NU Online News Service, Jan. 24, 1:22 p.m. – Meiji Mutual Life Insurance Company, Tokyo, has announced plans to merge with another Tokyo carrier, Yasuda Mutual Life Insurance Company, by April 2004.
The deal would create the third biggest life insurance company in Japan.
Meiji, which has the equivalent of $130 billion in assets, reported $762 million in net income for the fiscal year that ended March 31, 2001, on $26 billion in revenue, according to Hoover’s Inc., Austin, Texas .
Yasuda reported $1 billion in net income on $15 billion in revenue and $74 billion in assets.
Both companies are strong and have achieved solid sales growth, but both have experienced high surrender and lapse rates, according to Japan Credit Rating Agency Ltd., Tokyo.
Runa Ichihari and Tatsuo Kurogi, analysts in the Tokyo office of Standard & Poor’s, put out a commentary suggesting the proposed merger could put even more pressure on other Japanese life insurers to consolidate and increase efficiency.
The Meiji/Yasuda deal “should allow the companies to make sizable cost reductions through closing redundant operations and achieving greater economies of scale,” the analysts write.
But, if current economic conditions continue, the merged company and its competitors will still have to cope with weak investment returns and bad loans, the analysts warn.
The Japanese life insurance industry sailed along for more than 40 years without experiencing the acquisition, merger or failure of a major company.
But many Japanese life insurers got into trouble in the 1980s and early 1990s, by offering fixed-rate retirement products and variable-rate retirement products with fixed return guarantees.
Life insurers began to suffer from the consequences in the mid-1990s, when slumps in the Japanese stock market and real estate market hit life company investment portfolios hard.
The Japanese government let a small Japanese life insurer fail in 1996, and it has since allowed several others to fail, arrange domestic mergers, or sell their operations to foreign companies.