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Branching out: Asia-Pacific insurers seek overseas expansion to drive growth and strategic diversification.

After spending decades building their regional businesses, a host of Asia-Pacific insurance companies have set their sights outside of the region and have launched aggressive global expansion strategies.

Several prominent Asia-Pacific insurers have spent upward of $10 billion since 2008 for acquisitions that advance their business interests within the region and on three continents, including:

* Tokio Marine Holdings Inc., one of Japan's largest nonlife insurers, which said in December it would buy U.S.-based Delphi Financial Group Inc. for about US$2.7 billion in cash. It follows the 2008 acquisition of U.S. property/casualty insurer Philadelphia Consolidated Holding Corp. for $4.7 billion, and Bermuda-based Kiln Ltd., a Lloyd's insurer, for $574 million in cash.

* Mitsui Sumitomo Insurance Co. Ltd., a subsidiary of Japan's MS&AD Insurance Group Holding Inc., which acquired a 50% stake in Indonesian life insurer PT Asuransi Jiwa Sinarmas for $800 million as part of its Asia expansion strategy.

* Australia-based IAG, which sealed three acquisition deals within the region with a strategic focus on motor insurance in the second half of 2011. Valued at about $400 million, the deals included AMI Insurance Ltd., enhancing the Australia-based insurer's position as the leading nonlife insurer in New Zealand.

* QBE's recent U.S. acquisitions, including crop insurer NAU Country Insurance, Renaissance Re and Puerto Rico-based Optima General. In South America, the Australian insurer acquired CNA Aseguradora de Riesgos del Trabajo, a leading insurer in the Argentinean workers' compensation market, and Seguros Colonial, the largest nonlife insurer in Ecuador.

[ILLUSTRATION OMITTED]

Some Asia-Pacific insurers initiated forays into the London market:

* China Re entered into a strategic partnership with Catlin Group to form a Lloyd's syndicate in November 2011.

* Samsung Fire & Marine Insurance Ltd. expanded its London office into a subsidiary in 2011.

In mature markets such as Japan and Australia, some insurers "are seeking faster top-line premium growth through expansion in emerging markets," said David Simmons, national leader of insurance mergers and acquisitions services at consultancy Deloitte.

Insurers with balance sheet strength are considering overseas expansion for basic diversification and to offset considerable uncertainties associated with specific markets, said Clark Troy, research director at consultancy Aite Group.

Japan and Australia

Japanese and Australian companies appear to be active buyers in global insurance acquisitions. The most recent deals came from Australia's leading nonlife insurers QBE Insurance Group Ltd. and Insurance Australia Group Ltd., which are both opting to pursue overseas acquisitions to diversify portfolios and revenue.

Globally, QBE has grown its business through acquisitions that contributed about 85% of gross written premiums in the past five years. The acquisition strategy focuses on further product diversification and geographic spread of risks.

In the second half of 2011, IAG sealed three acquisitions within the region with a strategic focus on motor insurance. Its agreement to acquire AMI Insurance Ltd. will enhance its position as New Zealand's leading nonlife insurer.

Japanese insurers are also active players in recent global mergers and acquisitions, according to Mark Saunders, risk consulting practice leader in the Asia-Pacific region and managing director of Hong Kong at consultancy Towers Watson.

A strong yen, experience operating in a low interest rate environment and mature market conditions, and a long history of business experience in Japan "move the needle" for Japanese insurers to seek overseas expansion, said Saunders.

Indonesia is one of the hot spots for acquisitions, given its low insurance penetration, large demographics and rising economy, Saunders said. Indonesian companies are also attracted by cash injections from foreign investors.

Regarding its half-ownership in Indonesian life insurer PT Asuransi Jiwa Sinarmas, Mitsui Sumitomo Insurance Co. Ltd. said that it "aims to actively invest in overseas nonlife and life insurance" as part of its strategy to achieve sustainable growth.

Changing market and regulatory conditions also contribute to the need for overseas expansion. Simmons said some insurers have to realign their business portfolios in anticipation of, or response to, regulatory and accounting changes.

"Others are seeking to diversify their business and geographical loss exposure risk," Simmons added. Insurers based in low-growth countries such as Japan and Australia are eyeing the high-growth prospects in Asian emerging markets.

"This is a natural expansion, as they are familiar with these markets, having had trading relationships in the region for many years," said Simmons.

Some Asian insurers are making inroads into the more mature markets of Europe and the United States. "The historically low insurance company valuations for insurance companies in the U.S., coupled with a weaker dollar relative to currencies such as the yen, make the current U.S. market very attractive for foreign entry," Simmons said.

Tokio Marine established Tokio Marine North America last May to manage all of the group's U.S. businesses with the aim of achieving further growth. If the Delphi Financial Group were included in its fiscal 2011 earnings, international insurance business would represent 46% of the group's total adjusted earnings, excluding losses from the Thailand floods, according to the Japanese insurer.

As the demographic and economic dynamics of the United States, Europe and emerging Asia differ considerably, Troy said making investments in mature economies offers diversification benefits while taking stakes in enterprises in emerging markets offers growth prospects.

The trend would see more Asia-based companies buying into mature Western markets. Troy noted Western consumers, who were uneasy about the prospect of ceding leadership in the world economy, "may well be reticent about purchasing insurance from branded Asian insurers over the next few years." The difficulties Aegon and ING had emerging from the credit crisis give American consumers "some pause looking at even European carriers," he added.

Key Points

* The Trend: Asia-Pacific insurers are embarking on a global growth strategy.

* Behind the Trend: These firms are pursuing overseas acquisitions to offset geographical loss-exposure risk.

* Watch For: Asia-based companies buying into mature Western markets.

KEY

Australia

IAG

Dec. 2011: Kurnia Insurans Bhd., Malaysia

Dec. 2011: AMI Insurance Ltd., New Zealand

Aug. 2011: Bohai Property Insurance Pry Ltd., China

QBE

Dec. 2011: Optima Insurance Group, Puerto Rico NAU Country Insurance, Ramsey, Minn. Renaissance Re, Bermuda CNA Aseguradora de Riesgos del Trabajo, Argentina Seguros Colonial, Ecuador.

China

China Reinsurance Corp.

Nov. 2011: Strategic partnership with Catlin Group Ltd. to form Lloyd's syndicate, UK

Japan

Mitsui Sumitemo Insurance Co, Ltd. A subsidiary of Japan's MS&AD Insurance Group Holding Inc.

May 2011: PT Asuransi Jiwa Sinarmas, Indonesia

April 2011: Hong Leong Tokio Marine Takaful Bbd., Malaysia

Tokio Marine

Dec. 2011: Delphi Financial Group Inc., US

Aug. 2011: First Insurance Co. of Hawaii, US

2008: Philadelphia Consolidated Holding Corp., US.

2008: Kiln Ltd., a Lloyd's insurer, Bermuda

Nippon Life

March 2011: Reliance Life Insurance Co. Ltd., India

Sompo Japan Insurance Inc.

June 2011: Berjaya Sompo Insurance Bhd, Malaysia

April 2011: Established branch in Beijing, China

Oct. 2010: Established new reinsurance unit in Malaysia

Nipponkoa Insurance Co. Ltd.

Jan. 2011: PT Asuransi Permata Nipponkoa Indonesia, Indonesia

Aioi Nissay Dowa Insurance Co. Ltd,

A unit of MS&AD Insurance Group Holding Inc.

July 2011: Established branch in Zhejiang, China

Dai-ichi Life Insurance Co. Ltd.

Nov. 2011: Permit to establish joint venture life insurance company in China

South Korea

Korean Reinsurance Co.

2011: Established branch in Beijing, China

Samsung Life Insurance Co. Ltd.

2011: Established branch in Beijing, China

2011: Became largest stockholder of Siam Samsung Life Insurance, Thailand

Samsung Fire & Marine Insurance Ltd.

2011: Expanded its London office into a subsidiary, Samsung Fire & Marine Insurance Company of Europe

2011: Established reinsurance subsidiary in Singapore
Samsung Fire & Marine Ins. Ltd.

AMB # 85850
($ million)

 Gross
 Premiums Total Best's Financial
Period Ending Written Assets Strength Rating

2011 11,628 29,213 A++

Source: (AMB) BestLink[R] Statement File Global

Mitsui Sumitomo Insurance Co. Ltd.

AMB # 84422
($ million)

 Gross
 Premiums Total Best's Financial
Period Ending Written Assets Strength Rating

2011 17,491 69,994 A+

Source: (AMB) BestLink[R] Statement File Global

QBE Insurance Group Ltd.

AMB # 85434
($ thousand)

 2011 2010 2009

Gross premiums 18,291,000 13,629,000 11,239,000
written

Total assets 46,737,000 41,386,000 36,723,000

Note: This holding company does not have an AMB Financial Strength
Rating.

Source: (AMB) BestLink[R] Statement File Global
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Article Details
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Title Annotation:Reinsurance/Capital Markets
Author:Lai, Iris
Publication:Best's Review
Article Type:Company overview
Geographic Code:90ASI
Date:May 1, 2012
Words:1355
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