Government-appointed administrators for Daihyaku Mutual Life Insurance Co. reached a basic agreement with Manulife Financial Corp. of Canada to take over the failed midsize insurer's operations, a life insurance industry association said Friday.

Administrators said they hoped to reach a formal agreement by Jan. 19, when the next Life Insurance Association of Japan board meeting is scheduled to be held, and to prepare to transfer operations to Manulife Financial on April 1, 2001.

Still at issue is Daihyaku's capital deficit, which is expected to have grown due to the deterioration of its assets in the past seven months as talks about its takeover stalled.

Daihyaku went under in May after recording a capital deficit of 45.3 billion yen in fiscal 1999.

The insurer, based in west Tokyo, ran into financial problems as low interest rates prevented the company from earning sufficient returns to pay guaranteed yields to policyholders. Following the deterioration of its financial health, Daihyaku entered a tieup with Manulife Financial in February, transferring its sales networks and rights to undertake new policies to Manulife Century Life Insurance Co., a joint venture firm set up with Manulife.

The alliance, however, failed to dispel public fears and Daihyaku policyholders continued to cancel deals with the company,

Manulife Financial now hopes to further strengthen its presence in Japan by taking over Daihyaku's remaining policyholders, industry sources said.