Identifier
Created
Classification
Origin
08TOKYO2842
2008-10-10 09:00:00
CONFIDENTIAL
Embassy Tokyo
Cable title:
SMALL LIFE INSURER FAILS AMID MARKET VOLATILITY
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C O N F I D E N T I A L TOKYO 002842
SIPDIS
E.O. 12958: DECL: 10/09/2018
TAGS: EFIN ECON PGOV JA
SUBJECT: SMALL LIFE INSURER FAILS AMID MARKET VOLATILITY
Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 b/d.
Summary
-------
C O N F I D E N T I A L TOKYO 002842
SIPDIS
E.O. 12958: DECL: 10/09/2018
TAGS: EFIN ECON PGOV JA
SUBJECT: SMALL LIFE INSURER FAILS AMID MARKET VOLATILITY
Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 b/d.
Summary
--------------
1. (C) Yamato Life Insurance filed for bankruptcy October 10.
Media reports linked the company's failure to losses
incurred from subprime mortgage-backed securities, but
regulators noted the company has long struggled with high
costs and failed to adapt to new sales methods. Pointing to
Yamato's small size, a Financial Services Agency (FSA)
official told Emboffs he expects Yamato's bankruptcy will
have no broad impact on the Japanese or global markets. End
summary.
First Life Insurance Bankruptcy Since 2001
--------------
2. (SBU) Founded in 1911, Yamato was one of Japan's oldest
life insurance companies. It was also one of the smallest.
It had approximately 180,000 policies in force and 1,000
employees. As of the end of the first quarter of 2008, it
reported assets of approximately $2.8 billion. Yamato's
bankruptcy filing is the first for a Japanese insurance
company since 2001 and is only the eighth failure of a
Japanese life insurance company since 1945.
3. (SBU) Economic and Fiscal Policy Minister Yosano and
Finance Minister Nakagawa (from Washington) downplayed the
effect of the bankruptcy on the Japanese economy, noting
Yamato's small size and telling the media Yamato failed
because of its "extraordinary business model" and "risky"
practices. They emphasized Yamato's dependence on high
returns as part of its business model was unlike the rest of
Japanese life insurers.
4. (C) Privately, FSA Director of Insurance Supervision
Hasegawa told Emboffs Yamato's high labor costs had made it
uncompetitive. While other insurers had moved to marketing
over the Internet and through banks, he explained, Yamato had
maintained an expensive network of door-to-door salespeople.
The need to offset those costs through greater returns on
assets had led to the company's aggressive investment
strategy.
5. (C) Yamato had been exposed to subprime-mortgage backed
assets, continued Hasegawa, but they had sold those off at a
loss by the end of March 2008. Recent large losses came from
drops in the prices of stocks, mutual funds, and real estate
investment trusts.
No Broader Market Effect, Says Official
--------------
6. (C) Commenting on the broader Japanese market, Hasegawa
said the FSA had heard informally from companies that recent
sharp drops in stock values had turned some unrealized
profits into unrealized losses, and he said the FSA was
closely monitoring the situation. No other life or non-life
company is in similar straights to Yamato, he added,
concluding Yamato's failure "will not affect the Japanese
system overall or the global financial system."
SCHIEFFER
SIPDIS
E.O. 12958: DECL: 10/09/2018
TAGS: EFIN ECON PGOV JA
SUBJECT: SMALL LIFE INSURER FAILS AMID MARKET VOLATILITY
Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 b/d.
Summary
--------------
1. (C) Yamato Life Insurance filed for bankruptcy October 10.
Media reports linked the company's failure to losses
incurred from subprime mortgage-backed securities, but
regulators noted the company has long struggled with high
costs and failed to adapt to new sales methods. Pointing to
Yamato's small size, a Financial Services Agency (FSA)
official told Emboffs he expects Yamato's bankruptcy will
have no broad impact on the Japanese or global markets. End
summary.
First Life Insurance Bankruptcy Since 2001
--------------
2. (SBU) Founded in 1911, Yamato was one of Japan's oldest
life insurance companies. It was also one of the smallest.
It had approximately 180,000 policies in force and 1,000
employees. As of the end of the first quarter of 2008, it
reported assets of approximately $2.8 billion. Yamato's
bankruptcy filing is the first for a Japanese insurance
company since 2001 and is only the eighth failure of a
Japanese life insurance company since 1945.
3. (SBU) Economic and Fiscal Policy Minister Yosano and
Finance Minister Nakagawa (from Washington) downplayed the
effect of the bankruptcy on the Japanese economy, noting
Yamato's small size and telling the media Yamato failed
because of its "extraordinary business model" and "risky"
practices. They emphasized Yamato's dependence on high
returns as part of its business model was unlike the rest of
Japanese life insurers.
4. (C) Privately, FSA Director of Insurance Supervision
Hasegawa told Emboffs Yamato's high labor costs had made it
uncompetitive. While other insurers had moved to marketing
over the Internet and through banks, he explained, Yamato had
maintained an expensive network of door-to-door salespeople.
The need to offset those costs through greater returns on
assets had led to the company's aggressive investment
strategy.
5. (C) Yamato had been exposed to subprime-mortgage backed
assets, continued Hasegawa, but they had sold those off at a
loss by the end of March 2008. Recent large losses came from
drops in the prices of stocks, mutual funds, and real estate
investment trusts.
No Broader Market Effect, Says Official
--------------
6. (C) Commenting on the broader Japanese market, Hasegawa
said the FSA had heard informally from companies that recent
sharp drops in stock values had turned some unrealized
profits into unrealized losses, and he said the FSA was
closely monitoring the situation. No other life or non-life
company is in similar straights to Yamato, he added,
concluding Yamato's failure "will not affect the Japanese
system overall or the global financial system."
SCHIEFFER