Japan insurers see limited subprime mortage impact

(For table on Japanese insurers’ foreign bond holdings, click [ID:nT114836])

TOKYO, Nov 26 (Reuters) - Japan’s biggest life insurers said on Monday they have only limited exposure to the U.S. subprime mortgage market, in which turmoil has triggered a global credit crunch.

The top nine insurers also said they had no plans to significantly change their foreign bond investment allocations despite a surge in the yen to a 2-1/2-year high against the dollar, which has made overseas investment more attractive.

They said investments in collateralised debt obligations and products related to U.S. subprime mortgage loans have been limited, and the impact of credit problems has been small.

“We have zero direct investments in subprime mortgage-related products,” said Yoshinobu Tsutsuji, a managing director at Nippon Life Insurance, Japan’s biggest insurer.

“Some of the funds we invest in deal with subprime-related products but the amount is very small, and those funds as a whole are turning a profit.”

Most of the nation’s top nine insurers increased their foreign debt holdings in the April-September fiscal first half, when overseas yields surged, but many said they would stick to a neutral stance until March despite the yen’s rise against the dollar.

Japanese life insurers are buy-and-hold investors interested in absolute yields, and tend to favour longer maturities. The top nine insurers manage roughly 158.203 trillion yen ($1.459 trillion) in assets on behalf of policyholders, close to the size of Italy’s economy.

They held a total of around 15 trillion yen in foreign debt as of September, roughly half of which was unhedged. Given such massive holdings, the insurers are a major force in the currency market.


Many of the top officials at the insurers kept mum on specific figures relating to their exposure to subprime mortgage loans, with the exception of firms such as fifth-ranked Mitsui Life Insurance.

“One of the securities in which we have an outstanding balance of 3 billion yen ($27.66 million) comprises some subprime-related debt,” said Yukiteru Yamamoto, executive managing officer at Mitsui Life, which managed 7.3 trillion yen in assets on behalf of policy holders as of September.

“The losses on that at the moment are 1.6 billion yen.”

Asahi Mutual Life Insurance, ranking No.7, said that of its 6.16 trillion yen in assets it had 500 million yen in collateralised debt obligations, on which it suffered 300 million yen in losses by September.

Meanwhile, the insurers said they had not made any big changes to their foreign bond investment plans to March, even as persistent weakness in the dollar pushed it to 107.55 yen JPY= last week, its lowest since June 2005.

Many insurers remain interested in picking up foreign bond investments, which offer returns that dwarf those on domestic bond holdings with the Bank of Japan keeping its key interest rate near zero.

But overseas yields have plummeted since the summer, dimming the appeal of foreign bonds, and some insurers said they would wait until further yen strength before considering picking up overseas debt.

Ninth-ranked Fukoku Mutual Life Insurance expects the yen to resume its downward trend as the financial sector begins to recover from credit problems and recent volatility, but said ongoing strength in the currency may prompt foreign bond buying. ($1=108.45 Yen) (Additional reporting by Hideyuki Sano, Editing by Michael Watson)