An unusual bit of activity from Japan’s rather quiet insurance sector with the acquisition, announced Friday, by Tokio Marine & Nichido Fire Insurance, Japan’s biggest non-life insurer, of Kiln, a Lloyds of London insurer for £442m.
It was billed as the largest overseas acquisition by a Japanese insurance group – although we’d add, it’s one of the only ones to chose from.
The deal highlights the attractiveness of businesses at Lloyds to overseas buyers. Two of the market’s insurers have been bought by Bermudan interests this year. It is also the strongest signal yet of the expansionary ambitions of Millea Holdings, Tokio Marine’s parent company, reports the FT on Friday.
Undoubtedly, Japanese insurers are also registering the growing appetite among China’s insurers for overseas acquisitions, and Beijing’s moves to lift the previous 5 per cent limit on overseas investments by domestic insurers. Already, Ping An, China’s third-largest insurer, has bought a 4.2 per cent stake in Belgo-Dutch financial services group Fortis and its bigger rival China Life has indicated it is seeking overseas acquisition targets.
Kiln CEO Edward Creasy told Bloomberg on Friday that the deal with Tokio Marine is “the perfect match”. Kiln had been talking to Millea and “one or two others” for the last few months, he added, declining to name the other companies.
Tokio Marine is paying 150 pence a share, or a 16 per cent premium to Kiln’s closing share price on Thursday of 129 pence and a 33 per cent premium to the average share price in the past year, to take 100 per cent of the UK insurer.
The all-cash deal for the fourth largest Lloyds managing agency highlights the Japanese group’s intention to use its substantial assets to build up its overseas operations. It also builds on the business ties Tokio has forged with Kiln over four decades.
Shuzo Sumi, president of Millea Holdings, Tokio Marine’s parent company, has indicated his ambition to increase the group’s revenues from overseas businesses from a forecast 13 per cent next year to 20-25 per cent by 2010.
The Japanese insurer, which has business in 36 countries, has focused on entering into emerging markets through M&A and has expanded its insurance and re-insurance business in Bermuda, the UK and US mainly through organic growth.
It has acquired Real Seguros in Brazil and Asia General Holdings in Singapore and has invested in four other insurance groups, including two in China.
Kiln, which provides energy, marine, property and aviation coverage, plans to reduce underwriting in the London market next year amid more competition and falling prices, reports Bloomberg, noting that property and casualty insurers have retrenched amid declining premiums following last year’s benign storm season.
Kiln shares rose 17 pence, or 13 per cent, to 146 pence in London morning trading, valuing the company at £426m, while Millea shares dropped 4.5 per cent to Y3,590 on the Tokyo Stock Exchange, the lowest since October 2005. The stock has declined 15 per cent this year, compared with a 11 per cent drop by the benchmark Topix index.