TOKYO, February 5: Japan's Toho Mutual Life Insurance Co and a financial unit of General Electric are in discussions to establish a business partnership that could help boost the ailing insurer's capital base, GE said.GE Financial Assurance, a unit of GE Capital Services, confirmed that discussions had taken place both in the United States and Japan after the Nihon Keizai business daily reported that the two company's had reached a broad agreement to be formally announced next week.
Toho acknowledged it had considered business tieups, but declined to name possible partners. The reported deal, if completed, would help re-capitalise troubled Toho and give GE access to the large Japanese market. It would also mark further penetration into the once-cloistered realm of Japanese finance by US and European companies, a move that is expected to gather momentum after Japan's `Big Bang' financial reforms begin in earnest this April.
Analysts say such a tieup could help save members of the life insuranceindustry, which is suffering amid a wave of policy cancellations in the wake of last year's collapse of Nissan Life, as well as from falling asset values.
"I think some Japanese mutual life companies are already thinking about it because they need support," said Takehito Yamanaka, an analyst at SBC Warburg Japan Ltd who follows the industry. "If management thinks that to survive they need these types of alliances, maybe they will accept them."
The Nihon Keizai reported Toho would issue subordinated bonds that GE would purchase, effectively turning Toho into a unit of GE. Japan's life insurers are mutual companies, owned in essence, by their policyholder, making outright acquisitions impossible.
No estimate was given as to how much debt would be issued.The paper also said the two companies were considering the establishment of a joint venture to sell life insurance policies and manage pension funds.
GE Capital, which has expanded into credit card and leasing operations since starting operations inJapan in 1994, would reportedly own more than 50 per cent and control management.
GE would also reinsure a portion of Toho's existing policies, on which Toho would receive commissions. Toho had assets of 4.214 trillion yen and posted a pre-tax current profit of 8.53 billion yen in the period ended September 1997. It also held 106.8 billion yen in nonperforming loans.
A spokesman for the Life Insurance Association of Japan, which represents the country's 43 life insurers, welcomed the reported plan, calling it a "merit" for the industry that could serve as a blueprint to help other struggling companies.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
