SUMITOMO LIFE INSURANCE COMPANY - Company Profile, Information, Business Description, History, Background Information on SUMITOMO LIFE INSURANCE COMPANY



2-5, Nakanoshima 2-chome
Kita-ku,
Osaka
530
Japan

History of SUMITOMO LIFE INSURANCE COMPANY

Sumitomo Life Insurance Company is Japan's third-largest life insurer, and also offers financial services. Sumitomo Life administers its individual, group, and business policies through a branch-office network. The Sumitomo Group, of which Sumitomo Life is a part, is Japan's third-largest keiretsu, or business group, and can trace its history to the early 17th century.

The Hinode Life Insurance Company was founded in 1907 and, from the start, established close business ties with the Sumitomo zaibatsu, or conglomerate. By 1925 these ties had become such that the Sumitomo zaibatsu took over the management of Hinode. Because Hinode was a mutual company, however, the company was not owned outright by the Sumitomo zaibatsu, but rather by its policyholders. Hinode was certainly a member of the conglomerate, and since much of its business involved other branches of the zaibatsu, those branches, in effect, owned a large part of Hinode.

In 1926, to signify this close relationship, Hinode became The Sumitomo Life Insurance Company. Sumitomo Life continued to expand its business until after World War II, when the Supreme Commander for the Allied Powers ordered Sumitomo and all other zaibatsu to disband.

Like other former zaibatsu, however, the Sumitomo companies--each now operating independently--began to come together again, even before the end of the occupation of Japan in 1952. Japanese law still prohibits the huge zaibatsu, and the postwar keiretsu are held together by a looser arrangement than were the zaibatsu.

The companies are connected partly by relationships between executives who grew up in the zaibatsu tradition, but financial links between the companies and cross-ownership of stocks are often more important, and are becoming stronger. Sumitomo Corporation, leader of the keiretsu, "has fostered trade among companies within the group, expanded the financial interrelationships, and strengthened formal management ties among companies at the core of the group," states Business Week, March 31, 1990.

Beginning in the 1950s, the life insurance business in Japan has grown and expanded along with both the Japanese economy and the increase in assets of individuals. As the Japanese economy underwent a tremendous expansion in the 1970s and 1980s, so, too, the life insurance business went through a transformation of products and markets in the same period. Sumitomo Life's portfolio was continuously adjusted to take advantage of opportunities, such as those presented by changing regulations, which determined what type of products could be offered.

In the 1980s most life insurance companies fundamentally changed their investment strategies, which meant a decrease in loans to large corporations and an increase in stock purchases. Prior to the 1980s, 20% of asset increases were invested in securities and real estate with the remaining new money used for long-term loans. In the 1980s the loan market changed and Sumitomo Life had favorable results making loans to small and medium-sized companies. The market had then become more competitive, and with changes in laws, the majority of funds were reallocated to overseas investments.



The factors affecting the Japanese life insurance business in the late 1980s that would guide the operations for the 1990s are deregulation of Japan's financial industry that created competition from banks and securities firms; an aging Japanese society in which 13.8 million people in 1990 were 65 or older, with the percentage increasing steadily; globalization of markets in which Sumitomo Life could offer a variety of services worldwide; unification of the European Economic Community in 1992 and the strength of the yen; all along with rising interest rates, fluctuations in the stock market, and changing lifestyles and values of the Japanese.

Sumitomo Life had responded by providing timely new products and services, by strengthening its internal operations to improve sales and efficiency, and by strengthening its presence and visibility in communities in which it did business. A three-year "New Challenge" plan, instituted in 1989, was aimed at increasing profitability, competitiveness and efficiency.

A subsidiary, Sumitomo Life Insurance Agency America, was established in 1986 with offices in New York and Los Angeles to provide employee benefit assistance and to act as an insurance advisor concerning overseas employee benefit schemes for Japanese companies around the world. Reinsurance agreements were signed with 17 major life insurance companies in 13 countries. One example is a 1989 agreement with a Mutual of Omaha affiliate, United of Omaha, to market group life, health, dental, and long-term disability contracts to Japanese-owned businesses in the United States, and to share in the profit and losses of such a venture. While still new, the program was expected to be highly profitable.

A goal of Sumitomo is to be a total life insurance planner and financial advisor to individuals at various stages of their lives. The new products developed in response to a changing society are directed toward two broad categories of the life insurance market: death-benefit policies and survivor-benefit policies. Japan's aging society and large rise in personal assets have called for increased single-premium endowment policies, savings policies, and individual pension policies. Sumitomo Life saw a growing need for medical insurance and group pensions for the aging population, to supplement the public pension system. In 1990 individual pension policies made up one of the fastest growing areas in the Japanese life insurance industry. Other trends include variable insurance, first introduced in 1986, group life insurance for small companies through their unions and cooperatives, and welfare plans and supplementary packages for medium-sized companies. Since 1988 life insurance companies had been allowed to sell government bonds over the counter, and Sumitomo Life was offering new products that combine life insurance with government bonds.

One of the most important ways for a life insurance company to invest its assets is through loans to corporations, government agencies, homeowners, and consumers. In addition, assets can be allocated to capital market activities, like investments in securities and real estate. Sumitomo Life had been strengthening its foreign operations and global investments, and diversifying its assets to remain profitable and competitive in the 1990s. It had learned about employee benefit and social security systems in other countries and had formed relationships with insurance organizations around the world. Sumitomo Life had 13 subsidiaries licensed to invest in securities. Ties with international financial institutions were strengthened with a 1990 agreement forming a new investment advisory firm with Security Pacific Corporation, a California bank, called Sumisei Secpac Investment Advisors. The company also established ties with the Sedgewick Group PLC, the third largest insurance broker in the world, in which Sumitomo Life will introduce Japanese firms to the Sedgwick Group, which will then advise on insurance matters. In 1982 Sumitomo Life Realty in New York was established to invest in real estate in major U.S. cities. It recently bolstered its overseas real estate efforts with offices in London and Australia; an office in France was planned for 1990. The realty operations had in 1990 assets of $1.5 billion in office buildings, hotels, and shopping centers. For the coming years the company planned to direct real estate investments into public works and urban development projects.

Sumitomo Life has contributed to corporate good-citizenship by financing, along with Yamaha Corporation, a musical center in Poland in memory of Polish composer Frederic Chopin, and Izumi Hall, a concert hall at Osaka Business Park, designed for classical concerts, among other such efforts.

A significant move for the 1990s to increase profitability and reduce risk in rapidly changing financial markets is the development of a computer system to set forth the difference in the fund management techniques used by life insurance companies compared to those of other financial ventures. Users are expected to be able to evaluate Sumitomo Life's overall risk level, giving the company a new level of expertise in the industry. Introduction of this pioneer project was planned for 1993.

Principal Subsidiaries: Sumitomo Life International (UK) Limited; Sumitomo Life Realty (N.Y.), Inc. (U.S.A.); Sumitomo Life Luxembourg S.A.; Sumitomo Life America, Inc. (U.S.A.); Sumitomo Life Insurance Agency America, Inc. (U.S.A.); Sumitomo Life Investment Singapore Limited; Sumitomo Life Canada, Inc.; Sumitomo Life Asset Management (HK) Limited (Hong Kong); Sumitomo Life Hong Kong Limited; Sumitomo Life Deutschland GmbH (Germany); Sumitomo Life Australia Limited; Sumitomo Life France S.A.; Sumitomo Life Bahamas Limited; Sumitomo Life Cayman Limited; Sumitomo Life Realty (U.K.) Limited; Sumitomo Life Jersey Limited; Sumitomo Life Realty (Australia) Limited; Sumitomo Life Realty (France) S.A.

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