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The Financial Supervisory Agency announced Wednesday that it has ordered Daihyaku Mutual Life Insurance Co. to suspend operations — the third collapse in the nation’s life insurance sector.

FSA chief Masaharu Hino told a news conference that it issued the order in response to a request from the midsize life insurer for its operations to be stopped.

Daihyaku decided at a directors’ board meeting held earlier Wednesday that it was no longer possible to continue its business as it fell to a capital deficit of 45.3 billion yen at the end of fiscal 1999, he added.

If other losses not reflected in the firm’s financial statements – such as unrealized losses on the firm’s securities holdings – are included, the effective capital deficit is estimated at 122.2 billion yen, FSA officials said.

The agency will soon appoint a team of administrators, who will look for a firm to take over Daihyaku’s outstanding policies as well as probe into the possible legal responsibility of the insurer’s management.

The company, whose financial condition has worsened in recent years, signed a tieup agreement with Manulife Financial of Canada in February 1999. Under the agreement, Daihyaku transferred its sales networks and rights to undertake new polices to Manulife Century Life Insurance Co., a joint venture firm set up with Manulife.

Since then, Daihyaku’s operations had been limited to maintaining outstanding contracts acquired before the tieup.

But the alliance failed to shake off the insurer’s problems, as policy cancellations have remained rampant amid the lingering fear of collapse among policyholders, FSA officials said.

In August, the FSA started inspecting Daihyaku and the firm was found to have underestimated required loss reserves for its loans and securities holdings, they added.

Daihyaku’s failure marks the third time a Japanese life insurer has gone under, following the April 1997 collapse of Nissan Mutual Life Insurance Co. and the June 1999 failure of Toho Mutual Life Insurance Co.

Hino said that Daihyaku’s solvency margin ratio — a key measure of insurers’ financial health — was negative 190.2 percent at the end of fiscal 1999, far below the 200 percent threshold the nation’s life and nonlife insurers are expected to secure.