Japanese editorial excerpts -4-.
Selected editorial excerpts from the Japanese press:
INSURERS SHOULD AVOID YIELD CUTS (The Daily Yomiuri as translated from the Yomiuri Shimbun)
Life insurance policies are central to the future plans of individuals. If life insurers reduce guaranteed yields -- the rate of investment return an insurer promises policyholders -- insurance benefits will be cut or policyholders will be asked to pay higher premiums. Either way, cutting yields will certainly put policyholders at a disadvantage.
However, given the serious situation life insurance firms face today, a system should be established to allow them to reduce guaranteed yields to policyholders. Regrettably, the move comes too late.
On Friday, the Diet passed the revised Insurance Business Law to allow life insurers to lower guaranteed yields before they go under.
Insurance firms' settlements of accounts in the business year ending on March 31 illustrate the sector's precarious situation. The 10 major life insurers held more than 1 trillion yen worth of reverse spread -- the loss resulting from investment returns on premiums being lower than yields promised to policyholders. This is because investment returns are on the decline due to the prolonged recession.
Falling stock prices dealt another serious blow to the business performance of life insurers. In their settlements of accounts for fiscal 2001, the 10 major life insurers posted a combined sum of more than 1.8 trillion yen in unrealized profits in their share holdings. However, they suffered losses for fiscal 2002.
There is a danger that the grave situation in the life insurance business might develop into a crisis affecting the entire financial sector because of cross-held shares. While life insurance firms provided funds of more than 6.3 trillion yen to banks, banks provide funds totaling 1.8 trillion yen to life insurance companies.
Therefore, if a life insurance company goes under, bank funds in the form of shares in the insurance firm will become uncollectible, possibly resulting in a financial crisis for the bank. In this respect, it is extremely important to avoid the collapse of life insurance companies to prevent the country's financial system from being turned on its head.
Since the collapse of Nissan Mutual Life Insurance Co. in 1997, six other life insurers have gone under. As a result of measures taken to rehabilitate the failed insurers, the amount of insurance benefits were halved in some cases.
But it is more advantageous to policyholders for insurers to lower guaranteed yields and avoid collapse than it would be to see them go under because of the heavy financial burdens resulting from reverse spreads as the margins of cuts in insurance benefit will be smaller.
All the life insurance companies have declared that they have no plans to apply for permission to cut guaranteed yields. Of course, they must make strenuous efforts to reform management to avoid having to do so.
To prevent the situation from deteriorating, insurance firms should take painstaking restructuring efforts. It has been pointed out that they have failed to make adequate efforts to cut the number of salespeople and branches, and have yet to review the salary levels of their employees.
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|Publication:||Japan Weekly Monitor|
|Date:||Jul 22, 2003|
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