Reorganization of Financial Services and Life Insurance Demutualization -The View from Abroad

Hironobu Murakami

Introduction

The implementation of financial reforms continues steadily in Japan's Big Bang. Meanwhile， financial institutions are maneuvering with increasing intensity to prepare for the highly com-petitive post-Big Bang era.

The revised Anti-Monopoly Law lifted a half-century old ban on pure stock holding companies in June 1997， and a ban on financial holding companies in March 1998. Furthermore， the Finan-cial System Reform Law enacted in December 1998 allows banks and life insurers to sell mutual funds， and eliminates entry restrictions between the insurance and securities industries.

Meanwhile， at the company level， we see movements to regroup former zaibatsu members as well as to form new extra-group alliances such as the comprehensive tie-up between Daiichi Life Mutual Company and the Japan Development Bank.

The Big Bang is encouraging cross-industry alliances in financial services. But in trying to form corporate groups with various forms of capital participation， major life insurers run into limita-tions peculiar to mutual companies. A mutual company is a form of organization stipulated under the Insurance Business Law， and is unique to insurance companies. In a mutual company， policyholders automatically become owners much like stockholders in a stock company， and thus enjoy rights as both policyholders and as owners. Mutual companies thus do not have com-mon stock that can be held by a holding company.

However， in recent years other countries are seeing a shift toward demutualization， the process of reorganizing mutual companies into common stock companies.