Kyoei Life Insurance Co. stands to gain up to 30 billion yen from Prudential Insurance Co. of America, which will buy new shares in the firm. The two companies said Thursday that they have signed a memorandum of understanding, which if realized, would see Prudential purchase a minority interest in the midsize life insurer.
Under the proposal, Prudential will invest 20 billion yen this year and possibly 10 billion yen next year through the purchase of the Kyoei shares.
In addition, Prudential will cooperate with Kyoei in insurance. Based on the agreement, Kyoei will sell Prudential 50 percent of the insurance contracts it secures over the next several years, receiving fees from Prudential in advance.
The tieup also calls for the establishment of a joint venture firm, which will market some of the two firms’ insurance and investment trust products. Prudential will provide its expertise in the training of sales staff for the joint venture, which will initially employ several hundred agents.
While Prudential will become the largest single shareholder in Kyoei, it does not have a future merger or takeover in mind, officials said. Kyoei and Prudential Life Insurance Co., Prudential’s Japanese life insurance subsidiary, will remain separate entities, they said, stressing that Prudential will not hold a majority stake in Kyoei.
Kyoei, Japan’s 10th largest life insurer, has a strong customer base among teachers and school personnel. Unusual for a Japanese life insurer, it is a stock-issuing firm rather than a mutual company.
But the company has met with hardships in recent years. Not only has it faced difficulty selling new policies, it has also lost roughly 70 billion yen a year due to yields on investments consistently falling below returns promised to policyholders.
The insurer earned 726.51 billion yen in insurance premiums in fiscal 1998, while paying 931.96 billion yen in insurance payments and in refunds to policyholders who annulled their contracts.
The company’s condition further deteriorated with the recent bankruptcy of Daiichi Mutual Fire & Marine Insurance Co., which Kyoei had close ties with. With the nonlife insurer’s collapse, Kyoei could lose 30 billion yen in loans it extended to Daiichi.
Prudential, the biggest life insurance company in the U.S., meanwhile, opened a Japan unit in 1987. As of the end of March 1999, it had assets of 330 billion yen and its outstanding policies were valued at 10.75 trillion yen.
Goal of 1,000 job cuts
Financially troubled Kyoei Life Insurance Co. has compiled a restructuring plan to cut the number of its employees by 1,000 within three years from fiscal 2000, company sources said Thursday.
Kyoei hopes some of the cuts can be made through voluntarily resignations, the sources said.
It also plans to slash executive salaries by between 25 percent and 35 percent and stop annual wage hikes for titled employees, except for sales personnel, the sources said.
Kyoei, Japan’s 10th largest insurance firm, has a total of about 14,700 employees, including 11,000 sales personnel.
Prudential Insurance Co., the biggest U.S. insurer, which said it will take a controlling stake in Kyoei, is believed to be urging Kyoei to streamline to improve its earnings base.
Kyoei will seek voluntary resignations from office employees who have served continuously for 10 years or longer, employees engaged in sales and employees who analyze insurance contractors.
It is also considering salary reduction of about 10 percent for all office employees.
Kyoei will also scrap or integrate about 570 of its branches and other business units into 350 bases, reshuffle its affiliates and sell off its resort facilities.