot comment (on this issue) because it is the agency's policy not to disclose information regarding the enforcement of prompt corrective measures," an FSA official said.

The FSA conducted an inspection of Taisho Life last fall, as part of its examination of the entire life insurance industry. Based on what it has found, the agency has concluded it is essential that Taisho Life recapitalize, the industry sources said.

In early February, Taisho Life told the agency that it would plan to raise its capital by between 3 billion yen and 5 billion yen from the current 2.6 billion yen, with the help of corporate clients and affiliates, according to the sources.

But after examining this capital expansion plan, the agency has concluded the firm needs to expand capital further and requires a more concrete implementation plan.

Taisho Life is expected to work out a business restructuring plan shortly.

Taisho Life, one of the smallest domestic life insurers, had total assets of 231.8 billion yen at the end of March 1999. Established in 1913, it operates 56 sales offices and has 1,390 employees, centering in the Tokyo and Osaka metropolitan areas. It is strong on sales of savings-type insurance policies.

In the year that ended in March 1999, it posted a pretax loss of 4.5 billion yen, and its solvency margin at that point stood at 384.6 percent.

So far, prompt corrective measures have been issued to four regional banks. Of them, Hokkaido Bank expanded its capital with the help of local companies and the local government. The bank, as a result, will have access to public funds for further recapitalization later this year.