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The court-appointed trustee for the defunct Tokyo Mutual Life Insurance Co. has selected the alliance of Taiyo Mutual Life Insurance Co. and Daido Life Insurance Co. as the potential buyer for Tokyo Mutual.

The trustee selected the alliance after examining similar offers for the failed insurer from American International Group and GE Edison Life Insurance Co., an insurance arm of GE Capital Services Corp. of the United States, he said Tuesday.

Tokyo Mutual, a midsize insurer, went belly-up in March after asking the Tokyo District Court to protect its assets from creditor claims. The court granted the plea on March 31.

The reason the trustee appears to have selected the alliance is because it will make it possible for the failed insurer to limit the margins of cuts in its promised yield as well as in its policy reserves, industry sources said.

A promised yield is the rate of return on investments an insurer promises to earn by investing the policyholders’ premiums. The yield is passed on to policyholders in the form of lower premiums. Policy reserves are a pool of money that an insurer builds up by setting aside a certain percentage of the premiums to meet future insurance claims.

Taiyo Mutual and Daido Life earlier announced plans to turn themselves into stock companies, with an eye to forming a joint holding company.

Daido had outstanding insurance and annuity contracts worth 38.99 trillion yen as of March 31, while Taiyo had 15.17 trillion yen. Daido’s fundamental profit, or profit from core business operations, came to 114.2 billion yen. Taiyo’s was 13.9 billion yen.

Tokyo Mutual collapsed on March 23 after it took a string of beatings from policy cancellations and a decision by Daiwa Bank to sever credit lines to the financially troubled insurer.

The setbacks forced it to seek the court bailout under fast-track legislation designed to straighten up failed financial institutions.

It became the third insurer to invoke the law after Chiyoda Mutual Life Insurance Co. and Kyoei Life Insurance Co. collapsed last October.

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