When Japan’s Big Four private sector life insurers unveiled record first quarter profits last week and one became the third of the quartet to announce a major overseas acquisition, they marked an end to eighteen years of repeated consolidations in which many of the sector’s best known names disappeared.
Dai-ichi Life, which translates as ‘big number one’, is now indeed the industry leader, however temporarily, with April-June core profit up by a hefty 56.8% from a year earlier to 160.5 billion yen. The climb has displaced Nippon Life where core profit rose 3.6% to 145.6bn yen and put the firm well ahead of Meiji Yasuda Life, up 6.8% to 115.5bn yen, and Sumitomo Life, up 5.5% to 85.3bn yen.
In February Dai-ichi led another field by completing the biggest ever acquisition by a Japanese life insurance company when it paid US$5.6bn for mid-sized US firm Protective Life.
Then in June the Nikkei reported that Nippon Life was in early talks to buy National Australia Bank’s insurance business for US$2.4bn. A month later Meiji Yasuda Life agreed to buy America’s StanCorp Financial group for US$5bn and in August Sumitomo Life entered into a definitive agreement to buy Symetra Financial Corporation, headquartered in Washington state, for US$3.7bn.
As the profits figures would suggest, the first quarter also showed signs of improvement in the sector’s ‘business-in-force’ measure which, according to the Life Insurance Association of Japan, was by the end of May up 0.2% on a year earlier — the first rise in 18 years.
Chiyoda, Kyoei, Taisho and Yamamoto and more — all gone
The nightmare began in April 1997 when the Ministry of Finance finally ordered Nissan life to close having watched it slide into increasingly deep trouble over the previous two years.
The development was reported as ‘the only Japanese life co to go bankrupt since the end of the Second World War’ yet it proved to be anything but an isolated incident. The years which followed saw repeated waves of consolidation in which such life cos as Chiyoda, Kyoei, Taisho and Yamamoto disappeared — often after being acquired by a stronger firm which was then itself acquired by another new grouping.
One of the chief causes was guaranteed savings products, the last of which has only recently expired. First offered by Nissan they spread to other firms which were unable to generate the promised returns in the tough domestic equities environment after 1990 when income from foreign holdings was also being slashed by a rising exchange rate.
As Japan entered recession the firms’ loans to business also shrank and as the nation aged there were progressively fewer lives top insure.
Simultaneously the deregulation of corporate pensions market, which began in 1995 and allowed retirement schemes to invest via specialist mandates, cut even more heavily into their pooled pensions business than into that of trust banks.
General insurers rode abroad on strong yen
In the time it has taken them to struggle back to health the life cos have seen their general insurer counterparts gain strength from investment abroad where they were able to use the strong yen to pick up acquisitions relatively cheaply.
The wholly government-owned Japan Post Insurance has yet to produce its annual report for the year ending 31 March and its first quarter figures. This giant plans to list on the stock exchange on 4 November according to Reuters so it should then become more transparent. To date only Dai-ichi is listed since Sumitomo and Meiji Yasuda are still mutuals
For the financial year ended 31 March 2014 Japan Post Insurance had a core profit of 482bn yen so Dai-ichi may not last long as the Big Number one.
© 2015 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.
This blog would not exist without the help and humour of Diane Stormont, 1959-2012