In a bid to counter stalling growth in its Japanese home
market, Tokio Marine has expanded its global operations
significantly in recent years. As a significant extension of this
strategy, the Japanese insurer is to acquire Delphi Financial
Group, a move that will provide its first exposure to the US life
market.
Go deeper with GlobalData
Making
its first move into the US life insurance market, Japanese insurer
Tokio Marine is to acquire Delphi Financial Group. The cash deal is
worth $2.728bn including a special dividend totalling $64m.
Excluding the dividend, the value
of the deal, which will be executed through Tokio Marine’s
wholly-owned unit, Tokio Marine & Nichido Fire Insurance,
represents a premium of 50% to Delphi’s book value. Compared to
Delphi’s market capitalisation immediately prior to the
announcement of the deal, the price represents a 71% premium.
“The Tokio Marine Group has been
seeking continued expansion of its international insurance business
as a major driving force of its mid- to long-term growth strategy,”
commented Shuzo Sumi, president of Tokio Marine. “The acquisition
of Delphi is an important step in this development, serving to
further diversify our business mix in the US.”
Japan’s largest and oldest general
insurer, Tokio Marine reported total net insurance premiums written
of ¥2.272trn ($30bn) in 2010 of which ¥1.196trn was generated by
general insurance.
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By GlobalDataLife insurance operations generated
net premium income of and ¥405bn of which just over 83% was
attributable to Tokio Marine’s domestic units, Tokio Marine &
Nichido Financial Life and Tokio Marine & Nichido Life.
Tokio Marine’s non-Japanese life
operations, primarily in Asia, contributed premium income of
¥63bn.
In large measure because of a
decline in the Japanese variable annuity market, Tokio Marine’s
life business premium income has been in decline since peaking at
¥788bn in 2007.
Boost to life
business
For
Tokio Marine the acquisition of Delphi brings with it two insurance
businesses. The largest, Reliance Standard Life, is a national life
insurance company founded in 1907 and headquartered in
Philadelphia. Reliance Standard is active in group life and
disability insurance, fixed annuities, travel and accident
insurance and limited benefit health insurance. According to Dephi,
Reliance Standard ranks 11th in the group disability insurance
market and, based on inforce business, 12th in the group life
insurance market.
Delphi’s second-largest business is
Safety National, a general insurer founded in 1942 and
headquartered in St Louis. Safety National is primarily focused on
the workers compensation market, although it also offers retail
products such as motor insurance. Safety National will join Tokio
Marine’s existing general insurance business in the US.
A third Delphi business unit,
Matrix, provides absence management services and claims services
for group disability insurance and workers’ compensation
insurance.
Importantly, Delphi’s management
has agreed to remain on board after completion of the
acquisition.
Delphi chairman and CEO, Robert
Rosenkranz said: “Merging with Tokio Marine will leverage our
underwriting and investment expertise and give us access to
substantial resources to take advantage of acquisitions and other
new business opportunities.”
Rosenkranz established Delphi in
1987 on a foundation laid by the acquisition of Reliance
Standard.
Delphi has a solid growth history,
having grown premium income uninterruptedly from $1.157bn in 2006
to $1.42bn in 2010.
In the first nine months of 2011,
Delphi reported total premium income and fees of $1.16bn of which
53% ($615m) was derived from life insurance, 27% ($313m) from fixed
annuities and 20% ($232m) from general insurance.
Net income attributable to Delphi
shareholders in the first three quarters of 2011 was $140.7m, an
increase of 21% compared with the same period in 2010. Delphi’s
total assets at the end of September 2011 stood at $8.54bn and its
shareholders’ funds at $1.73bn.
Fast forwarding
diversification
For Tokio Marine the acquisition of
Delphi marks an important step in its strategy of diversification
outside its very mature and slow-growing home market.
The insurer, which has a history of
international involvement dating back to 1880, currently has a
presence in some 40 countries.
However, it is only in recent years
that it has adopted a more aggressive international expansion
strategy. In that year Tokio Marine’s non-Japanese operations
accounted for a mere 3% of its net earnings.
The first major boost to
non-Japanese contributions came in April 2005 when Tokio Marine
acquired 100% of Brazilian general insurer Real Seguros and
50% Brazilian life and pensions insurer Real Vida e Previdencia
from Dutch bank ABN AMRO for ¥39.5bn.
Another important international
diversification followed in May 2006 when Tokio Marine acquired a
15% stake in life and general insurer Asia General Holdings which
operates in Singapore and Malaysia. The stake was increased to 92%
in January 2007 bringing the total cost of the deal to $425m.
The next major foreign deal came in
December 2007, when Tokio Marine acquired Lloyd’s of London insurer
Kiln for $880m. Kiln was followed in December 2008 by the
acquisition of Philadelphia Consolidated for $4.7bn.
Tokio Marine has also established a
firm foothold in China. Its first move came in 1994 when it became
the first Japanese general insurer to receive official
authorisation to operate in China.
Tokio Marine consolidated its
position in China’s general insurance market in December 2005 when
it acquired a 24.9% stake in Tianan Insurance, the country’s
fifth-biggest general insurer, for ¥7bn.
Tokio Marine is also a participant
in China’s life insurance market through a 24.9% stake in Sino Life
Insurance which it acquired in July 2003 for ¥15.4bn. Sino Life
reported premium income of CNY15.318bn ($2.4bn) in 2010.
Other recent significant foreign
moves by Tokio Marine include the establishment of a joint venture
life insurance company in India, Edelweiss Tokio Life, which
commenced operations in July 2011.
Foreign contribution
soars
The result of Tokio Marine’s
aggressive foreign expansion was reflected in its 2010 results with
the total net earnings of its non-Japanese operations reported at
¥91bn, or 37% of total net earnings.
With the acquisition of Delphi,
Tokio Marine anticipates that foreign operations’ total
contribution to net earnings, based on 2011 estimates, will
increase to 46% (¥106bn), excluding the impact of a ¥130bn claims
loss incurred as a result of floods in Thailand.
Life insurance is also playing a growing role in Tokio Marine’s
foreign business structure. The Japanese insurer estimates that
following the acquisition of Delphi the contribution of life
insurance to its international operations’ net premium income will,
based on 2011 estimates, increase from ¥63bn (12%) to ¥156bn
(24%).
