In traditional Japanese fashion, Chiyoda turned to its banks for a lifeline. Over the next three years Tokai Bank, the main lender, extended almost $1 billion in credits before finally dispatching accountants to scrutinize Chiyoda’s books this April. What they found was startling: liabilities exceeded assets by $315 million. Tokai, struggling itself, could offer no additional infusions. Out of options, Chiyoda last week declared the largest Japanese bankruptcy ever, with total debts of $26.95 billion. “Chiyoda Mutual’s collapse has exposed what can happen when a life-insurance company has no blueprint for its future,” blared the Yomiuri Shimbun daily, declaring that the myth of insurers’ invulnerability had been “shattered.”
The forces that brought down Chiyoda now threaten Japan’s entire insurance in- dustry, the world’s second largest. During the roaring 1980s, insurers sold life insurance, promising a payout based on 4 percent interest rates–figuring they’d always do better than that in the markets. When the bubble burst, and real rates fell to zero, these policies became liabilities. Since none of the top insurers are publicly traded, their books are closed. No one knows just how many Chiyodas are out there. The total assets of Japan’s top five insurers surpass $1.1 trillion, and a recent government audit put “problematic debts” at $30 billion. “It’s scary,” said one industry analyst. “We have to assume the worst.” News of the Chiyoda collapse hit on Monday, sending the Nikkei index down 166 points (1 percent).
The Chairman of Japan’s Financial Reconstruction Commission, Hideyuki Aizawa, called Chiyoda’s collapse “extremely regrettable.” So-called “Big Bang” reform has opened the markets to foreign competition at a time of slow economic growth, and many companies won’t survive. Chiyoda president Reiji Yoneyama made a public apology last week, saying he had “betrayed the expectations” of his customers. “I feel sorry for them,” says a salesman, 37, of his Chiyoda elders. “They lived behind closed doors for so long that they cannot cope with changes outside of their small world. It is too much to ask these old men to change.” For the salesmen, it’s change or death.
