Japanese Insurers on M&A Hunt in Bid for Global Expansion

HONG KONG, Sep 01, 2008 (A. M. Best via COMTEX) -- TKOMF | Quote | Chart | News | PowerRating -- Japanese insurance companies are pursuing merger and acquisition activities in overseas markets such as the United States, United Kingdom and Australia, with an eye on further business expansion and assets investment.

Tokio Marine Holdings, Nippon Life, Sompo Japan and Dai-ich Mutual Life Insurance Co. have all sealed deals with overseas companies in a bid to expand business into new markets and to strengthen investment opportunities globally.

U.S. Bound

The biggest recent deal came with Tokio Marine's $4.7 billion (3.2 billion euro) acquisition of Philadelphia Consolidated Holding in August as part of an effort to expand in the U.S. market. This acquisition is expected to improve the Japanese insurer's overseas profit by 95% to 62 billion yen in 2009 (389 million euros), according to the company.

"Expansion of revenue and profits from international business is the driving force of Tokio Marine's mid- to long-term growth strategy," said President Shuzo Sumi in a statement. Tokio Marine's purchase of midsized Philadelphia Consolidated, with a nationwide network of 47 branches, is an important move to strengthen its nonlife business presence in North America, which is now the company's biggest overseas market, accounting for 35% of its overseas business share.

With a solid business platform in property/casualty insurance, Philadelphia Consolidated offers what Tokio Marine says is a diversified sales channel in the United States, with its record of "better than industry business performance." In the past decade, Philadelphia Consolidated achieved an average annual growth of 29.3% in premium income and its combined ratio ranged between 68.3 and 93.3.

The acquisition is expected to be completed in the fourth quarter of this year. As a result, Tokio Marine lifts its proportion of overseas business to 21%, followed by 52% of business share from domestic nonlife insurance and 26% from life insurance.

Tokio Marine's parent company Millea Holding also entered the Lloyd's market with the acquisition of Kiln Ltd. for 442 million pounds (553.3 million euros) in March. "Combined with the recently acquisition of Kiln, we have established a strong presence in both key U.S. property and casualty and London insurance markets," said Sumi. Established in 1962 and listed on London Stock Exchange, Kiln is an international insurance and reinsurance underwriting group with a portfolio of specialist risks.

Life Down Under

Also eyeing established business platforms in developed overseas markets, Dai-ichi Life bought a 29.7% share of Tower Australia Group Ltd. in August in a bid to enter Australia's life insurance market.

"This initiative in Australia is part of the company's strategy to expand into business in the overseas life insurance market and follows the company's recent investments in Taiwan, Vietnam, India and Thailand," said Dai-ichi Life President Katsutoshi Saito.

Tower Australia earned a total premium income of 64.1 billion yen and generated net profit of 4.1 billion yen this year. Dai-ichi Life said in its announcement the company is looking into further growth in Australia, given the market's stable political and regulatory environment.

South Asia is one region where Japanese insurers are planning to gain a stronger foothold in both life and nonlife insurance businesses. Sompo Japan plans to establish its regional headquarters in Singapore in September to catch up with business expansion in markets such as Singapore, Thailand, Malaysia, the Philippines, Vietnam and Indonesia.

"From now on, we consider it is important for us to expand our business activities and enhance the governance of our group through mutual cooperation among the companies within the region," said Sompo President Masatoshi Sato in a statement.

Recently, Mitsui Sumitomo Insurance moved to form a joint venture through a wholly owned operation in Vietnam.

In additional to expansion in insurance, Japanese insurers are looking to acquisitions to strengthen their asset investments. Nippon Life acquired from Northwestern Mutual Life Insurance Co. a 5% equity stake in Russell Investments, based in Tacoma, Wash.

Nippon Life and Northwestern Mutual agreed to share investment opportunities in the United States and Japan in a bid to strengthen the Japanese insurer's assets investment and management.

(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com)

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index