Increased competition saw premium revenue rise only incrementally at Japan’s largest property insurance companies, according to fiscal 2000 earnings reports released Friday.
Pickings were slim in the world’s second-largest nonlife insurance market. Insurance giant Tokio Marine & Fire Insurance Co. saw a 1.9 percent rise in net premium income on a parent-only basis, to 1.3 trillion yen in the year ending March 31.
A low-disaster year coupled with cost-cutting helped the company gain 87.5 percent in net profit, up to 86.4 billion yen.
Meanwhile, Yasuda Fire & Marine Insurance Co. gained 926.2 billion yen in net premium revenue, up 2.4 percent. Its parent net profits grew 17.5 percent to 15.1 billion yen.
The marginal gains in net premium — the equivalent of sales revenue in other industries — have accelerated consolidation in the industry.
The earnings reports come on the eve of consolidations that will divide the market into six groups, reduce the number of players and help the companies weather low investment returns in a low interest-rate environment.
With gross assets worth 7.7 trillion yen, Tokio Marine will dominate the Millea Insurance Group, which will also bring Nichido Fire & Marine Insurance Co., Kyoei Fire & Marine Insurance Co. and Asahi Mutual Life Insurance Co. under a holding company.
This consolidation will occur in two stages — Tokio Marine and Nichido Fire will join in April and the others will join the group by April 2006.
Tallying the parent-only results for the three Millea property insurers, net premium rose a bare 0.8 percent to 1.9 trillion yen during fiscal 2000.
Yasuda Fire will similarly join two smaller nonlife insurers — Nissan Fire & Marine Insurance Co. and Taisei Fire & Marine Insurance Co. — to form Sompo Japan Insurance in April.
Together, the net premium for the three companies comes to 1.3 trillion yen, a 0.9 percent rise from the year before.
Meanwhile, Sumitomo Marine & Fire Insurance Co. and Mitsui Marine & Fire Insurance Co., set to merge in October, announced a combined net premium income of 1.2 trillion yen, up 2.3 percent.
Sumitomo Marine showed a year-on-year rise in its premium income of 2.1 percent, logging 547.4 billion yen. Mitsui Marine reported a similar rise of 2.5 percent in net premium income to 614.2 billion yen.
The merged entity, Mitsui Sumitomo Insurance Co., will have 7.3 trillion yen in assets, making it the No. 2 property and casualty insurer in the country.
As a group, the Millea Insurance Group is the largest, with its three nonlife insurers holding 10.5 trillion yen in assets. Sompo Japan trails with assets of 5.6 trillion yen.
The three groups together command two-thirds of the market, with the larger companies’ gains pulling the groups forward to post gains in net premium income.
“I believe we did well, considering how difficult it has been for the industry as a whole to post gains,” said Shoji Ueno, senior managing director at Tokio Marine.
“We would like to put a stop to the slow results.”
The consolidations aim to help the insurers reduce personnel and operational costs. In theory, this would help lower their expense ratio, or the ratio of insurance sales-linked costs and other costs to net premium revenue.
Tokio Marine, however, only showed a 0.4 percentage point decrease in its expense ratio to 36 percent, while Yasuda Fire fell 1 point to 35.7 percent.
Officials from the two largest property insurers said integration costs and investment in information technology offset reductions in sales offices and personnel.
“We will continue to aggressively reduce our expense ratio,” said Shikegi Nishikawa, managing director of Yasuda Fire.
“But if we cannot absorb (falls in revenue) with cost cuts, this will mean higher premiums for customers.”
The two insurers that will make up Mitsui Sumitomo Insurance, on the other hand, slashed their net expense ratio 2.3 percentage points to 37.7 percent.
This reflects accelerated restructuring efforts, including the offering of incentives to employees to leave the company, officials said.
Tokio Marine, Yasuda Fire and the two insurers that will form Mitsui Sumitomo Insurance are projecting increases in their net premium revenues for fiscal 2001.
Tokio Marine expects premiums to grow to 1.4 trillion yen, with 7 billion yen coming from so-called third-sector insurance products such as cancer and nursing care insurance. Yasuda Fire expects its premium revenues to grow to 965 billion yen, while Mitsui Sumitomo Insurance is projecting revenues of 900 billion yen.
While the three largest groups posted gains in premium income, mid-tier nonlife insurers slipped behind.
Net premium income fell 1.7 percent to 792.8 billion yen for Aioi Insurance Co., which was formed in April through a merger between Dai-Tokyo Fire & Marine Insurance Co. and Chiyoda Fire & Marine Insurance Co..
Net premium income also fell for Nipponkoa Insurance Co., which was created when Nippon Fire & Marine Insurance Co. and Koa Fire & Marine Insurance Co. merged in April. Tallying the performance of the two companies, net premium income fell 0.7 percent from the previous year to 677 billion yen.
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