NU Online News Service, Sept. 21, 2004, 5:44 p.m. EDT

Japan’s life insurers still have serious investment problems, but they have made a good effort to cut sales costs.[@@]

Donovan North and Shiyo Imai, analysts from the Hong Kong and Tokyo offices of Moody’s Investors Service, have come to that conclusion in an update on the Japanese life industry.

Japanese insurers face more competition from foreign insurers, but their biggest problem is the mismatch between the high rates of return they promised on products in the 1980s and early 1990s and the low rates of return they are earning on their own investments, the analysts write.

The Japanese life insurers are holding short-term bonds while they wait for rates to recover, but that strategy could get them in trouble if rates stay low or fall even further, the analysts warn.

But the analysts point out that the insurers are relying less heavily on volatile assets, strengthening their capital bases and continuing to shift toward selling through banks, direct mail, the Web and other low-cost distribution channels.

The number of people employed by the high-cost sales agency channel has fallen 6.5% since 2003, to 234,000, the Moody’s analysts report.