Japan’s Nippon Life to Invest in Germany’s Allianz

July 5, 2011

Privately held Nippon Life Insurance Co. said on Tuesday it will invest 500 million euros ($709 million) in Germany’s Allianz Se , amid an overseas push by Japanese insurers as their traditional life insurance market shrinks.

A declining population has led Japan’s insurance firms to look outside their home market for new revenue streams, with rival Dai-ichi Life becoming a public company in 2010 to accelerate its overseas expansion through acquisitions.

Nippon Life, Japan’s largest life insurer by assets, will make the investment through the purchase of 30-year convertible subordinated notes issued by a subsidiary of the German insurer, in its first-ever CoCo bond issuance.

CoCos convert into equity under certain conditions, such as when a bank’s capital ratio falls below a certain trigger point.

While regulators see CoCos as good instruments to avoid government bailouts of large financial institutions in a crisis, some bankers have voiced doubts about the feasibility of creating a market for these instruments.

Nippon Life has the option to receive common stock issued by Allianz within 10 years after issuance, and under certain conditions, the notes will be automatically converted to common stock in less than 10 years, it said in a statement on its website.

The move is the latest in a series of overseas acquisitions by Nippon Life.

In March, it agreed to pay $680 million for a 26 percent stake in India’s Reliance Life Insurance, and in 2009 the company invested $500 million in a unit of U.S.-based Prudential Financial.

($1 = 0.705 Euros)

(Reporting by James Topham and Junko Fujita in Tokyo, Arno Schuetze in Frankfurt; Editing by Chris Gallagher)

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