The tripartite ruling coalition approved Tuesday an amended bill that would allow life insurers to cut yields guaranteed to policyholders, resulting in a possible cut in payouts, coalition officials said.

The government is scheduled to present the bill to the Diet on Friday after the Cabinet finalizes a set of proposals aimed at revising the Insurance Business Law, government officials said.

The Liberal Democratic Party, the New Conservative Party and New Komeito endorsed the bill prepared by the Financial Services Agency during separate party panel meetings.

The government aims to have the amendment passed during the current Diet session and enacted in July, opening the way for insolvent life insurers to reduce guaranteed yield payments promised to policyholders.

A guaranteed yield is the rate of investment return an insurer promises to earn with premiums collected from policyholders.

Many insurers promised high yields to attract customers during Japan's bubble economy years of the late 1980s. But they have found it hard to earn the returns due to flagging stock prices and record-low interest rates amid the economic slump.

Many insurers have seen their financial positions eroded for years by "negative spreads," in which the returns on their investments have been significantly below the rates of the yields they promised.

The FSA's draft outline initially met opposition from members of the LDP's financial and insurance policy panels who noted it failed to clarify management responsibility for life insurers seeking cuts in yields.

But the LDP lawmakers relented with a new proposal calling for management responsibility to be clarified in a notice for a meeting of policyholders' representatives, together with expected changes in asset holdings after yield cuts are made, sources familiar with the situation said.

Some hardliners within the LDP demanded the revised law specify the way top executives bear the blame, such as by resigning, but the amendment reflects no such opinion, the sources said.

Tatsuo Sato, an LDP panel member, said he will ask Prime Minister Junichiro Koizumi to explain the matter to policyholders.

The governing coalition is likely to come under attack during parliamentary debates as the opposition is expected to turn on the heat in terms of protecting policyholders, who would be forced to accept smaller insurance money payments.

According to the FSA outline, cuts in guaranteed yields would be implemented on the basis of requests from individual life insurers and subject to votes at a meeting of policyholders' representatives.