Japan Insurers May Be Hit By Big Bang

The Tokyo stock market's recent falls offer a preview of the pain Japan's life insurance industry will face as a result of greater competition from planned Big Bang financial reforms, industry sources say.

The fall in share prices means some of the insurance companies may have to post losses in the business year to March 31, increasing an already wide gap in financial strength between big and small firms, the sources said.

But the real threat is expected intense competition from other financial sectors such as banking after the Big Bang.

The Big Bang is the real threat, as it means fierce competition among all financial sectors, including banks and Western asset management firms, said an executive at a major life insurance firm. Prime minister Ryutaro Hashimoto unveiled plans in November to liberalise Japan's financial markets by 2001 under the Big Bang reforms, in which banks, brokers and insurance companies will be allowed to enter each other's turf.

In the past, Japan's life insurance industry enjoyed spectacular growth as the nation's economic success enabled people to plan for the long-term financial security of their families, analysts said.

But with the maturing of the core life insurance product market, big insurers are focusing on asset management.

The life insurers are already facing increased competition after a revision to the law governing them allowed 11 non-life insurers to set up life insurance subsidiaries last October, raising to 44 the number of life insurers in Japan.

A spokesman for Sony Life Insurance, a subsidiary of Sony Corp , said there were also concerns about how far the big

commercial banks would be permitted to enter the insurance business under the Big Bang reforms.

Koya Hasegawa, an analyst at Nikko Research Center, said the life insurance industry needed to increase its efficiency, particularly to fight off a challenge from the banks.

The reforms are expected to allow over-the-counter sales of insurance policies by banks, he said.

But even before that, some life insurers are in for a tough time. If stocks remain under pressure until the end of the current business year they will see unrealised profits on their shareholdings wiped out, forcing them to post losses, Nikko Research's Hasegawa said.