Japan’s Mitsui Sumitomo Insurance Group Holdings Inc, Aioi Insurance Co and Nissay Dowa General Insurance Co are in talks to merge, a company source said, in a move that would create the country’s largest non-life insurer.
Traders snatched up shares in the three companies, while shares of Tokio Marine Holdings Inc, currently Japan’s top non-life insurer, lost some ground.
“Investors liked the merger news as it sparked hopes of greater profitability and less competition in the sector,” said Yoshinori Nagano, a chief strategist at Daiwa Asset Management.
The three aim to reach a basic agreement on the deal by March 2009, the source said on Monday.
Japanese media, including the Nikkei business daily and public broadcaster NHK, said the three were in talks to merge as early as next autumn.
Automobile and housing sales have been sluggish amid the economic downturn, hitting demand for car and fire insurance, prompting the non-life insurers to seek ways to boost competitiveness.
A sharp slide in the value of securities holdings has also weakened the financial standing of casualty insurers as well as life insurers and other financial institutions, giving them another incentive to join forces.
Unlisted Yamato Life Insurance filed for bankruptcy protection in October with nearly $3 billion in debt as the financial market turmoil battered its investments, making it the first Japanese financial institution to fall victim to the global credit crisis.
Among the three companies in talks, Aioi fell into a net loss in the business year that ended in March due to subprime loan-related losses.
SURGING SHARES
A merger of Mitsui Sumitomo, Japan’s second-biggest non-life insurer, fourth-ranked Aioi and No.6 Nissay Dowa would create the biggest player in the domestic market with net premium revenue of about 2.7 trillion yen ($30 billion). That would surpass Tokio Marine by 22 percent.
Net premium revenue, a key indicator of non-life insurers’ earnings strength, is roughly equivalent to income from policyholders minus the amount the company itself pays for reinsurance.
Tokio Marine, however, still leads the three companies combined in market value. Its market capitalization comes in at 2.1 trillion yen ($23.18 billion), compared with 1.8 trillion yen for the other three insurers.
Shares of Mitsui Sumitomo rose 6.4 percent to 2,835 yen and Aioi surged 15.5 percent to 469 yen in mid-afternoon trade, outperforming the Nikkei average, which slid 0.7 percent.
Nissay Dowa jumped 12.5 percent to 566 yen, while Tokio Marine fell 0.6 percent to 2,615 yen.
Mitsui Sumitomo, Aioi and Nissay Dowa said in separate statements that they had nothing to announce at this time.
Besides a sharp slide in stocks and sluggish insurance demand, the surging yen has eroded the value of insurers’ foreign-currency denominated assets such as U.S. Treasuries.
(Reporting by Reiji Murai, Kiyoshi Takenaka; Editing by Hugh Lawson and Chris Gallagher), (Additional reporting by Aiko Hayashi)
Topics Mergers & Acquisitions Carriers Japan
Was this article valuable?
Here are more articles you may enjoy.
Progressive Gains as Drivers Shop Around for Auto Insurance—Again 
Survey Shows Majority of Florida, California Homeowners Seeing Higher Insurance Costs 
Uncertainty Keeps Prices Up; No Prior-Year Loss Development: Travelers 
Vintage Ferrari Owners’ Favorite Mechanic Charged With Theft, Fraud 
