It is obvious that investors and the industry will worry whether the tsunami/quake that hit Japan will cripple Nippon Life, the country's biggest life insurer. The answer will be ‘no' if one goes through its balance sheet as of March 2010.The solvency margin ratio as of March 31, 2010, stood at 1006 per cent. That compares very favourably against the 200 per cent margin used by regulators.

This ratio is an indicator of the amount of surplus capacity of an insurer to make payments for all risks exceeding those that can be normally forecast, including major natural disasters and large drop in stock prices.

There are no immediate estimates of the tsunami damage, although over 10,000 lives are believed to have been lost as per latest news reports. Even if one assumes that more than 50 per cent of the claims have to be settled by Nippon (assuming a 50 per cent market share), with such a strong solvency margin, there will be no problem for them.

Why an Indian stake?

Why then did it decide to buy a life insurance company in India? Japan has been a market that has seen an economic slowdown apart from the problems of an ageing population.

With a slowing home market and with a number of policies in force going down (annualised premiums for policies down in 2010 and policies in force down by 5.4 per cent), it's but natural that with such a huge surplus solvency margin, Nippon Life would scout for other markets.

India is a market where the insurance penetration is much lower. With a revenue of Rs 3.24 lakh crore and net profit margin of 3.6 per cent, it makes business sense for Nippon to move towards an emerging market such as India.

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