New York Times – October 5, 2016 – TOKYO — Another Japanese insurer has made a multibillion-dollar overseas deal to protect itself from the financial pitfalls of an aging domestic population.
Sompo Holdings said on Wednesday that it was buying Endurance Specialty Holdings, which is based in Bermuda but focuses on the United States market, for 639.4 billion yen, or about $6.3 billion. Sompo will pay $93 per share, a 40 percent premium to the average share price for the three months ending Monday, the companies said at a news conference in Tokyo.
The deal amounts to a bet on nursing and other health care services abroad as Sompo’s home market grows older. The Bank of Japan’s embrace of negative interest rates has also made overseas investments more attractive, and a relatively strong yen made the purchase easier.
“With Endurance, we would like to establish a truly integrated global insurance platform,” Kengo Sakurada, the president and chief executive of Sompo, said at the news conference. He emphasized the importance of potential growth in Endurance’s specialty products. Endurance provides property and casualty insurance in the United States, as well as reinsurance and specialized coverage in areas like agriculture.
John Charman, the chief executive of Endurance, said his company had done business with Sompo for years before the deal.
“We highly respect Sompo’s disciplined risk-management system and underwriting culture,” Mr. Charman said. “Endurance’s clients will benefit from our increased scale, better financial strength rating and a larger balance sheet.”
The size of the United States insurance market makes it an ideal target in Sompo’s overseas expansion, but the deal is still risky because of the type of insurance Endurance deals with, said Nobuyasu Uemura, a consultant at Capitas Consulting.
“The corporate business is not easy, and Japanese companies don’t have much experience in specialty insurance,” Mr. Uemura said. “Underwriting corporate insurance is very technical and complicated. If it’s not well written, they could end up paying unexpected amounts of money to clients.”
The agreement follows a string of deals involving Japanese insurers’ looking for overseas growth as their home market shrinks. Japanese acquisitions of overseas insurance companies surged in 2015, reaching $24.3 billion — the highest level in at least a decade, according to data from Dealogic.
In the scramble to diversify, Tokio Marine agreed to buy HCC Insurance for $7.5 billion after a series of acquisitions in the United States. Sompo’s deal for Endurance is the largest outbound deal by a Japanese insurance since then. The Meiji Yasuda Life Insurance Company bought the StanCorp Financial Group for $5 billion, and Sumitomo Life struck a $3.8 billion deal to buy the Symetra Financial Group, another American insurance company. Mitsui Sumitomo also bought the British insurer Amlin for $5.3 billion, while the Nippon Life Insurance Company spent $1.7 billion on 80 percent of National Australia Bank’s life insurance business.
These mergers also come amid broader consolidation of the global insurance sector. The value of deals worldwide rose to $123.5 billion in 2015, from $69 billion the year before. Last year, Ace agreed to buy Chubb for $28.3 billion as low interest rates made it difficult for insurers to get good returns on capital, while Exor battled for months with Axis Capital Holdings to buy PartnerRe, a Bermuda insurer.
Sompo shares closed up 2.73 percent on Wednesday. Endurance stock had already jumped about 35 percent in New York after reports of the deal were initially published.