NU Online News Service, March 31, 2003, 12:58 p.m. EST – If the Japanese government has to make a choice, it might be quicker to use its limited resources to bail out the country's banks than to bail out the country's life insurers, according a new report from the Tokyo office of Moody's Investors Service.
Because banks have invested so much of their capital in life insurers, the failure of a large life insurer could do severe damage to weak Japanese banks, the Moody's analysts write.
If problems at a major insurer threaten the banking system, that might increase the likelihood that life insurance policyholders will take a hit, the analysts warn.
Many Japanese life insurers are in trouble because they guaranteed what appeared to be very low rates of return back in the 1980s. Now, Japanese investment returns are so weak that life insurers have a difficult time making good on the guarantees.
The likelihood that the Japanese government will try to rescue the life insurers by organizing mandatory or voluntary reductions in the guaranteed rates still "seems low," but the risk might be rising because of the danger that the weakness of the life insurers poses for the banks, the Moody's analysts write.
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