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Big Bang Comes to Insurance Sector

January 16, 2001
The wave of reorganization in the financial sector, which has so far affected mainly banks, has now reached the insurance industry. On September 18, 2000 Japan's largest nonlife insurance firm Tokio Marine and Fire Insurance, number-five life insurer Asahi Mutual Life Insurance, and number-seven nonlife insurer Nichido Fire and Marine Insurance announced that they would begin full-fledged integration of operations with a view to a future merger. Calling themselves the Millea Insurance Group, a name they announced on January 11, 2001, they hope to achieve solid growth in the new millennium. As the first stage of this process, they began selling each other's life and nonlife insurance policies and developing new products together and are working on a schedule for a full merger.

Such a merger would create one of Japan's largest insurance groups, with combined assets of about 19 trillion yen (172.7 billion U.S. dollars at 110 yen to the dollar). Another special feature of the partnership between these three firms is that it would see the insurers transcending their ties with banking groups; Tokio Marine belongs to the Mitsubishi group and Asahi and Nichido are members of the Mizuho Financial Group. The reorganization of the insurance sector has moved up a gear.

Three Big Insurers to Join Forces
The key points of the partnership agreed by the three insurers are as follows: (1) sale of each other's life and nonlife insurance products, (2) development and supply of products and services combining life and nonlife insurance, (3) strengthened asset management, and (4) joint entry into new operations, such as financial services. Besides these measures, the firms are also planning to set up a group strategy committee headed by their three presidents and establish joint subcommittees to examine products and services, sales channels, systems, and other issues. By the end of 2000 they hope to have made a concrete decision on which of their operations will be merged and on the name of their group and to have formulated a schedule for the merger.

Executives of the three firms point out that their planned merger reflects the global trend for the fusion of life and nonlife insurance to provide a fuller range of policy options and shows that the Japanese insurance sector has entered a new era. Although the time frame of the merger has yet to be decided, the plans envisage a final setup of life and nonlife subsidiaries under a joint holding company.

Reorganization Accelerates
The three firms' comprehensive partnership will create Japan's largest domestic insurance group, with total assets of 18.8 trillion yen (170.9 billion dollars), 98,000 branch offices (mainly for nonlife insurance), and 22,000 life insurance sales personnel. The fact that full-scale integration transcending the companies' ties to their respective banking groups is on the horizon shows that the "Big Bang" is finally about to hit the insurance industry, whose realignment had been lagging behind other parts of the financial sector.

Another aspect of the merger that merits special mention is that it brings together life and nonlife insurers. The trend toward tie-ups and mergers in the domestic insurance industry has been accelerating since 1999, but so far they have all taken place within the life or nonlife sectors. The tie-up that was announced at the end of August 2000 between Daiichi Mutual Life Insurance and Yasuda Fire and Marine Insurance--both number two in their respective sectors--was one example of cooperation across the life and nonlife divide. The two companies were already affiliated as fellow members of the Mizuho Financial Group, however, and insist there are no plans for a full-fledged merger. This further underlines the significance of the recent three-way partnership.

These alliances are taking place against a background of ongoing deregulation and intensifying competition. In 2001 the gray zone between the life and nonlife fields, such as cancer insurance, which had been dominated by overseas insurers, will be fully liberalized for domestic life and nonlife insurers. An age of unfettered competition in the insurance market is drawing near.

To ensure survival in the midst of such upheaval, vast insurance groups are taking shape in line with the global trend for mergers among financial institutions. The aim of each of these moves is to create one general insurance company dealing in both life and nonlife insurance. The pace of realignment has picked up, as Nippon Life Insurance, Sumitomo Marine and Fire Insurance, Mitsui Marine and Fire Insurance, and Dowa Fire and Marine Insurance are also eyeing an alliance. The next phase of reorganization in the insurance industry is well underway.

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Trends in JapanCopyright (c) 2001 Japan Information Network. Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.