The Yasuda Mutual Life Insurance Company History

Key Dates:

1868:

The Yasuda zaibatsu (holding company) is formed.

1880:

Yasuda Mutual Life Insurance Company is established.

1921:

Founder Zenjiro Yasuda is assassinated.

1945:

The Yasuda Plan for dismantling the zaibatsu system is implemented for postwar Japan.

1952:

Allied occupation ends, and businesses regroup under the zaibatsu system again.

1987:

Yasuda purchases 25 percent of PaineWebber's common stock.

1998:

Company begins efforts to demutualize.

Company History:

Despite severe economic conditions in Japan that have crippled the insurance industry, the Yasuda Mutual Life Insurance Company, Japan's oldest life insurer, maintains its reputation for dependability and innovation. As insurance in Japan undergoes a period of restructuring, Yasuda looks to introduce new products, expand its international presence, and perhaps restructure itself as public company. The motivation for such moves is a matter of survival rather than a means to greater prosperity.

The Yasuda Group is Formed in 1868

Yasuda Mutual's beginnings and early history are closely tied to the founding of the Yasuda zaibatsu, the financial conglomerate owned and managed by the Yasuda family. The group was organized following the collapse of the Tokugawa government in 1868, which had secluded feudal Japan from the rapidly industrializing West since 1639. The victorious Meiji Restoration government reopened communications with the West. It concentrated on modernizing Japan and catching up with the technologically superior Western nations. In this context, already consolidated families, such as Mitsui, quickly took advantage of new capitalist potential and government incentives, diversifying quickly and successfully. Unlike Mitsui, Yasuda had no pre-Meiji existence as a business concern. Its founding and progress were, rather, the vision of one man, a son of a lower class samurai, Zenjiro Yasuda.

With the rise of the Meiji government, Zenjiro Yasuda became an entrepreneur with almost reckless ambition and imagination. As a member of the board of Nippon Ginko, the Bank of Japan, he was an upstart who diluted the longer established power of the Mitsui family. He quickly began to amass newly available capital, forming the Yasuda Bank, now Fuji Bank, the center of the Yasuda zaibatsu. Unlike the other heads of large families--Mitsui, Mitsubishi, and Sumitomo--Yasuda consolidated his empire in banking and finance, specializing in backing small- and medium-sized traders and industrialists.

In 1880, as part of his financial empire, Yasuda founded the Yasuda Mutual Life Insurance Company. Along with the rest of the zaibatsu concerns, the company prospered. In 1893, the Yasuda zaibatsu absorbed the Tokyo Fire Insurance Company (later renamed the Yasuda Fire and Marine Insurance Company), a young insurance firm unable to survive without Zenjiro Yasuda's aid.

Wartime Activities

Yasuda was also one of the largest financiers of the Russo-Japanese War from 1904 to 1905; in the aftermath of the war, the government asked Yasuda to help the troubled Hayaku Zenjiro bank survive. He proposed a government loan of ¥6 million. In 1912 the existing Yasuda Bank was incorporated with capital of ¥10 million. At the same time, the Yasuda hozensha, or family holding company, was formed to manage and direct all Yasuda concerns, including Yasuda Mutual. The stock for these companies was all held by family members, however, and the Yasuda group remained private.

In the 1920s, post-World War I Japan declined into severe economic depression. Nationalist radicals, many opposed to the terms of the Portsmouth Treaty that had ended the war with Russia in 1905, divided the country with rioting and political assassinations. In this tense atmosphere, Zenjiro Yasuda was not a respected man. He had been accused of profiteering after the Russo-Japanese War. In 1921, the same year Prime Minister Hara Kei was assassinated by a nationalist fanatic, Zenjiro Yasuda was killed by a disgruntled visionary incensed by the financier's refusal to fund a workers' hotel. Zenjiro's son, Zennosuke Yasuda, assumed leadership of the zaibatsu. Under his guidance, the conglomerate's operations were modernized; a university education, for example, became a prerequisite for many Yasuda positions.

The Yasuda zaibatsu survived the postwar political upheaval and economic depression to come into its own in the late 1920s. By 1928, the group was ranked behind only the Mitsui and Mitsubishi groups in total capital; in that year, the Yasuda zaibatsu encompassed 66 companies and reported total capital of ¥308 million. Yasuda Mutual reflected the successful trend of its parent company. By 1939 the company was reporting profit rates of 453 percent. In 1940 and 1941, those rates soared even higher, to 1,642 percent and 3,089 percent, respectively, surpassing even Mitsui Life. Although the Anti-Profiteering Law had been revised and extended in 1937, it did not apply to the insurance industry, thus allowing the kind of spectacular growth experienced by Yasuda Mutual in the 1930s and early 1940s.

World War II occasioned a change in the Yasuda zaibatsu structure. To fund the war effort, the Japanese government began forcing consolidation of major financial institutions. Although Yasuda avoided full consolidation, it did streamline family members' efforts. Hajime Yasuda, primary heir to the Yasuda empire and now head of the conglomerate, announced Yasuda's new structure in January 1942: all Yasuda family members would withdraw from related and subsidiary companies, assuming new leadership positions as board members over all zaibatsu concerns.

Postwar Rebuilding

With Japan's defeat in August 1945, the organization of Yasuda again changed, this time to check the earlier move toward amalgamation. By the end of August, occupation forces had arrived under General Douglas MacArthur, Supreme Commander for the Allied Powers (SCAP). Under the SCAP administration, economic controls reversed the consolidating trend of Japanese business and enforced democratization and deconcentration of the Japanese economy. Early directives from the Allied powers included mandates for the dissolution of the zaibatsu, preferably according to proposals from the zaibatsu themselves. Responding to what they saw as an inevitable redirection of the Japanese economy, Yasuda executives assumed a leadership role in planning for the dissolution of their own group and ultimately that of other zaibatsu as well.

The Yasuda Plan was submitted in October 1945 and stipulated that the Yasuda zaibatsu would be dissolved and that Yasuda Bank would cease to control Yasuda subsidiaries. Shares held by family members in the bank, the holding company, and all other subsidiaries, including Yasuda Mutual, would be sold to a government control commission and the proceeds used to purchase ten-year government bonds. In addition, family members and executives appointed by them would resign from all Yasuda companies. The Mitsui and Sumitomo zaibatsu reluctantly agreed to the proposal, but Mitsubishi held out longer. The Yasuda Plan, with some revisions, was accepted by the U.S. government in November.

When the occupation ended in 1952, Japanese business reorganized itself once again along the original zaibatsu lines. Although the holding companies had been dissolved, the banks had remained intact; Yasuda Bank, renamed Fuji Bank, and the other zaibatsu banks now became the nuclei of business groups that were remarkably similar to the prewar zaibatsu. The families themselves never quite regained the extent of their prewar power. Mitsui was most acutely affected by the occupation; Yasuda, however, did reclaim some of its former holdings. Hajime Yasuda, the prewar zaibatsu chieftain who had announced the reorganization of 1942, became chairman of Yasuda Mutual after the occupation, a post he would continue to hold through the 1980s. He also promoted other businesses that had been Yasuda subsidiaries during the zaibatsu's heyday.

Despite a rapidly expanding postwar economy and the reconsolidation of the zaibatsu, the Japanese life insurance industry was slow to recover in comparison to other industries. By 1955, life insurance in force amounted to only 40 percent of the prewar amount. In the 1960s, the rate of recovery increased, with total life insurance assets doubling in the years from 1962 to 1966. Yet by 1966, life insurance assets amounted to only five percent of total assets of all Japanese financial institutions, compared with ten percent before the war. In the tight money market then prevailing, most life insurance funds were loaned to emerging and expanding businesses rather than invested in negotiable securities, as had been the case in prewar Japan.

New Focus in the 1960s

In 1964 Japan joined the International Monetary Fund and the Organization for Economic Cooperation and Development. As a result, industry restraints were lifted and competition increased in the insurance industry. Focus over the next two decades would be on preparing participate in an increasingly international economy.

In 1987 Yasuda purchased an 18 percent voting stake in PaineWebber for $300 million. The investment gave Yasuda two voting positions on PaineWebber's board, an advisory board position for Yasuda President Norikazu Okamoto, and up to a 25 percent share in PaineWebber's common stock. The move increased the company's exposure to international money markets.

The following year, the company established a firmer presence in the United States by forming Yasuda Life America Agency Inc., a subsidiary dedicated to strengthening and expanding insurance coverage for Japanese-affiliated companies in the United States. Internationalization through foreign investment also continued to escalate. In 1989 and early 1990, facing uncertainty in the Japanese economy, Chairman Yasuda and President Okamoto invested in foreign bonds rather than Japanese government bonds, increasing foreign bond assets to ¥821 billion, a 34 percent climb over the previous year. Such diversifying investments reflect Yasuda Life's strong commitment to becoming a truly international company in a rapidly changing global market. In the early 1990s, as Japan's fifth-largest life insurance company, Yasuda Mutual continued to search for investment opportunities.

The Mid-1990s and Beyond

Poor real estate investments and a weak Japanese economy that deflated domestic stock prices would have a crippling impact on Yasuda Mutual and the Japanese insurance industry as a whole. In April 1996 a revised Insurance Business Law went into effect in Japan to reduce government regulation, with the expectation that insurers would have more freedom to engage in global financial activities. Instead of entering a period of unprecedented prosperity, however, the industry soon witnessed the unimaginable: Nissan Mutual Life, Japan's 16th largest life insurer, went bankrupt. A year later Toho Mutual would also collapse. With no safety net provided by the government or the insurance industry, policyholders found their faith in their traditional insurers sorely tested. Deregulation also brought new players into the life insurance business, so that policyholders had more options. In effect, too many companies began to chase an ever-shrinking premium pool, as it was estimated that within two decades one-quarter of the Japanese population would be over 65. A consolidation of the insurance industry seemed inevitable.

Underlying structural flaws in the insurance industry became apparent. Mutuals in Japan were run essentially as non-profits, with most of the profits returned to policyholders. The companies also had a limited ability to increase capital. As long as the Japanese economy remained robust, insurers could count on increasing unrealized gains on domestic stocks to provide the necessary capital to offer higher dividends to policyholders. With the price of securities depressed, however, insurers were caught in a bind. Domestic interest rates were far lower than the promised benefits of policies, leaving insurers with no place to turn for an infusion of capital than commercial lenders--a stopgap measure at best. Only the strongest firms could expect to ride out the storm. The weak, as in the case of Nissan and Toho, would simply succumb.

To bolster its position, Yasuda Mutual looked to strengthen its ties to traditional members of the Yasuda Group: Fuji Bank and Yasuda Trust & Banking Co. There was even talk of combining forces under a holding company. After two straight years of a drop in the number of insurance contracts signed, Yasuda Mutual would also see its premium revenues drop by ten percent in 1998 and its credit rating downgraded, prompting the insurer to take more aggressive steps to maintain its business. It looked to the possibility of converting from a mutual form of ownership to a public company, which would allow Yasuda Mutual to raise capital through a public offering of stock. The tax laws did not provide for conversion, but the Ministry of Finance supported demutualization, and Yasuda Mutual and other insurers hired advisers to begin the process.

Yasuda Mutual also began efforts to diversify its business into the non-life area. Late in 1998 it announced that it had reached an agreement with the PaineWebber Group to form a joint venture to sell mutual funds and other asset-management products in Japan. In 1999 Yasuda Mutual, along with Yasuda Fire & Marine Insurance Co., purchased Nippon Enterprise Development Corp., a venture capital firm that specialized in high tech companies in both Japan and the United States. A few months later Yasuda Mutual announced a joint venture with Britain's Direct Line Insurance plc to sell auto insurance by telephone in Japan. Shortly thereafter, a potentially even more important alliance was established. Fukoku Mutual Life Insurance joined Yasuda Mutual in the Direct Line venture, as the two insurers began to discuss the possibility of one day merging, a move than would have a major impact on the realignment of the Japanese insurance industry.

In 2000 Yasuda Mutual turned to American International Group, Inc. to help it prepare to offer defined contribution pension plans (similar to the American 401(k)) that were scheduled to be introduced in Japan in 2001. The insurer's efforts to fortify its business were rewarded in 2000 when Standard & Poor's upgraded its rating of the company. Overall, the insurance industry began to stabilize, caused in some measure by the establishment of the Life Insurance Policyholders Protection Corporation of Japan to create a safety net for policyholders that helped to quell consumer fears. Nevertheless, Yasuda Mutual and others continued to be dependent on the volatility of the stock market, which left in doubt the future of Yasuda and the Japanese life insurance industry. If Yasuda Mutual and other insurers indeed converted to stock ownership, the results of such a change were equally uncertain.

Principal Subsidiaries: Yasuda Life International Investment S.A. (Luxembourg); Yasuda Life International Investment (Cayman) Ltd.; Yasuda Life International Investment (B.V.I.) Ltd. (British Virgin Islands); Yasuda Life Global Investment (Jersey) Ltd. (U.K.); Yasuda Life America Capital Management Ltd. (U.S.A.); Yasuda Life International (London) Ltd. (U.K.); Yasuda Life International (Hong Kong) Ltd.; Quaestor Investment Management Ltd. (U.K); Yasuda Life International (Singapore) Ltd.; Yasuda Realty America Corporation (U.S.A.); Yasuda Properties (U.K.) Ltd.; Yasuda Life America Agency Inc. (U.S.A).

Principal Competitors: Nippon Life Insurance Company; Dai-Ichi Mutual Life Insurance Company; Sumitomo Life Insurance Company; Maiji Life Insurance Company; Mitsui Mutual Life Insurance Company.

Further Reading:

• Completion of Safety Net Stimulates the Reorganization of Life Insurance Industry, Norinchukin Research Institute, September 2000, 12 p.
  Japan Insurance Digest 2000, New York: Standard & Poors, 2000, 28 p.
• Roberts, John G., Mitsui: Three Centuries of Japanese Business, New York: Weatherhill, 1989.
• Shimbun, Asahi, 'Dismal Results for Insurance Firms,' Financial Times, June 10, 1999.
• 'Three of Japan's Zaibatsu,' Oriental Economist, December 1945.
  The Yasuda Fire and Marine Insurance 1888-1988: A Century of Achievement, Tokyo: The Yasuda Fire and Marine Insurance Company, 1988.

Source: International Directory of Company Histories, Vol. 39. St. James Press, 2001.

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