Yamato Life becomes 1st Japan financial firm to fail on subprime crisis

TOKYO, Oct. 10 Kyodo - Yamato Life Insurance Co., a time-honored midsize insurer based in Tokyo, filed for bankruptcy protection Friday due to losses related to the U.S. subprime crisis, becoming the first Japanese financial institution to fail amid the ongoing global financial turmoil.

Yamato, which went belly-up with debts of 269.5 billion yen, asked the Tokyo
District Court to invoke the 2000 fast-track law for the rehabilitation of
troubled financial institutions, company officials said.
Yamato's financial profile took blows from losses from investing in a range of
high-risk, high-return financial instruments including subprime mortgage-backed
bonds, structured bonds and hedge funds, as well as other securities like
stocks, whose prices have dived amid the global financial crisis, they said.
The rehabilitation law empowers a court to order the assets of troubled
financial institutions such as banks and insurers to be preserved. The court is
also authorized to halt policy cancellations and order insurers to stop selling
new policies provisionally.
Under the law, insurance money and pension benefits payable to Yamato's
policyholders will be mostly protected. But they may be cut by percentages to
be prescribed later, with benefits for financial products with high savings
components likely to suffer the deeper cuts, analysts say.
The news of the Yamato failure came as the 225-issue Nikkei Stock Average
momentarily was falling more than 1,000 points Friday morning. The gauge later
recovered somewhat but finished at the lowest level in five years and five
months in the 8,000 level.
Responding to the Yamato news, Prime Minister Taro Aso told reporters that its
collapse ''has nothing to do with (the stock market dive).'' The dive and the
failure ''should be clearly distinguished,'' he said.
Yamato's negative net worth -- by which its debts eclipse assets -- is likely
to have amounted to 11.5 billion yen as of Sept. 30, the Yamato officials said.
''We are really sorry for this and offer a hearty apology,'' Yamato President
Takeo Nakazono said at a press conference.
''The value of our securities holdings has undergone sharper-than-expected
falls as a result of the turmoil in global financial markets,'' he said.
Under the rehabilitation law, the court would authorize the insurer to start
rehabilitation proceedings if it judges the insurer can be revived as a
corporate entity.
The court would then appoint an administrator to oversee the rehabilitation
proceedings. The administrator would be tasked with devising a reconstruction
plan and finding a sponsoring company willing to assist with the insurer's
rehabilitation.
But the administrator would face difficulties in finding such a sponsor because
the global financial crisis is spreading to engulf more financial institutions
worldwide, the analysts warned.
Although Yamato, already upset at its weakening financial profile in the
spring, has been trying to find a corporate sponsor, relevant negotiations went
under, the officials said.
Kaoru Yosano, minister in charge of economic and fiscal policies, rejected
suggestions that Yamato's collapse may exert a negative influence on Japan's
financial system.
''The corporate scale of Yamato Life Insurance is small and it came to a dead
end as a result of its unusual business model,'' Yosano told a news conference.
''There are no other'' insurance companies with a similar business model, he said.
Financial Services Minister Shoichi Nakagawa issued a statement saying that
Yamato's failure ''has stemmed chiefly from its extraordinary profit and
revenue structure, so the insurer's situation differs from those of other
insurance companies.''
Nakagawa, now on a visit to Washington, also told reporters there, ''The
insurer has long engaged in risky business and it was anticipated that the
insurer would develop a negative net worth.''
Industry sources say that under its unusual business model, Yamato has tried to
offset the high cost of its mainline insurance business -- associated with such
factors as its relatively high marketing expenses -- with profits from
investments in high-yielding securities like collateralized debt obligations
backed by subprime mortgages.
Yamato becomes the eighth life insurer to fail in Japan since the end of World
War II, and the first since the collapse in 2001 of Tokyo Life Insurance Co., a
predecessor of T&D Financial Life Insurance Co.
Yamato originated from Nihon Chohei Hoken, founded in 1911, which used to sell
conscription insurance policies. It assumed its current name in 1945. In 2002,
it became a stock company, changing its structure from a mutual company.
Yamato, which ranks 32nd among 40 life insurers operating in Japan, had 170,000
individual insurance contracts as of March 31, with its assets totaling 283.1
billion yen. It has a workforce of 1,011.
Its solvency margin ratio -- the key gauge to measure an insurer's ability to
pay insurance claims -- dropped to 26.9 percent as of Sept. 30, sharply down
from the 555.4 percent it had in March 31.
Under Japan's prompt correction measure rules, the Financial Services Agency
orders an insurer to improve operations once an insurer's solvency margin ratio
falls below the 200 percent threshold.