Yamato Life files for bankruptcy

Yamato Life Insurance Co., a time-honored insurer based in Tokyo, filed for bankruptcy protection Friday due to losses related to the U.S. subprime crisis, becoming the first Japanese financial institution to fail amid the ongoing global financial turmoil.

Yamato, which went belly up with debts of ¥269.5 billion, asked the Tokyo District Court to invoke the 2000 fast-track law for the rehabilitation of troubled financial institutions, company officials said.

Yamato's financial profile was hurt by losses from investing in subprime mortgage-backed bonds and other securities like stocks, whose prices have plunged amid the global financial crisis, the officials said.

The rehabilitation law empowers a court to order the assets of troubled financial institutions such as banks and insurers to be preserved. The court is also authorized to halt policy cancellations and order insurers to stop selling new policies provisionally.

Under it, insurance money and pension benefits payable to Yamato's policyholders may be cut by percentages to be prescribed later, with benefits for financial products with high savings components likely to suffer the deepest cuts, analysts say.

Yamato's negative net worth — by which its debts eclipse assets — is likely to amount to ¥11.5 billion as of Sept. 30, the officials said.

"We are really sorry for this and offer an apology from the heart," Yamato President Takeo Nakazono said at a press conference.

"The value of our securities holdings has undergone sharper-than-expected falls as a result of the turmoil in global financial markets," he said.

Under the rehabilitation law, the court would authorize the insurer to start rehabilitation proceedings if it judges the insurer can be revived as a corporate entity.

The court would then appoint an administrator to oversee the rehabilitation proceedings. The administrator would be tasked with devising a reconstruction program.

Kaoru Yosano, minister in charge of economic and fiscal policies, rejected suggestions that Yamato's collapse may exert a negative influence on Japan's financial system.

"The corporate scale of Yamato Life Insurance is small and it came to a dead end as a result of its extraordinary business model," Yosano said.

Finance Minister Shoichi Nakagawa, now on a visit to Washington, told reporters the Yamato failure "has stemmed chiefly from its extraordinary profit and revenue structure, so the insurer's situation differs from those of other insurance companies."

"The insurer has long engaged in risky business, and it was anticipated that the insurer would develop a negative net worth," Nakagawa said.

Industry sources said that under its extraordinary business model, the insurer has tried to offset the high cost of its mainline insurance business with profit on investment in high-yielding securities like collateralized debt obligations backed by subprime mortgages.

Yamato becomes the eighth life insurer to fail in Japan since the end of World War II, and the first since the collapse in 2001 of Tokyo Life Insurance Co., a predecessor of T&D Financial Life Insurance Co.