1-2-3, Ohtemachi, Chiyoda-ku
Total Assets: $19.43 billion (1998)
NAIC: 524113 Direct Life Insurance Carriers
1927: Mitsui Mutual Life Insurance Company is formed.
1972: Company begins overseas investment.
1978: Company begins international lending.
1996: Revised Insurance Business Law goes into effect.
1998: Company begins efforts to demutualize.
Among the top life insurers in the world, Mitsui Mutual Life Insurance Company for years also has ranked sixth among its Japanese competitors in premium income, contracts in force, and assets. Along with The Mitsui Trust & Banking Company and Mitsui Marine and Fire Insurance Company, Mitsui Mutual functions in the banking and finance sector of the Mitsui Group, one of Japan's largest and most powerful corporate combinations. Mitsui Mutual maintains close relationships with other members of the Mitsui Group and with its Japanese competitors. Mitsui Mutual's ties to other Japanese insurers are so close that they have sometimes been referred to as a cartel. Severe economic problems in Japan in the 1990s, however, has revealed some serious structural flaws in the industry, as two major insurers collapsed and one other became subject to statutory restrictions. Mitsui Mutual, with its credit rating downgraded, began efforts to convert to a stock form of ownership in order to gain access to capital and maintain solvency.
Launching a company in Japan usually requires some degree of acceptance by the companies already in that field. A new company seeks a niche--a business specialty that it can develop within a group of competitors. Mitsui Mutual has focused on customer service-oriented products from the start, but the company began to change its traditional approach in the 1970s. During the 1970s and 1980s Mitsui Mutual initiated product and investment changes that expanded its business, notably pioneering international group life insurance. Despite some retrenchment in overseas investment to cope with worldwide and domestic market fluctuations, the indications are that the next decade will see Mitsui Mutual expand further, especially in the European and Southeast Asian markets.
Mitsui Mutual is a relative newcomer among the companies in the Mitsui Group, which dates back to the rise of the merchant class in Japan in the last half of the 17th century. Like other samurai warriors, head of the family Sokubei Mitsui had become a chonin, a merchant, when times changed. He established a soy and sake brewery, which he passed on to his son Takatoshi. Takatoshi Mitsui expanded the business to include a dry goods store named Echigoya in honor of an ancestor, a pawnshop, and a currency exchange that later became a bank. The Mitsui corporate symbol, a circle (the heavens) surrounding a well-frame (the earth), which contains the mitsu (mankind), is said to have been suggested by a dream Takatoshi Mitsui's mother had. The symbol may have seemed grandiose when applied to Echigoya in 1676, but time seems to have borne out this largeness of vision. With the opening of Japan to Western trade, cultural, and business influences in the late 19th century, the Mitsui Group was already firmly established in manufacturing, finance, and other types of enterprises. The Mitsui Bank was a major commercial bank when the Banking Act of 1882 formalized a niche system for the banking industry, creating banks for specific types of business. Major banks, such as the Mitsui Bank, became cores of financial combines known as zaibatsu.
Formation of Mitsui Mutual in 1927
The Mitsui Group had become a powerful springboard for launching new businesses by 1927, when Mitsui Mutual Life came into being. The group's long tradition of successful enterprise was a substantial advantage for a company hoping to win public trust. The tradition of private savings is strong in Japan. By the same token, insurance has been a popular form of savings since the 1890s, when the first modern forms were introduced into Japanese commerce.
Recovery from a post-World War I recession and from the Great Kanto Earthquake of 1923 were well under way in 1927, but the feeling of personal and financial vulnerability remained even as business and industry gained momentum between wars. The market for life insurance grew with the influx of industrial workers into factory towns and retail and other business employees into the cities. It grew even faster as preparations for war progressed in the 1930s.
The niche that Mitsui Mutual realized it could fill was the need for an increased emphasis on individualized types of insurance and customer service. Strict government regulations imposed the same system of premium rates and rates of return on all insurance products. A prospective insurance customer would base a choice not on the prospect of direct financial returns but on such factors as the company's stability, length of service, investment policies, and attention to personal needs.
Although Mitsui Mutual's positioning proved effective in promoting growth, the company, like other Japanese companies, suffered with Japan's defeat in World War II. The prewar Mitsui zaibatsu had been the oldest and largest industrial group in Japan. Its holding company had been owned by 11 households of the Mitsui family, controlling 294 major companies, but not even the powerful Mitsui companies could retain their overseas holdings through war and defeat--and by the war's end their domestic markets were in shambles.
Business began anew after World War II. The zaibatsu were no longer operative; the occupation authorities replaced them with a new, antimonopolistic philosophy that encouraged competition in the market.
The former zaibatsu, however, began efforts to reunite their companies, not as zaibatsu, but as keiretsu--a network of closely associated companies with noncontrolling financial interests in one another. Mitsubishi and Sumitomo were among the first former zaibatsu to develop keiretsu--and the advantage this gave them is evident in their leading positions today. Mitsui lagged behind, in part because of an affinity for the new concept of opportunity for individual companies to compete and in part because of the reluctance of some of its larger companies to rejoin. Toshiba, for example, formerly a member company, decided to form its own keiretsu.
During the 1950s and 1960s, as the nation's domestic economy resurged, Mitsui succeeded in reuniting a number of its former member companies and added new groups of companies, expanding not only in numbers but in the range of types of its business concerns. Although the Mitsui Group has never regained the topmost leadership position, the conglomerate has remained a leader. Mitsui Mutual continued to play a large role in insuring other members of the Mitsui Group.
With the economy's recovery, the market for insurance responded positively to Mitsui Mutual's individualized, 'self-designed' insurance product approach. Individual and group life insurance products proliferated during the decades of rapid economic growth after the war.
The investment policies pursued by Mitsui Mutual up to the 1970s had always been conservative and closely tied to the fortunes of the domestic economy. The company was a major institutional investor. In 1972 Mitsui Mutual was ready to strike out in a new direction: overseas investment. By 1988 Mitsui Mutual's investments in overseas securities reached close to $6 billion. The company concentrated its investments mainly in Europe and North America, with some activity in Southeast Asia. Mitsui Mutual also struck out in another direction in the 1970s, broadening its financial services. The company's conservative lending policies have provided Mitsui Mutual with a solid base for expansion. In 1978 the company began an international lending program, the success of which has contributed to a shift in the emphasis of Mitsui Mutual activity to the international scene. The company also added consumer lending through special policyholder cards that expedite loans for individuals, and subsidiaries offer investment advice and mortgage securities. As a pioneer in international group insurance in the 1970s, Mitsui Mutual established a network of agreements with more than 200 insurance companies in 40 countries around the world. Among its business partners are Aetna Life and Casualty Company in the United States and Assicurazioni Generali in Italy. The company also has agreements with three leading European reinsurance companies.
Late 1980s Retrenchment
Mitsui Mutual's success brought some problems, however. In the 1980s, when Japan's economy reached the height of prosperity, insurance company income began to overflow the capacity of domestic opportunities for profitable investment. Even though the government had liberalized its strict control of the insurance business, Japanese insurers with excess cash to invest followed Mitsui Mutual's example in placing their investment money in overseas real estate developments and other types of long-term overseas investment prospects.
Other surprises were in store as the decade came to a close. The stock market crashed in 1987, monetary value fluctuations ensued, and by the fall of 1990 the Japanese market showed about a 15 percent loss overall. Mitsui Mutual Life Insurance Company, like other insurers, was quick to put a hold on immediate investment programs and, for the moment, retrench.
For the long haul, however, company president Koshiro Sakata intended to expand overseas operations, adding to the staff in international administration while carefully monitoring the risks. A tool that was expected to contribute to expansion abroad was the investment index model developed by the company in 1986 that has helped the company maintain one of the highest yield levels in the industry since it was put into use to manage funds for variable life insurance policies.
The 1990s, however, would prove to be a troubling period, not only for Mitsui Mutual but for the insurance industry and the Japanese economy in general. 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, the industry, crippled by a weak economy, quickly witnessed what had once been unthinkable: Nissan Mutual Life, Japan's 16th largest life insurer, went bankrupt. The failure sent shock waves across the industry. A year later Toho Mutual would also collapse. The faith of policyholders was tested; and because Japanese policyholders had no regulatory or industry mechanisms to protect the value of their policies, faith was all that maintained the traditional bond between policyholders and the life insurers. Deregulation also brought new players into the life insurance business, so that policyholders, whose loyalty was eroding, 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 older than 65.
Underlying structural flaws in the insurance industry became apparent. Mutuals in Japan were run essentially as nonprofits, 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, insurers were unable to meet the level of promised benefits and could only turn to commercial lenders for an infusion of cash.
Challenges in the Late 1990s and Beyond
In 1998 Mitsui Mutual experienced a second consecutive year in which it signed fewer contracts. Premium revenues dropped ten percent, and the company's total assets fell by 7.2 percent. Because of Mitsui Mutual's relatively weak earnings profile and capital position, Standard & Poor's lowered the credit rating of the insurer. The insurer was forced to turn to the Mitsui-affiliated Sakura Bank for a $424 million bailout.
Mitsui Mutual looked for ways to improve its position. There was talk of reviving the zaibatsu, with Mitsui Mutual forging a union with other Mitsui financial entities under the wing of a holding company. Another, more likely, possibility was converting from a mutual form of ownership to stock, which would allow the insurer to raise capital through a public offering. The tax laws did not provide for conversion, but the Ministry of Finance supported demutualization, and Mitsui Mutual and other insurers hired advisers to begin the process.
As Mitsui Mutual awaited new legislation that was expected, eventually, to allow demutualization, it began to sell insurance products over the Internet. It received an infusion of $1.2 billion dollars in cash from Sakura Bank and other Mitsui Group companies. The establishment of the Life Insurance Policyholders Protection Corporation of Japan to create a safety net for policyholders also helped to quell consumer fears. Therefore, despite Mitsui Mutual's recent struggles, the insurer--given the strengths of its ties to the Mitsui Group&mdash〉pears to have a positive long-term forecast.
Principal Subsidiaries: Mitsui Seimei America Corporation (U.S.); Mitsui Life Investment Luxembourg S.A.; Mitsui Life Investment Bahamas Company, Ltd.; Mitsui Life Asset Management America Corporation (U.S.); Mitsui Seimei Investment Jersey Ltd. (U.K.); Mitsui Life International London Ltd. (U.K.).
Principal Competitors: Nippon Life Insurance Co.; Dai-Ichi Mutual Life Insurance Co,; Sumitomo Life Insurance Co.; Maiji Life Insurance Co.; Yasuda Mutual Life Insurance Co.
'Completion of Safety Net Stimulates the Reorganization of Life Insurance Industry,' Norinchukin Research Institute, September 2000.
'Japan Insurance Digest 2000,' New York: Standard & Poor's, 2000.
Prindl, Andreas R., Japanese Finance: A Guide to Banking in Japan, New York: John Wiley & Sons, 1981.
Reischauer, Edwin O., Japan, the Story of a Nation, Tokyo: Charles E. Tuttle Co., 1971.
Shimbun, Asahi, 'Dismal Results for Insurance Firms,' Financial Times, June 10, 1999.
Source: International Directory of Company Histories, Vol. 39. St. James Press, 2001.