S&P: New Report Probes Japan's Chging Insurance Mkt.

Business Editors

TOKYO--(BUSINESS WIRE)--Standard & Poor's

Jan. 18, 2000--A combination of market liberalization and a weak economy has sparked unprecedented restructuring across Japan's insurance sector, Standard & Poor's said in a new digest launched today. But while restructuring has led to a much broader range of choices for policyholders, it has also drastically increased the importance of careful selection, as new companies enter the market and long-established names are driven out.

The publication, entitled Japan Insurance Digest 2000, is based on Standard & Poor's ratings of 25 life insurers and 22 nonlife insurers. It provides a comprehensive analysis of both sectors of the insurance industry, with key financial data on each company. More than 90% of all insurance written in Japan is covered.

Gone is the time when Japan's insurers were seen as homogenous and invincible. "Deregulation throughout the industry continues to drive prices downward," said Runa Ichihari, associate director of insurance ratings at Standard & Poor's in Tokyo. "The series of crises in the life industry in particular over the past three years has served to highlight the underlying weakness of insurers' financial positions."

Life insurers have effectively been in crisis management mode as a result of the severity of the operating environment in Japan, the digest argues. Capitalization in the sector is critically weak, even as Japan's fragile economic recovery offers some relief from asset pressures. As life insurers move to recapitalize, the gap between strong and weak players should become increasingly obvious, Standard & Poor's believes.

Meanwhile, product and price competition in nonlife insurers' commercial lines have spilled over into retail lines, the digest suggests. Earnings across the board are being squeezed as auto insurance, the core business line for Japanese nonlife insurers, comes under increasing competitive pressures. Although nonlife insurers remain relatively healthy compared to other financial sectors in Japan, Standard & Poor's medium-term outlook on the sector is negative.

In this environment, Standard & Poor's anticipates a shift away from mutual status and toward more corporate and foreign partnerships, as seen in AXA Group's recent acquisition of Nippon Dantai Life Insurance Co. Ltd. (Bpi/--/--) In addition, domestic mergers, such as the three-way tie-up between Mitsui Marine & Fire Insurance Co. Ltd. (AA/Negative/A-1+), Nippon Fire & Marine Insurance Co. (AA-/Negative/--), and Koa Fire & Marine Insurance Co. Ltd. (A+/Stable/--) announced in October 1999, will become more commonplace, the digest predicts.

However, there is a danger that new ventures will simply structure themselves along traditional lines instead of seeking a template that can thrive among liberalization in Japan, Standard & Poor's believes. The key to the success of these new ventures is developing competitive differentiation and providing value to clients at the lowest cost while maintaining financial strength.

While it once may have been reasonable for customers to value such factors as the convenience of an insurer's distribution network, policyholders today face a much more risk-oriented market, the report concludes. Differing levels of financial security, as well as expanded policy features and competitive pricing offer previously unavailable choices for policyholders in Japan. An insurer must be chosen with care, as recent experience in the industry has dramatically demonstrated.

INCREASING COVERAGE IN ASIA-PACIFIC

Standard & Poor's has designed similar publications to provide a broad overview of insurance credit quality throughout the Asia-Pacific region. Reports on the insurance industry in Hong Kong and Singapore, as well as the life insurance sector in Australia/New Zealand, are planned for publication within the next few months.--CreditWire

(If you would like to receive a complimentary copy of Japan Insurance Digest 2000, please contact Sumiko Seki by fax at 03-3593-8691 or email at [e-mail].)