Financial Sector

June 2007

Top Japanese Life Insurers Beefing Up Presence At Banks
Japan's top life insurers are gearing up for a marketing blitz for over-the-counter sales of insurance products at banks. To date, the leading domestic firms have halfheartedly sold products at banks out of deference to their door-to-door salespeople. But it now appears that door-to-door sales have peaked. In fiscal 2006, over-the-counter insurance premium revenue at the 29 life insurers selling products at banks slipped 5% to a combined 4.68 trillion yen. The drop is due to a slowdown at Hartford Life Insurance KK and other foreign-affiliated insurers, which had been driving market growth. Hartford's insurance premium revenue sank 51.5% to 466.5 billion yen, while Alico Japan's tumbled 20.9% to 513.5 billion yen. And the insurance premium revenue at ING Life Insurance Co. stood at 272.1 billion yen, down 36.3%. By contrast, 10 of the 16 domestic life insurance firms posted gains in insurance premium revenue thanks to the popularity of principle-guaranteed variable annuities that are invested for short periods. Tokio Marine & Nichido Financial Life Insurance Co., which saw its insurance premium revenue skyrocket 170% to 1.05 trillion yen, reported brisk sales of a product that allows policyholders to pocket funds prior to maturity if investment targets are met. There has also been robust demand for a Mitsui Sumitomo MetLife Insurance Co. product in which subscribers receive funds after just one year. Insurance premium revenue at the life insurer jumped 21.2% to 576.3 billion yen. Middle-aged customers, who are the biggest buyers of variable annuities, have a pressing need to receive guaranteed payouts. Although foreign affiliates mainly sell 10-year products, domestic companies have made a comeback with their innovative products. (The Nihon Keizai Shimbun, June 22, 2007)

Development Bank Privatization Bill Becomes Law Amid Skepticism
A bill calling for the full privatization of the Development Bank of Japan was enacted Wednesday, but the viability of the government-affiliated lender as a private entity remains in doubt. The DBJ aims to develop a unique business model by the time the government completes the sale of all its shareholdings by 2015. However, it is unclear whether the bank will be able to secure funding and ensure profitability without government backing following its privatization. The lender is unlikely to find a smooth road ahead, burdened as it is by loans to struggling Japan Airlines Corp.. The plan calls for the bank to initially become a wholly government-owned firm in October 2008, before going fully private 5-7 years later. Inside the bank, there are proposals for a move away from traditional banking. Some call for a shift toward a banking business model including M&A consulting while others insist the DBJ should maintain corporate lending operations. (The Nihon Keizai Shimbun, June 07, 2007)