The nation’s largest nonlife insurance company could be created if merger talks are successful between three of the six major domestic insurance firms.
The news that Mitsui Sumitomo Insurance Group Holdings, Inc., Aioi Insurance Co. and Nissay Dowa General Insurance Co. are discussing a merger has rocked the domestic financial sector, which is already reeling from the ongoing global financial crisis.
The talks could trigger further competition among companies to add to their scale.
People inside the nonlife insurance world have increasingly speculated that the three companies will indeed unite. The merger has been deemed a good idea as Mitsui Sumitomo, Aioi and Nissay Dowa have strong backing from Sumitomo Mitsui Financial Group, Toyota Motor Corp. and Nippon Life Insurance Co., respectively.
There have been rumors of the three coming together for several years.
Tokio Marine Holdings, Inc., the biggest nonlife insurance company in the country, cannot sit on its hands as it watches moves by the three companies, as their merger would push Tokio Marine to the No. 2 slot. Tokio Marine has long held the top spot, and from this rock-solid position, it has exercised strong influence over the industry.
Tokio Marine acquired U.S. insurer Philadelphia Consolidated Holding Corp. for about 4.7 billion dollars this month, stepping up efforts to expand its overseas business. However, because the company earns about 70 percent of its annual profit domestically, it could be hurt if it falls to second place in the market.
Third-ranked Sompo Japan Insurance Inc. may be pushed into an even more dismal situation due to the merger. Sompo Japan and fifth-ranked Nipponkoa Insurance Co. will lag far behind the new company and Tokio Marine in business scale, and they could see their operations dwindle.
A merger of the three firms would mark the first major realignment in the domestic nonlife insurance industry in seven years.
Between 2001 and 2004, nonlife insurance companies were streamlined into six major companies due to deregulation over insurance premiums and the introduction of diversified insurance products.
The latest move by Mitsui Sumitomo, Aioi and Nissay Dowa is believed to have been triggered by the global financial crisis, which has pushed financial institutions in Europe and North America toward realignment.
In addition to a stagnated economy, the domestic nonlife insurance market has been diminishing as the population ages and the birthrate declines. As a result, insurance revenue has shrunk.
Global financial market confusion has dealt a further blow to struggling nonlife insurers that have suffered investment losses.
Mitsui Sumitomo recorded 45 billion yen in losses from securities evaluation in its consolidated accounts for the half year ending in September, while Tokio Marine suffered 31.6 billion yen in losses from reevaluation over the same period.
Mitsui Sumitomo decreased its after-tax profits by 59 percent for the half year ending in September from that of the same period last year. Aioi marked a 44 percent decrease, and Nissay Dowa suffered a 46 percent decline.
The ill effects of the financial crisis on real economy will become even more pronounced next year. Auto sales are expected to decline, and many people who do buy automobiles will likely purchase mini cars, which will decrease insurance revenues. Employment woes will push people to review whether their insurance policies are necessary and will decrease insurance premium payments.
Nonlife insurers will be forced to streamline, and expanding in scale is one of the easiest ways to decrease costs through drastic measures, such as restructuring local offices.
A decision to merge would put Mitsui Sumitomo, Aioi and Nissay Dowa a step ahead of other rival companies in the race for survival.

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