World

Japan's Yamato Life fails with $2.7bn in debt

by Sanjay Jha | October 10, 2008 at 12:32 am

238 views | 7 Recommendations | 2 comments

The global credit crisis sparked by the U.S. subprime collapse has started spreading its wing and has wiped out more than $670 billion in market value from the Tokyo Stock Exchange's this week. And now a 98- year-old Japanese insurer Yamato Life Insurance Co has filed for court protection from creditors in the Japan's first bankruptcy after this crisis has erupted. The collapse of closely held Yamato is the eighth by a Japanese life insurer since World War II, and the fifth largest this year.

Japan's Yamato Life Insurance Co, an unlisted midsized insurer, failed with $2.7bn in debt on Friday, the first Japanese financial institution to collapse due to global market turmoil stemming from the subprime crisis.

But Japanese ministers and market participants said that Yamato, which pursued higher risk investments, was not typical of Japan's insurance sector and that its collapse did not mean other financial firms would follow.

"It didn't fail because Japan's financial system wasn't working right, or liquidity in Japan stalled or anything like that," said Masanaga Kono, a strategist at Societe Generale Asset.

"I doubt that other companies were taking as much risk." Economics Minister Kaoru Yosano said there was no other problem with insurers.

"It is the smallest company in our nation's insurance sector," he told reporters. "The incident is a failure of a company that had a unique business model."

Yamato's collapse came amid an 11 percent tumble in Tokyo's Nikkei stock average, as investor fears grew that intensifying market turmoil heralded a global recession.

The firm's bankruptcy was the fifth-largest this year in terms of debt, and the latest insurer to go bust since Tokyo Life in 2001, research firm Teikoku Databank said.

Yamato said it had been actively pursuing investment returns to cover high operational costs, allocating a relatively big proportion of its investments to alternative assets, including hedge funds and REITs. "The worldwide drop in asset value triggered by the subprime shock was unexpectedly large," Yamato president Takeo Nakazono told a news conference.