In the insurance industry’s fifth failure in fiscal 2000, midtier insurer Tokyo Mutual Life Insurance Co. filed for court protection from its creditors Friday after it was denied capital assistance from its main bank, Daiwa Bank.
Tokyo Mutual collapsed under the weight of 980.2 billion yen in liabilities, invoking fast-track legislation aimed at dealing with troubled financial institutions two weeks before its expiry at the end of March. Tokyo Mutual is the third insurer to invoke the legislation and the seventh to fail since World War II.
“It was like a bolt out of the blue,” said Kenichi Nakamura, former president of Tokyo Mutual, expressing his reaction to a phone call relaying Daiwa Bank’s decision Thursday. Nakamura and the insurer’s nine top executives tendered their resignations the following day.
The recent plunges in share prices and a recent flight of policyholders aggravated finances that have been steadily wearing away from falling premium incomes and low investment returns. With unrealized losses of 70.4 billion yen in securities, 30 billion yen in real estate assets and 10 billion yen in loans, the insurer has a negative deficit that could rise to some 34.1 billion yen, Nakamura said.
The failure of the insurer, founded in 1895, affects an estimated 700,000 policyholders, whose payouts on long-term insurance policies will almost certainly be cut, and may further require an injection of public funds held by the industry’s safety net organization, the Life Insurance Policyholders Association.
The number of cancellations soared amid public distrust concerning the financial health of the insurance industry following the failures of midtier insurers Chiyoda Mutual Life Insurance Co. and Kyoei Life Insurance Co. in October, Nakamura said.
To stem the tide, Tokyo Mutual announced plans to boost its shrinking solvency margin — a standard gauge of an insurer’s ability to pay all debts and just claims as they come due — with a capital injection of 30 billion yen from Daiwa Bank.
The insurer also began preparations for a tieup, negotiating with foreign companies, including U.S. insurer American Insurance Group and investment giant GE Capital, and decided to either sell or securitize its headquarters building in Tokyo’s Chiyoda Ward.
Tokyo Mutual’s solvency margin had slid to about 200 in the six months since Sept. 30, when it had a 370 percent margin, Nakamura said. The Financial Services Agency considers a solvency margin of 200 as the minimum indicating financial health.
Tokyo Mutual will now begin a search for a sponsor for its rehabilitation.
“We mean to do this quickly and hope to avoid requiring funds from the Policyholders Association,” said Masaharu Ohashi, who was appointed by the Tokyo District Court as Tokyo Mutual’s administrator.
Insurers are collectively suffering what is known as negative spread, in which rates of return on investments fall below rates of return promised to policyholders.
Chiyoda wins damages
The Tokyo District Court on Friday awarded a combined 7.1 billion yen in damages to Chiyoda Mutual Life Insurance Co., which is restructuring under the corporate rehabilitation law, for losses caused by four former executives.
The court ruling was in accordance with the plaintiff’s claim.
The insurer blamed former Chiyoda chairman Yasutaro Kanzaki, 79, and three other board members for expanding loan portfolios, causing the Tokyo-based company to effectively go bankrupt in October.
Kanzaki served as Chiyoda Mutual president between 1982 and 1996, and then as chairman until January 1999.
After Chiyoda Mutual filed for protection under the rehabilitation law, the company set up a committee to investigate the responsibility of the previous management for its failure.
The insurer’s negative net worth, or its excess of liabilities over assets, is expected to be confirmed soon at 311.9 billion yen, administrators of the company said last week.
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