TOKYO, Aug 12: Japanese non-life insurance firms are unhappy with plans by Yasuda Fire & Marine Insurance Co Ltd to start selling lucrative niche insurance products in Japan through a unit of US life insurance giant CIGNA Corp.

Japanese non-life insurance firms are still barred from entering the field.But industry and financial sources say Yasuda's move to take a majority stake in the Japanese unit of CIGNA will not lead to a major rumpus among them.

The ministry of finance (MOF), which has pledged to liberalise Japan's financial markets by 2001 to make them "free, fair and global", is unlikely to object to the deal unless it undermines financial competition, the sources said.

"Of course, we're not happy with Yasuda Fire's plan," said an official at a major rival non-life insurance company.

"But we won't make a big deal about it as long as Yasuda Fire keeps a low profile in the deal," he said.

In August of last year, Yasuda Fire announced plans to take a majority stake in CIGNA's Japanese unit, now called INA Himawari Life Insurance Co. The deal was the first purchase by a Japanese non-life insurer of a life insurance subsidiary.

A Yasuda Fire spokesman said recently that the firm wants to acquire INA Himawari in October by increasing its equity stake to 60 per cent from the current 10 per cent.

"By law, there is no ban on a non-life insurer having a life insurance subsidiary. By boosting our stake in INA, INA's financial condition will be strengthened and this will help make the life insurance market more competitive," he said.

The deal is particularly controversial because domestic life and non-life insurance firms in Japan have until recently been barred from entering each other's turf.

But under the Insurance Business Law that took effect in April of last year, they can cross the boundary between the two businesses via subsidiaries.

Japan has, however, maintained a ban on the sale of so-called "third-sector" niche products, such as stand-alone medical and cancer insurance policies, by the life insurance units of Japanese non-life insurers. The ban will be lifted by 2001.

The US has consistently supported the ban, which was extended by a Japan-US insurance agreement last December, because third-sector products are the main source of profits for foreign insurance firms.

Japanese non-life insurance firms regard Yasuda's CIGNA deal as an effort to enter the third-sector market through the back door.

They said that, when the new insurance law was discussed, a senior finance ministry official told parliament that insurers should set up subsidiaries to enter each other's fields rather than taking over existing firms as subsidiaries.

The official also said a non-life insurer should only be allowed to make an existing life insurance firm its subsidiary if the financial health of the life insurer was so weak that it needed external support, they said.

As a result, Japan's 11 other non-life insurers, excluding Yasuda, set up their own life insurance subsidiaries last year with share capital ranging from 10 billion yen ($86.9 million) to 30 billion yen ($260 million).

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.