Tokio Marine Debuts U.S Life Market - Analyst Blog
24 December 2011 - 3:49AM
Zacks
Tokio Marine Holdings Inc.
(TKOMY) is
set to make a debut entry in the U.S. Life insurance market with
its announcement to acquire US-based Delphi Financial
Inc. (DFG). Tokio Marine is prepared to pay $2.7 billion for the
acquisition.
Delphi specializes in selling workers’ compensation and
group-life insurance products. The purchase price represents a 71%
premium, based on the 20-day average price of Delphi’s publicly
traded Class A shares.
According to the Tokio Marine management, the deal will increase the
profit contribution from overseas businesses, from 37% to 46%.
The Japanese insurer is comfortable in quoting such a high
premium as it is aggressively pursuing diversification of its
business beyond the domestic territory. In the current
scenario, the life insurance market in Japan is not likely to
register strong growth owing to an aging population and a maturing
market.
It is not only the life insurance sector that is subject to such
headwinds, the non-life insurance sector also has its
share of challenges to deal with. With the aging of the Japanese
population, the number of vehicles insured and other factors that
drive motor insurance, a mainstay product (of non-life insurance
sector), are likely to decrease.
Moreover, non-life insurance industry is subject to an array of
issues and changes in the environment. Non-life insurers have had
to confront challenges such as the financial crisis of 2008, which
resulted in dramatic changes, and a matured non-life insurance
market.
Natural calamities such as the East Japan
earthquake in 2011, which caused unprecedented damage,
further added to the list. In this situation, penetrating overseas
markets is a key to growth, primarily for large companies. This is
attested by a series of alliances and mergers that have taken place
in the industry since 2000.
On the other end of the spectrum, Tokio Marine will benefit from a large U.S.
insurance market, which is pegged at about 89 trillion yen by
Bloomberg. Also, given the mature state of the non-life
insurance market in Japan, companies in the sector have been
expanding their overseas businesses, especially in emerging Asian
markets where growth rates are remarkably high.
Tokio
Marine has been on an international expansion spree recently. The
deals inked include an agreement for a joint venture life and
non-life insurance company in Saudi Arabia, setting up of the
Canton branch of its Chinese Subsidiary, opening an office in Cairo
and getting an approval for the establishment of a
Jiangsu
branch of its Chinese subsidiary.
DELPHI FINL GRP (DFG): Free Stock Analysis Report
TOKIO MARINE HL (TKOMY): Free Stock Analysis Report
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