life insurer Dai-ichi Mutual has announced plans for its
demutualisation. Subject to approval by policyholders and
regulatory authorities, Japan’s third largest life insurer will in
the first half of its fiscal year ending 31 March 2011 undertake an
IPO, following which it will become Japan’s third listed life
insurer.
In a statement the insurer explained that the decision to
demutualise had been based on its anticipation of intensified
competition in the life insurance industry as a result of
“demographic and other social changes”. Only as a public company
would Dai-ichi have the flexibility to achieve sustained growth,
the statement added.
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Dai-ichi’s statement reflects the situation facing Japan’s domestic
life insurers in general. Despite the most supportive economic
conditions in two decades, most domestic insurers have not fared
well in the face of a competitive assault from foreign insurers and
the banking industry that has been a growing force in insurance
since the advent of systematic deregulation of the financial
sector. Adding to domestic insurers woes has been damage done to
consumer confidence resulting from revelations of massive
non-payment of claims.
The impact of competition and consumer dissatisfaction was clear in
the fiscal year to 31 March 2007, when only one of Japan’s top five
life insurers, Nippon Life, the country’s largest life insurer,
reported higher premium income – a marginal rise of 0.2
percent.
In Dai-ichi’s case there has been a steady erosion of new business
and customer numbers for a protracted period. For example, in the
year to 31 March 2007 Dai-ichi reported individual insurance and
annuity new business of ¥104.96 billion ($1.06 billion), down 18.9
percent compared with the 2005/06 fiscal year. In the 2005/06
fiscal year Dai-ichi reported an 8.4 percent fall in new
business.
The deteriorating trend continued into the 2007/08 fiscal year,
with Dai-ichi reporting individual insurance and annuity new
business of ¥43.38 billion in the six months to 30 September 2007.
This was down 17.2 percent compared with the corresponding period
in the previous fiscal year.
Dai-ichi’s total premium income has also suffered, falling from
¥3.4 trillion in its 2005/06 fiscal year to ¥3.29 trillion in its
2005/06 fiscal year, a decline of 3.2 percent. During the six
months to 30 September 2007 the decline was a steeper 6.7 percent
(to ¥1.56 trillion) compared with the same period in fiscal
2006/07. The number of policies in force has also been in retreat,
falling from 25.343 million on 31 March 2006 to 24.97 million on 30
September 2007.
Dai-ichi has also fared poorly in the variable annuity sector,
which has seen total assets soar from $3 billion to $150 billion in
the past five years. Dai-ichi lies ninth in the sector with a share
of about 2 percent.
It is a situation Dai-ichi clearly wants to reverse with the help
of its listed status, which would, Dai-ichi said, “enhance
management transparency based on market discipline”. The goal is to
become “the most highly regarded life insurance company by its
customers”, it continued.
Listing of Japanese life insurers dates back to 2003 when Taiyo
Life Insurance became the first domestic life insurer to list
following an IPO in which it raised ¥75 billion. In 2004 Taiyo Life
and Daido Life merged to form T&D Holdings.
The next listing by a predominantly life insurance-focused company
came in October 2007 following Sony Financial Holdings’ IPO in
which it raised $2.7 billion. Though Sony Financial’s interests
also include general insurance and banking, life insurance is the
dominant business. In the nine months to 30 September 2007 Sony
Financial reported total net profit of ¥38.8 billion, of which
¥32.7 billion was derived from life insurance.
According to Japanese media reports, Dai-ichi could raise up to $9
billion in new capital in its IPO. As at 30 September 2007
Dai-ichi’s net assets stood at about $25 billion.
