Tokio Marine & Fire Insurance Co. and Nichido Fire & Marine Insurance Co. integrated their operations Tuesday and established a holding company that will eventually cover the Millea Insurance Group, which comprises three nonlife and one life insurer.

Millea Holdings Inc. was set up with startup capital of 150 billion yen. Tokio Marine, the nation’s largest nonlife insurer, and Nichido Fire became its wholly owned subsidiaries.

The insurers are Japan’s first to integrate under a holding-company structure.

The remaining two components of the insurance group — Kyoei Mutual Fire & Marine Insurance Co. and Asahi Mutual Life Insurance Co. — are slated to transform themselves into stock companies and come under the wing of the holding company by 2004.

At a ceremony celebrating the integration, Millea Holdings President Kunio Ishihara said, “We will reform the group’s overall business strategy in a bid to create an innovative insurance group.” Ishihara formerly headed Tokio Marine & Fire.

The consolidation is designed to increase business efficiency and fundraising ability to meet fierce competition in the domestic insurance sector, industry observers said.

Tokio Marine had a strong position in the corporate insurance market, while Nichido Fire’s strength was in services for individual clients.

The realignment of the industry has been accelerating since last year, with life insurers languishing due to growing policy cancellations and negative spreads, and casualty insurers engaging in a fierce price war prompted by the liberalization of premiums.

In the nonlife sector, Sumitomo Marine & Fire Insurance Co. and Mitsui Marine & Fire Insurance Co. merged into Mitsui Sumitomo Insurance Co. on Oct. 1.

Yasuda Fire & Marine Insurance Co. and Nissan Fire & Marine Insurance Co. are scheduled to amalgamate July 1 into Sompo Japan Insurance Inc.

Among life insurers, Meiji Life Insurance Co. and Yasuda Mutual Life Insurance Co. plan to merge in April 2004.

Millea Holdings, which debuted Monday on the Tokyo Stock Exchange’s first section, became a component of the 225-issue Nikkei stock average Tuesday, replacing Tokio Marine, which was delisted March 26 ahead of the launch of the holding company. The Millea Insurance Group was created in September 2000 as Japan’s first comprehensive alliance integrating life and nonlife insurers.

However, the group’s efforts to consolidate its business were dampened somewhat by the failed attempt by Tokio Marine and Asahi Mutual Life to complete the merger in two stages by 2003, a year ahead of schedule.

The two companies said Nov. 13 that Asahi Mutual Life would first sell its sales division to Tokio Marine Life Insurance Co., a wholly owned subsidiary of Tokio Marine & Fire, by last month. The merger would occur by next March.

Asahi Mutual Life President Yuzuru Fujita said at a news conference at that time the move was aimed at quickly integrating the life insurance operations within the group.

However, Tokio Marine and Asahi Mutual Life announced Jan. 31 they had scrapped the early merger plan, mainly due to differences over how new insurance policies would be marketed.

The two companies said they will continue to pursue an overall consolidation program under which the management of Tokio Marine and Asahi Mutual Life will be integrated with the two other companies by 2004 under Millea Holdings.

At a news conference Jan. 31, Tokio Marine President Ishihara said the decline in his company’s stock price following the start of negotiations with Asahi Mutual Life was one of the factors behind the company’s decision to abandon the plan.

Asahi Mutual Life’s Fujita said his company would continue efforts to boost its financial standing and become a stock company in 2003 to join Millea Holdings in 2004.

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