Foreign-affiliated life insurance companies that took on the operations of collapsed domestic insurers were unable to stem the tide of policy cancellations in fiscal 2001, according to earnings reports, the last of which was released Thursday.

Business size fell 22.2 percent at Gibraltar Life Insurance Co., the Prudential affiliate that took on failed Kyoei Life Insurance Co.'s operations. Cancellations also ate into business at GE Edison Life Insurance Co., which took over the outstanding policies of failed Toho Mutual Life Insurance Co., and at AIG Star Life Insurance Co., which purchased failed Chiyoda Mutual Life Insurance Co.

Polarization continues in the world's second largest life insurance market. Customers, who in 2001 saw the seventh collapse of a major life insurer, continue to distance themselves from companies that have been rehabilitated.

Meanwhile, total business volume -- measured as the value of policies in force -- grew at heavyweights American Family Life Assurance Co. and Prudential Life Insurance Co.

Another bright spot was Manulife Life Insurance Co., which entered the Japanese market in 1999 after acquiring failed Daihyaku Mutual Life Insurance Co. It showed that, given time, companies can woo customers back to the fold.

Over the longer term, foreign insurers say the Japanese market shows untapped promise.

"It's not true that the market is saturated," said Ichiro Kono, president of Prudential Life, referring to his company's plans to continue forging a place in mortality insurance, conventionally seen as the forte of domestic insurers.

Unlike domestic insurers, foreign affiliates are unfettered by overly generous rates of return guaranteed to customers. Nor do they have massive cross-held shareholdings with ailing Japanese banks.