NU Online News Service, May 12, 2003, 3:28 p.m. EDT – The Tokyo office of Standard & Poor’s Ratings Services is objecting to proposed Japanese legislation that would let the country’s struggling life insurers reduce guaranteed yield payments to policyholders before using up their “kikin” funding.

Kikin is a Japanese funding vehicle that combines features of debt and equity capital. Most suppliers of kikin funding have been Japanese banks, S&P says.

S&P has been treating kikin funding as capital, but it says it will treat kikin as debt if the Japanese parliament enacts the proposed insurance legislation, and it says it will lower the ratings of insurers that cut guaranteed yield payments to D for Default, or SD for Selective Default.

Cutting yield payments would be a default on contractual obligations to policyholders, and the move might doom weak life insurers by making their shaky finances public, S&P says.

Policyholders would probably be better off if an insurer had to exhaust its kikin and subordinated debt before entering rehabilitation than if an insurer reduced guaranteed yields before it entered rehabilitation, S&P says.