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Can UK insurance industry expect a Japanese invasion?

Can UK insurance industry expect a Japanese invasion?

Can UK insurance industry expect a Japanese invasion? It may be just the beginning.

Last week we reported on Tokyo-based insurance giant Sompo securing a $6.3 billion (at the time £5 billion) acquisition of Bermuda-based Endurance (see article). However, those who thought that this mega deal was as far as the Japanese insurer would cast its net need to think again – because the country’s financial sector is on the hunt for growth.

In a Financial Times report, the extent of Sompo’s ambition is clearly outlined – it states that the company informed investors that it looked through more than 45 potential targets before making its move for Endurance – and analysts have suggested that US and UK mid- and large-cap insurance companies are already pricing in the likelihood that a Japanese buyer may make a move.

The move for Endurance will reportedly move Sompo’s overseas earnings from 12% of its total profits to just under 30% - but that, it seems, is just the beginning.

The company’s chief executive, Kengo Sakurada, told the publication that “30% is not good enough… I’m going to increase it to 50%.”

Reportedly, Sompo’s mergers and acquisitions budget was originally around one trillion yen – meaning it could have anything from Y300-400 billion left to splash.

The property and casualty area of insurance is unlikely to be the only one impacted – and indeed Sompo is also unlikely to be the only Japanese player with serious movement on its mind.

Speaking to The Financial Times one month ago, Koichiro Watanabe, the president of Daiichi Life, also remarked that he is looking for deals overseas stating that “doing M&As both in Japan and overseas are a very important strategy.”

Indeed in 2015, Japan had a record breaking Y10 trillion year of outbound deal-making with the financial sector at the forefront – something that has impacted the insurance sector notably. Mitsui Sumitomo purchased the UK’s Amlin last year for $5.3 billion; and Tokio-Marine forked out $7.5 billion for US-based HCC – leading Japanese insurers to spend in excess of $30 billion from 2013-2015 and a further $6.4 billion so far this year.

Speaking to The Financial Times, analyst Dennis Sugrue of S&P Global Ratings, noted that Japanese insurers will continue to look abroad as there are not many opportunities for organic growth in the home market.

Endurance offers Sompo a foothold in the USA and now the question is: where will Japanese insurers look to satisfy their appetite next?


Related stories:
‘Insurance king’ takes £255 million in Endurance sale
Sompo to acquire Endurance for £5 billion – reports