Speculations are rife that the Japanese insurer Dai-ichi Life
Co. is trying to foray into the U.S. life insurance market by
snapping up Birmingham-based
Protective Life Corp.
). The Japanese insurer is ready to shell out approx $5.0 billion
to acquire the American insurer, the market capital of which stands
at $4.61 billion.
The move is in sync with Dai-ichi's long-term strategic plan to
expand its trade wings outside its domestic boundary. With Japanese
life insurance market nearing saturation point, the insurer is
proactively looking for greener pastures outside its home ground.
Japanese Life Insurance Market Lacks Luster
The life insurance market in Japan is being shaped by significant
environmental and structural changes, such as demographic shifts
associated with the declining birth rate and the aging society.
Most baby boomers have retired from supporting their companies and
families, and have started their second lives. Data suggests that
Japan is the most aged nation, as it is purported to have the
highest proportion of elderly citizens with almost a quarter of the
population over the age of 65 and one-third of the population
turning 65 and plus by 2030.
Japan is shrinking at a record pace. The country's population lost
244,000 people in 2013 as births plunged and deaths soared. Per
United Nations' data, Japan's 2010 population of 127 million was
the world's oldest and will shrink 17% by 2055, marking the fastest
decline among developed economies. The country faces the prospect
of losing a third of its population in the next 50 years, raising
fears about long-term sustenance for insurance companies.
Moreover, insurance penetration measured by taking premiums as a
percentage of GDP, is quite high in Japan at 10% leaving little
scope for further growth.
U.S. Life Looks Compelling
While industry growth remains elusive in Japan, U.S, the world's
largest life insurance market looks appealing. The U.S. is the
biggest life insurance market in the world with over 20% of the
written premiums originating in the country, which houses large
global players such as
Prudential Financial Inc.
). Though the industry growth dwindled due to 2008 financial
meltdown, the market is on the road to recovery.
Moreover, the demographic profile of the United States remains
attractive which though has low birthrates, is taking in more than
a million immigrants a year. Also, a low insurance penetration of
about 4% provides ample scope for business growth.
Meanwhile, Dai-ichi's bet on Protective Life as its U.S. business
partner seems a good choice. Protective Life has a stellar track
record of favorable operating performance. The company scores
strongly on a number of measures such as robust operating
performance, a strong and diversified business profile, sound
capital structure and a disciplined capital management strategy
which has generated substantial returns for investors. The
company's superior performance is reflected in its share price that
has gained 17.3% year to date.
For Protective Life, the buyout will provide immense
diversification benefits, transforming it from a national to an
international player courtesy of being a wholly owned subsidiary of
the Japanese insurer. Dai-ichi Life enjoys an active market
presence in other parts of the globe. Other support in terms of
capital, management expertise, expanded distribution facility etc.
will be part of the parcel.
Also Scanning Other Markets
Dai-ichi is looking for reasonable and good deals across the globe.
Last year, the company acquired 40% of Indonesia's PT Panin
Financial Tbk for $323 million. In the overseas life insurance
business, Dai-ichi strengthened its business development in
Australia by making TAL Limited a wholly owned subsidiary, as well
as in Vietnam, Thailand and India.
Japanese Players Going Abroad
More and more Japanese insurers are looking for inorganic growth
across the globe. In Dec 2013, Sumitomo Life Insurance Co., Japan's
fourth-biggest life insurer, agreed to buy a stake in PT Bank
Negara Indonesia's life insurance unit for approximately $354
million. Last year, Meiji Yasuda Life Insurance Co., Japan's
third-biggest life insurer, agreed to buy a 15% stake in Thai Life
Insurance Pcl. In 2012,
Tokio Marine Holdings Inc.
) snapped up Delphi Financial Group Inc. after buying Philadelphia
Consolidated Holding Corp. in 2008 for about $4.7 billion.
With the Japanese life insurance market at the peak of
consolidation and demand emanating from other parts of the world,
we expect to hear of more of small as well as big acquisitions over
the coming years.
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