Softbank Finance Corp. and Yamato Mutual Life Insurance Co. announced Friday that they have formed a wholly owned subsidiary to take over failed life insurer Taisho Life Insurance Co. on March 31.

The two companies will each provide 500 million yen, while a consortium of an estimated 10 companies will contribute an additional 5 billion yen in total to Azami Life Insurance Co., which will begin operations April 1, Azami Life President Keiji Nonomiya said.

In July, Yamato Mutual will also turn over its insurance contracts to Azami, paving the way for a merger between the two next April 1, officials said.

This is the first time domestic companies have decided to take on the operations of a failed life insurance company. Other failed insurers have received support from non-Japanese firms. It is also the first time a company not involved in the insurance business -- Softbank Finance -- is trying its hand at taking over a failed life insurer.

Yields promised to Taisho Life's policyholders -- who totaled some 200,000 in August -- will be reduced to 1.0 percent beginning April 1, according to its administrators. Average yields are estimated at 4.05 percent, and the expected cuts may result in a reduction of 89 percent of yield payouts promised for contracts received in 1991 to 1992, when promised yields were as high as 6.25 percent.

Insurance will be paid in full for injuries and deaths arising through the end of March, they added.

The Life Insurance Policyholders Protection Corp. -- the industry's safety-net entity -- will provide 26.2 billion yen to help cover the life insurer's capital deficit of 36.5 billion yen, as of the end of August. That was when Taisho Life failed after the Financial Supervisory Agency, the predecessor of the Financial Services Agency, ordered it to suspend operations after two members of its board were arrested on suspicion of swindling the insurer out of 8.5 billion yen.

After the promised rates are cut, that capital deficit is estimated to fall to 33.2 billion yen. A total of 7 billion yen will be covered by Azami Life from future earnings.

Concerning the severe cuts to Taisho Life policyholders, administrator Hirou Takenouchi indicated that there were no other choices, saying, "We were working in a situation in which the (Taisho Life) collapse was mired in an environment of criminal charges . . . Originally five to six firms came forward (and offered to be the recipient), but if you ask whether all of them remained till the end, the answer is no."

Taisho Life was found to have been suffering from negative spread -- a gap between yields promised to policyholders and return on investments -- of 2 billion yen each year, he added.