Posted on Jul 06, 2011 by Sergio Ulloa
Nippon Life Insurance Company, Japan's largest life insurer by revenue, has announced plans to expand overseas and invest €500 million (US$725 million) in a unit of Allianz SE, with the transaction expected to close later in the week. This deal marks the Japanese company's first investment in a European peer, and it is also the first time that the German insurance giant has issued contingent capital through 30-year convertible bonds, an asset class known commonly as cocos.
The purchased Allianz subordinated bonds can be converted into equity within 10 years (and under certain undisclosed conditions apparently even earlier), which would give Nippon Life between a 1.5 to 2 percent stake in the German insurer. Nippon Life also has a venture with Schroeder's of the United Kingdom, but this would be its first direct investment into a company in Europe.
Speaking on the deal, Nippon Life president, Yoshinobu Tsutsui, told reporters that the transaction was part of Nippon Life's long-term business strategy to establish more robust overseas alliances as the traditional Japanese life market shrinks: "The objective of this investment is to establish a long-term partnership that is mutually beneficial for both companies," Mr. Tsutsui said, adding "We are very pleased to have the opportunity to strengthen our relationship with Allianz, which shares similar values and beliefs with Nippon Life regarding the insurance business."
This considerable acquisition reflects the pressing need for all Japanese insurers to search out alternative sources for growth and extend international operations, given the limited prospects in their domestic market due to both saturation and an aging population. The currency exchange rate would particularly favor acquisition activity in Europe, where the Euro has fallen against the yen by 30 percent since 2007. Despite these market conditions, consolidation efforts in Japan's life insurance sector have remained relatively slow because most insurers are structured as mutual companies, and can thus be overtly conservative as they are owned, and held accountable, by domestic policyholders
Nippon Life has long recognized the need to generate new premium income outside their home market and have been involved with a series of overseas acquisitions in the past few years. In March, the Japanese insurer agreed to purchase a 26 percent stake in India's Reliance Life Insurance, a unit of Reliance ADA Group, for US$680 million
, which still represents the most significant foreign direct investment in the Indian insurance industry. This followed a period of interest in US-based companies, which included a US$250 million investment in Northwestern Mutual Life Insurance Co. last year, and a US$500 million venture in a Prudential Financial Inc unit in 2009.
Of Nippon Life's Japanese life insurance rivals, only Dai-ichi Life Insurance have demonstrated similar ambitious expansion plans, recently acquiring a controlling stake in Tower Australian for US$1.2 billion in a move to gain access to the Australian life insurance market. Dai-Ichi has also invested in several emerging Asian markets, including a competitor in India. Non-life insurers from Japan have also been actively expanding their global reach. Last year, MS&AD Insurance Group acquired a 30 percent holding in Malaysia-based Hong Leong Assurance Bhd. and NKSJ Holdings acquired a majority stake in Fiba Sigorta Anonim Sirketi in Turkey, both for about US$35 million (¥27 billion).
For Allianz, the successful sale of €500 million worth of 30-year convertible subordinated notes to Nippon Life will enable the insurer to better prepare itself for the upcoming Solvency II rules, which will require EU-based insurers to hold more capital to match outstanding risks by 2014. Cocos, bonds that can be converted into equity pending pre-approved financial circumstances, are now becoming increasingly popular because they enable the issuers to raise capital reserves and benefit from a better solvency ratio without necessarily forfeiting equity. Michael Diekmann, CEO of Allianz, lauded the insurer's deal with Nippon Life as a forward thinking move for the company: "With this transaction, we are among the first companies to participate in the growing market for contingent convertible notes," he said in a statement. More insurers may soon test this new asset class.
Despite ongoing concerns about the economic future of the Euro zone and a fresh €300 million commitment to a second Greek rescue, Allianz Group, as a whole has continued to grow following its sound 2010 performance figures
. The financial services conglomerate reported in February that annual net income for Allianz in 2010 had increased by 22.4 percent to total €5.2 billion (US$ 6.94 billion), with revenues reaching €106 billion (US$ 151 billion) and total assets under management of €1518 billion (US$ 2.17 trillion), cumulatively representing the best figures in the 120 year history of Allianz. The company has maintained itself at the forefront of the international insurance and worldwide asset management industry while looking towards mitigating policyholder risks and exploring new opportunities, despite operating in a difficult global economic environment.
While investment from Japan is welcome, other Asian countries have become pivotal markets for European-based international insurers to enter into themselves
. Allianz Group has established a presence in several key emerging Asian economies through joint ventures including: Bajaj Allianz in India, Allianz China Life, PT Asuransi Allianz Utama in Indonesia, Ayudhya Allianz in Thailand and most recently, Allianz Lanka in Sri Lanka
. These operations give The Allianz Group prime access to the rapidly developing Asian markets that are driving, in particular, the demand for protection, savings and investment products as the wealth of the substantial populations in these nations grow further.
Insurance Companies Mentioned
Nippon Life Insurance
Nippon Life Insurance - Japan Nippon Life Insurance Company was established in 1889 in Japan and through its subsidiaries offers various life and non life insurance products and services. Nippon Life operates in North America, Europe, Oceania, Asia, Central and South America, and the Middle East.
Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.
Reliance Life Insurance
Indian life insurance company, Reliance Life Insurance, is an associate company of Reliance Capital. Reliance Capital is one of India's top 3 financial services companies by net worth. Both Reliance Life Insurance and Reliance Capital are part of the Reliance - Anil Dhirubhai Ambani Group.
Dai-Ichi Life Insurance
Dai-Ichi Life Insurance Company was founded in Tokyo in 1902 and operates in the life insurance market in Japan and overseas. Dai-Ichi Life offers whole life, term insurance, annuities and endowment products. The insurer has operations in Asia, Europe and North America offering saving and protection products for individuals and groups.