Low interest rates, a sluggish stock market and a steady stream of policy terminations continued to squeeze major life insurers, according to results for the 2000 business year released Monday.
All in all, major life insurers reported drops in the balance of outstanding policies held during the 12 months ending March 31.
Nippon Life Insurance Co., the leading insurer, said its underlying “basic profit” for 2000 came to 618.8 billion yen, supported by cost cuts and a drop in benefit payouts due to reduced mortality rates.
This is the first time a Japanese life insurer has reported the basic profit figure in its annual earnings.
The figure represents core business profitability, which is calculated by subtracting extraordinary profits and losses, such as those from liquidation of securities holdings and writeoffs of problem loans, from pretax profit.
The new earnings figure showed that Nippon Life chalked up huge profits after covering so-called “negative spread” — the gap between rates of return guaranteed to policyholders and much lower rates of return on their invested assets.
Nippon Life said it suffered 320 billion yen in negative spread for 2000, which was down some 70 billion yen from the previous year, under a new calculating method applied from the just-ended year.
At Dai-ichi Mutual Life Insurance Co., the flight of individual policyholders slowed 8.5 percent to 20.3 trillion yen, with officials crediting a call center set up to answer customer concerns about the insurer’s financial health. But total balance of policies still fell 1.5 percent to 275 trillion yen.
“I think we did well, considering how this harsh economic situation has caused tightening in household spending,” said Mitsuhiro Ishibashi, Nippon Life’s executive vice president, who forecast growth for fiscal 2002. “Third sector insurance policies (which include nursing care and cancer insurance) are growing, and we will keep creating products that meet this new demand.”
Share price falls during the second half of the business year ate away at the capital base of all insurers.
Asahi Mutual Life Insurance Co. actually saw the number of new policies to individuals grow 20.2 percent to 7.5 trillion yen while its terminated or expired contracts slowed down to an increase of 1.1 percent. But Asahi Mutual also saw its net assets, which includes unrealized losses on the stock market, shrink 45.6 percent to 571 billion yen.
The deterioration of its capital base caused its solvency margin ratio — a gage of an insurer’s financial health — shrink 134.6 points to 543.4 percent.
Mitsui Mutual Life Insurance Co. also saw its solvency margin ratio shrink to 492.7 percent, down 77.3 points. The insurer is slated to receive capital injections in the form of subordinated loans in July that will boost its solvency margin ratio to 569.6 percent.
The industry saw five leading players collapse in the 12 months ending March 31, with the latest three among the largest corporate failures the nation has seen. The spate of collapses has fueled nervousness among the average policyholder.
“We believe the worst (of customer flight) is over,” promised Yoshio Yamamoto, senior managing director at Yasuda Mutual.
But even if insurers manage to weather the adverse economic conditions now, growth is still far away.
The whole industry is suffering from negative spread. The top insurers promised high dividends during the bubble economy — as high as 6.5 percent. After the bubble burst, insurers found themselves earning less on their investments in stock markets and bonds than their promised rates of return.
The industry is at the center of a controversy about whether the companies should be allowed to lower promised dividends.
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