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Wednesday, Nov. 21, 2007

Most nonlife insurers see profit increase

Despite scandal, five of six gain on lack of disasters, low subprime exposure

Staff writer

Profits at most major nonlife insurers jumped in the six months to September, thanks partly to brisk gains from investments in stocks and funds that escaped the turmoil generated by the subprime housing loan crisis in the U.S., the companies said Tuesday.

The nonlife insurance industry also got a boost because fewer natural disasters struck Japan this summer, lowering payouts. Last year, a powerful typhoon smacked into the Kyushu area in September, causing payouts to jump.

Group net profit rose at five of Japan's six major nonlife insurers.

Millea Holdings Inc., which has No. 1 nonlife insurer Tokyo Marine & Nichido Fire Insurance Co. under its wing, saw group net profit rise nearly fourfold from a year ago to ¥75 billion. Sompo Japan Insurance Inc. posted a group net profit of ¥52.1 billion, up 84.6 percent.

The smallest increase was reported by Nissay Dowa General Insurance Co., whose profit rose 3.2 percent from the same time the previous year to ¥4.7 billion.

"During the April-September period, stock markets mainly in Asia have been brisk, leading to profit in foreign currency funds," said Takeshi Oiwa, managing executive officer at Sompo Japan.

But Mitsui Sumitomo Insurance Co.'s net profit dropped 12.2 percent to ¥30.5 billion in the same period after it voluntarily refrained from conducting aggressive sales campaigns — even after a business suspension order from the Financial Services Agency for failing to honor legitimate insurance claims ended in February.

Part of last year's payouts for typhoon damage was also logged in the April-September half, cutting its profit further.

Some insurers took damage from the U.S. subprime mortgage debacle, but most of it was limited because insurers tend to invest in safer financial products.

The biggest writedowns were seen at Aioi Insurance Co., the nation's fourth-biggest nonlife insurer by net premium revenue. Aioi wrote down ¥25.2 billion on its investment in securities related to U.S. subprime loans, which are given to people with poor credit.

"We didn't think the losses would be this big," said Takayoshi Umemura, managing director at Aioi. "We stopped making new investments from the second quarter on."

Umemura refused to forecast what its losses will be for the full year.

Millea Holdings said it booked a ¥1.4 billion loss from the mortgage loan upheaval but also said it still has ¥26.9 billion worth of securities related to subprime loans, including ¥1.2 billion in residential mortgage-backed securities.

Sompo Japan, meanwhile, sold subprime housing loan products that guarantee the principal of the loan. Although it hasn't received any claims yet, the company said it might book about ¥30 billion in payouts in the second half.

The firms as a whole meanwhile continued to take direct and indirect damage from the industrywide "nonpayment" scandal, in which insurers failed to honor legitimate payout claims. The scandal forced the FSA to crack down on the industry with partial business suspensions and management improvement orders.

In the first half of the business year, Nissay Dowa posted a loss of ¥2.6 billion after making additional payments to settle the claims. Sompo Japan reported a ¥406 million loss over the issue.

Net premium revenue, which corresponds to sales in other industries, fell at three of the six nonlife insurers, who are allocating more of their human resources to the crisis to help out their overwhelmed sales operations.

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The Japan Times

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