The tortoise, and not the hare, is more comfortable in the climate of Japan’s life insurance sector.
That conclusion could be drawn from American International Group Inc.’s decision to acquire GE Edison Life Insurance Co. before the end of the year. GE Edison is the Japanese life insurance operation of U.S. conglomerate General Electric.
“We’re not out in the market looking to buy companies just to get bigger,” Donald Kanak, president and CEO of AIG’s operations in Japan and Korea, said at a news conference Thursday in Tokyo.
“We believe in organic growth. Tying closer relations with our customers is the best method for growth,” he added.
The deal, formally announced Thursday, brings to an abrupt end GE’s five-year foray into Japan’s life insurance market. It also encapsulates GE’s and AIG’s widely divergent strategies in Asia following the Sept. 11, 2001, terrorist attacks.
The acquisition will result in the nation’s sixth-largest life insurance group in terms of premium income and is seen as a direct threat to beleaguered domestic players.
GE Edison can be seen as a hare.
While AIG started offering life insurance through Alico in 1972, 28 years before buying failed Chiyoda Mutual Life Insurance Co. in 2000, GE took its first plunge into Japan’s life insurance industry just five years ago, by acquiring collapsed Toho Mutual Life Insurance Co.
AIG, with roots in insurance, was willing to wait to establish a distribution and sales network before acquiring a company, and remains willing to weather an inevitable slow period before regaining customer trust. Meanwhile, GE’s attention was caught by other businesses promising more immediate profits, amid a global re-examination of its insurance operations.
“We decided we did not have the scale necessary to gain the kind of presence we want in (Japan’s) insurance market,” said Mark Norbom, president and CEO of General Electric Japan, Ltd. following the news conference. “This deal frees up cash and allows us to focus more on those sectors where we do have presence, such as in consumer finance.”
The sale and the simultaneous transfer of a small U.S.-based auto and home insurance business to AIG is estimated at between 250 billion yen and 260 billion yen.
AIG, the world’s largest insurance organization in assets, will now operate life insurance businesses through ALICO Japan, AIG Star Life Insurance Co. and GE Edison Life.
“Neither GE Edison nor AIG Star are niche companies,” said Tatsuo Kurogi, associate director at U.S. credit-rating agency Standard & Poor’s. “They will be in direct competition with large domestic insurers,” many of which are capitally weak.
“There is strong pressure throughout the life insurance sector for further consolidation,” Kurogi said.
In the world’s second-largest life insurance market, more consumers are re-examining their coverage, opting to slash premium payments for future insurance payouts in favor of cash now. Premium income for the entire industry grew a slight 1.7 percent in the 12 months through April.
“The pie isn’t growing fast enough,” said Nobuyasu Uemura, senior analyst at Japanese rating company Rating & Investment Information, Inc. “We will see how traditional Japanese sales methods, which is already running out of steam, holds up against AIG’s policy of distributing custom-tailored products.”
Up against a tough crowd, established foreign insurers with strong distribution and customer bases in Japan have gained momentum. American Family Life Assurance Co. outpaced industry giant Nippon Life Insurance Co. in the number of policies held in fiscal 2002. AIG, meanwhile, grew to become the nation’s eighth-largest life insurer in terms of premium income, bolstered by 31 years of service in Japan’s life insurance sector.
While GE’s Japanese insurance operations netted pre-tax profit, not including an accounting change, GE Edison Life didn’t have enough critical mass to justify siphoning resources away from more lucrative and newer financial businesses, according to GE group executives. The group saw net profit growth slow to 7 percent in 2002 after two decades of double-digit growth.
Some foreign firms like to play the tortoise, others the hare.
“We all know things happen slowly in Japan,” said Daniel Quayle, adviser to Cerberus Partners, LLC and former U.S. vice president, who was in Tokyo on Thursday. “We’re used to waiting. We know long-term recovery will happen in Japan, we know change has to happen, it’s just that we don’t know when.”
Cerberus has yet to officially seek approval from the Financial Services Agency to purchase a majority stake in Aozora Bank from Internet and broadband operator Softbank Corp. FSA officials in the relevant banking division have their hands full with the bailout of Resona Holdings Inc.
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