Oct. 10 (Bloomberg) -- Yamato Life Insurance Co., a 98- year-old Japanese insurer, filed for court protection from creditors in the nation's first bankruptcy in the industry in seven years, with debts exceeding assets by 11.5 billion yen ($116 million).

A decline in the value of securities holdings widened losses at the Tokyo-based company, whose debts total 269.5 billion yen, as value of its investments widened amid the global market meltdown, Yamato Life said at a press briefing in Tokyo.

The global credit crisis sparked by the U.S. subprime collapse has wiped out more than $670 billion in market value from the Tokyo Stock Exchange's first section this week as investors flee equities. The collapse of closely held Yamato is the eighth by a Japanese life insurer since World War II, and the fifth largest this year, according to Teikoku Databank Ltd.

``The fact that insurers are starting to struggle with their investments is a harbinger that even pension funds may start to suffer given the market environment,'' said Tetsuo Inoue, chief strategist at Proud Asset Management Japan Co. in Tokyo. ``It's a tough situation.''

The last collapse by a Japanese life insurer was in 2001, when Tokyo Mutual Life Insurance Co. filed for protection from creditors with debts of 980 billion yen. Kyoei Life Insurance Co. filed for protection in 2000 in Japan's biggest postwar corporate collapse, with debts of 4.5 trillion yen.

`Risk Control'

Yamato Life's solvency margin, which gauges its ability to pay policyholders, stood at 26.9 percent, according to company President Takeo Nakazono.

``We had been doing our risk control accordingly, but the subprime loan problem forced global securities to tank, and that was more than what we'd expected,'' Nakazono, 61, said at a press briefing.

The firm, which had 1,019 employees as of March, had shifted its assets to alternative investments, which accounted for about 30 percent of the total portfolio as of the end of September, to boost returns. The move ended up hurting the company as global markets collapsed, Nakazono said.

``Yamato's financial standing is weak and they must have taken more risks than they could handle'' to cover the policy payments, said Nobuyasu Uemura, a Tokyo-based analyst at Rating & Investment Information Inc., ratings company. ``Even though it's a small insurer, Yamato's failure may raise concerns that others may follow suit.''

Biggest Shareholders

Among Yamato Life's biggest shareholders are Shinsei Bank Ltd., part-owned by private equity investor Christopher Flowers, Leopalace21 Corp., a property developer, and Aderans Holdings Co., Japan's biggest wigmaker, according to a June 30 regulatory filing by Yamato. All three of the companies are based in Tokyo.

The impact of the bankruptcy on Shinsei is ``extremely small and not material,'' Eiji Otaka, a spokesman at Shinsei, said by phone, declining to specify the amount of the bank's loss.

Shinsei fell 10 percent at the 3 p.m. close on the Tokyo Stock Exchange, compared with an 8.8 percent decline in an 84- stock index tracking Japanese lenders.

``Yamato Life's failure is extremely regrettable,'' Japan's Finance Minister Shoichi Nakagawa said at a press briefing in Tokyo. He said 90 percent of the insurer's policies are protected under the law.

Investment Losses

Yamato Life expected a net loss of 11 billion yen for the six months ended Sept. 30, while losses on securities holdings probably reached 15.7 billion yen, according to a statement by Japan's Financial Services Agency.

The nine-stock Topix Insurance Index slid 10 percent in. It was the second-worst performer among the 33 industry groups that make up the benchmark Topix index, which lost 7.1 percent. Insurers have been the best performers this year, falling 23 percent compared with the Topix's 43 percent slide.

Yamato's failure comes after Japan's corporate bankruptcies jumped 34 percent last month, the fastest pace in eight years, as exports slumped and the credit-market turmoil engulfed the world's second-largest economy. Bankruptcies rose to 1,408 cases in September from a year earlier, according to Tokyo Shoko Research Ltd.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

Last Updated: October 10, 2008 02:29 EDT