The Dai-ichi Mutual Life Insurance Company

Summary

-  ■■ Dai-ichi, headquartered in Tokyo, Japan, provides individual and group life insurance and group pension products as well as offering asset management and risk management services.

-  ■■ Dai-ichi operates internationally and has signed bilateral agreements for re-insurance with large insurance companies all over the world. The company's reinsurance partners are based in the UK, Germany, France, Australia, Hong Kong, Taiwan, Singapore, Philippines, Thailand, Malaysia and Indonesia.

-  ■■ Dai-ichi is one of the largest insurance providers in Japan, selling a wide range of life insurance, non-life insurance and pension products to individuals and to groups through its vast network of 48,000 representatives. By the end of fiscal 2003, there were about 9.06 million Dai-ichi individual life insurance policyholders.

Overview

Dai-ichi, headquartered in Tokyo, Japan, provides individual and group life insurance and group pension products as well as offering asset management and risk management services. The company has five overseas offices located at New York, London, Hong Kong, Beijing and Taipei. Dai-ichi is one of Japan's largest insurers.

The company has also expanded into the sale of non-life products, including auto insurance through a partnership with Yasuda Fire. The company has developed an overseas presence through a collaborative deal with AFLAC (American Family Life Insurance Company), the U.S. insurer. It also operates a handful of overseas subsidiaries and has a joint venture with IBJ Asset Management, called DLIBJ Asset Management (DIAM) through which, it provides asset management services.

Dai-ichi operates internationally and has signed bilateral agreements for re-insurance with large insurance companies all over the world. The company's reinsurance partners are based in the UK, Germany, France, Australia, Hong Kong, Taiwan, Singapore, Philippines, Thailand, Malaysia and Indonesia.

For the fiscal year ended March 2004, The Dai-ichi Mutual Life Insurance Company achieved revenues that totalled Ґ5,090.4 billion ($46,990 million) - a decrease of 4% against the previous years revenues of Ґ5,255.9 billion. Reduced insurance premiums and lower revenues from group pensions were some of the key reasons behind the fall in overall revenues.

Dai-ichi sold 1.38 million life insurance and individual annuities in 2003, an increase of 3.8% compared to fiscal 2002. The company is in a strong position to launch new products on a consistent basis and leverage its competitive position in the Japanese insurance sector.

History

The Dai-ichi Mutual Life Insurance Company was the first Japanese mutual life insurance company. The head office was shifted to its current location in Tokyo in 1938, which served as the Occupation Forces' general headquarters following World War II.

In 2002, to celebrate its 100th anniversary the company launched two new products; the Dodo Jinsei plan, which provided customers with freedom and flexibility and allowed customisation. And, the Yuyu Jinsei plan, launched simultaneously, was primarily intended to meet the nursing and medical needs of middle seniors. In October 2002, the Ikiteku plan was introduced, which offered enhancements, including the ability to utilise part of the cash-value of the whole life insurance to pay for policies that provide death and hospital benefits. Dai-ichi drafted a new reform policy in fiscal 2003 for improving its performance in all fronts.

The company announced its intension to issue 10 year subordinated bonds (dollar denominated) primarily targeting U.S. and European institutional investors, in March 2004. This is expected to benefit the company by around Ґ30 billion.

SWOT analysis

Strengths

Strong position in the home market: Dai-ichi is one of the largest insurance providers in Japan, selling a wide range of life insurance, non-life insurance and pension products to individuals and to groups through its vast network of 48,000 representatives. By the end of fiscal 2003, there were approximately 9.06 million Dai-ichi individual life insurance policyholders.

Partnerships: Dai-ichi has strengthened its position in the Japanese market by entering into several global alliances with major companies in the insurance industry to expand its presence in the international market. In 2000, Dai-ichi partnered with Yasuda Fire and Marine Insurance Co., Ltd. and entered into a marketing alliance with American Family Life Assurance Company of Columbus (AFLAC) and Sompo Japan Insurance Inc. As a result of these alliances, sales of non-life insurance tie-up products reached 420,000 and about 1,670,000 cancer and life-insurance tie-up products were sold in fiscal 2002.

New products: Dai-ichi has been working on improving its potential by continuously introducing new products, making sure these products are flexible and continually meet the needs of the increasingly more demanding customers. The new products launched include life insurance products such as 'Ikiteku Plan' (Plan for the Future) and 'Yuyu Jinsei' (Calm Life) Plan, to serve the nursing care needs of the middle-aged population. It also upgraded the existing products according to the clients’ demands.

Weaknesses

Lack of other sources of income apart from premium income: the company receives the majority (about 70%) of its total revenues from premium income, and only 30% from net investment income and fee income. This means that the company is overly dependent on its premium income and therefore vulnerable to negative economic conditions. Should the economic conditions deteriorate, the company, faced with smaller number of renewals and new business is likely to see its income decline sharply. For example, in fiscal year 2003, the premium income declined by 12.2% over 2002 which caused the decline in the company's revenues by 2.6% to Ґ5255.9 billion.

Lower loan collections: Dai-ichi reported decline in its total loan collections in 2003, with overseas loans reporting a 10% decline and home loans experienced an 11% decline. Also, consumer loans declined 2% reflecting the company's inability to capitalise on the prevailing low interest rates.

Opportunities

"Structural Reform": Dai-ichi drafted a new reform in fiscal 2003 in order to improve its performance, reduce costs and boost profitability. All the measures implemented so far have already resulted in a 4.7% decline in operating expenses in fiscal 2003 to Ґ450.7 billion, however the company hopes that the cost cutting measures will eventually improve its earnings in the near future.

Expansion into group life insurance market: Dai-ichi reported a 3.2% increase in group products in 2003 as the company decided to enter the niche employee-funded group life insurance sector. As a result of these efforts, Dai-ichi's group insurance products increased by 3.2% in fiscal 2003 amounting to Ґ54.2 trillion. At the same time, the company started a consulting service for the pensioners to provide retirement solutions and to improve the company's pension funded assets.

Reinsurance: in Asia, Dai-ichi has expanded its reinsurance business to include approximately 13 firms across five countries. Dai-ichi has entered reinsurance agreements with the some major insurance companies such as PPP Healthcare (UK), AMP (Australia) etc., which are expected to enhance its prospects in the reinsurance sector. As Japanese companies are becoming more global, the demand for reinsurance assistance is expected to increase in future

Threats

Stagnant Japanese economy: the Japanese economy is faced with a severe economic circumstances; ongoing stagnation and a collapse in stock prices. Unemployment has resulted in lower levels of household income, which in turn has posed a severe burden on policyholders. This loss of income means that consumers are cutting down on their expenses including insurance policies. Dai-ichi and other Japanese insurance companies have been experiencing a steady decline in number of policies sold and also a greater number of policy cancellations. Furthermore, low interest rates and volatility in stock prices in Japan are affecting the investment performance and a combination of these factors means that Japanese insurers are faced with exceptionally complex market conditions. Expansion outside of Japan is one possible solution to this problem.

Strong competition: the Japanese insurance industry is not only troubled with the stagnant economy and low interest rates, but the competition between the top Japanese insurance is getting more severe, as the market conditions worsen. The life insurance and mutual fund industry in Japan is flooded with major players such as Nippon Life Insurance Company and Sumitomo Life Insurance Company. Competition is a direct threat to Dai-ichi’s position in the Japanese market and means that despite decline in growth, the company has to continue to innovate its products and invest. The deregulation of the Japanese insurance market in 1996 meant that the Japanese market became even more competitive, since non-life insurers and life insurers can enter each other’s markets and compete.

Company news

- ■■ In June 2004 Dai-ichi announced that it was considering launching life insurance operations in China and Thailand to gain access to these rapidly growing markets. The company plans to move forward with related activities, such as the selection of a local partner. The decision comes as the stagnant Japanese market makes it difficult for the insurers to survive, and after Dai-ichi’s major competitor, Nippon Life Insurance has already set up joint ventures in China that began operations last year. Dai-ichi Life has around a1% stake in the country’s number two insurer, Ping An Insurance Co. of China. However, “the capital interest in the company is purely an investment” to gain dividend returns, according to Dai-ichi. “If we are to enter the market, it would entail crafting a new framework”. Dai-ichi is following the steps of other global insurers who have decided to enter the Chinese market because it offers the strongest growth and is therefore an opportunity to boost performance.