Companies offering variable life insurancepolicies, introduced in Japan in October, look set to report
sparkling results when they report on fund performance later
this month, fund managers at major insurance companies said.
    The managers told Reuters some insurers showed variable
life returns topping 50 pct on an annual basis in the five
months to March 31. Industry sources said all 17 Japanese and
U.S. Insurers offering variable life policies here have earned
returns of more than 10 pct on their investments.
    Returns on variable life policies, which are paid when
policies are surrendered, depend on the performance of funds
run by insurers.
    Managers said strong results are due to the loading of
funds into the buoyant Tokyo stock market and into convertible
bonds and attractive short-term instruments such as large yen
time deposits.
    Japanese share prices rose 30 pct in absolute terms between
November 1 and March 31. Key bond yields fell to around four
pct from five pct in the same period.
    "Variable life avails itself of the times and clients are
likely to be attracted after the impressive results to be made
public in early June," Ichirou Hayashi, general manager of
Nippon Life Insurance Co Ltd's fund management office said.
    The Finance Ministry does not allow disclosure of insurance
company figures for the year ended March 31 until early June.
    Nippon Life, the largest Japanese insurer, had about 50,000
investors in variable life by end-March while the three U.S.
Firms which offer variable life here have a total of some 7,550
investors, fund managers said.
    Equitable Life Insurance Co Ltd, American Life Insurance Co
Ltd and Sony Prudential Life Insurance Co, which is a joint
venture between Sony Corp and Prudential Life Assurance of the
U.S., Are the three U.S. Insurers offering variable life here.
   "Although (variable life) appears to be a short-term
financial instrument with death benefit, its first priority is
to raise as much cash value as it can over the long period,"
said Ichiro Kono, managing director and chief actuary of Sony
Prudential. Variable life guarantees a fixed death benefit.
    "Variables are also attractive to executives of companies
who wish to receive them as retirement funds with options for
settlement in annuities," Kono said.
    Nippon Life's Hayashi said sales of variable life were
shaping up well as interest rate consciousness grows.
    Insurance managers said they expect variables to survive
any credit market collapse since the funds should be able to
react to interest rate fluctuations more quickly than huge
general insurance accounts, assuming fund managers grow more
sophisticated in global fund and risk management.
    Japanese life insurers have cut dividends paid to holders
of regular insurance by as much as 0.45 of a percentage point
since April 1 due to declining domestic interest rates.
    Fund managers said regular insurance funds are invested
more conservatively with decisions based on long-term
strategies. Major life insurers are expected to report huge
exchange losses, estimated at over 2,000 billion yen, on
foreign investment for 1986/87, they said.
    "Asset mix is more of a concept for larger funds, not for
our variables, especially after the huge currency losses made
in the last fiscal year," Hayashi of Nippon Life said.
    Industry analysts said shifts of funds ahead of tax changes
due in October are helping boost the demand for variable life.
    The government is expected to impose a 20 pct withholding
tax on interest from certain instruments including single
premium endowment insurance, much of which is maturing now, but
variable life will be free of such a tax.
    But Sony Prudential's Kono said, "A large shift of funds
from single premium endowment to variable life is unlikely,
because investors in the former are more short-term
return-minded, while the latter doesn't guarantee short-term
cash value."
    Sony Prudential and Equitable Life each have three separate
variable life accounts. Equitable's funds specialise in
Japanese stocks, U.S. Stocks and money market instruments while
Sony's covers bonds, stocks and general investment.
    Japanese insurers have only one variable account each.
    The Finance Ministry allowed sales of variable life
endowment with terms over 10-years and whole life insurance
from October 1 last year but allowed single premiums only on
the latter.
 REUTER
