7/87 JAPAN’S INSURANCE COMPANIES--PERIPHERAL BUSINESS, BOND GUARANTEES

The Ministry of Finance has notified Japanese life insurance companies that it has eased controls on the types of business they may engage in and for the first time will permit the insurers to engage in areas such as health centers and retirement homes for the elderly. The ministry has also notified the insurers that it will dramatically expand the permissible

activities conducted via affiliated companies. For 100% owned affiliates it will permit participation in activities such as repair and maintenance of cash dispensers and similar equipment, data processing and the sale of computer software related to finance, pension paperwork, financial institution computer data backup maintenance services, advertising for financial institutions, the maintenance of properties provided as security for loans and other similar activities related to financial institutions. Although previously 100% owned affiliated had to be at least 90% dependent on the parent life insurer for their income, this has now been eased to only 50% when these new computer services are added in. Affiliates less than 10% owned by life insurers will be permitted to engage in such activities as venture capital business, consumer loans, Value Added Network (VAN) business and automobile leasing and maintenance, etc.

Japanese insurance companies are watching with keen interest the advance of American insurance companies into the field of bond guarantees. That field had long been the preserve of American banks, but as the credit ratings of American banks deteriorated in the face of mounting bad loans, Japanese banks moved in. Such bond guarantees essentially required the highest of credit ratings which the Japanese banks still had while the condition of American banks deteriorated. Nevertheless, in recent months the credit ratings of even some of the Japanese banks have been put under reconsideration. American insurance companies have taken opportunity thus presented to enter the field. If Japanese banks took away a lucrative field from American banks in the American market, can Japanese insurance companies long control themselves? .

A syndicate of 20 Japanese life insurance companies in mid-June concluded a contract with the World Bank to make a 30 billion yen loan to the bank. This will be the second such loan by Japanese life insurance companies to the world bank, following a 40 billion yen loan in December of 1986.

Nippon Life plans to strengthen its ties with American Express in addition to recent substantial investment in Shearson-Lehman Brothers. Specifically, Nippon plans to use its 20,000 business offices and army of salespeople in Japan to start sales of a joint credit card with American Express. The card will be called "Nissei-Amex Card." Card holders will in the future be provided with investment information from Shearson-Lehman Brothers.

THE JAPAN LAWLETTER, July, 1987. By Roderick Seeman