MetLife’s Japanese lessons in M&A integration

After a tricky integration MetLife’s $16.12b Japan purchase is paying off and fuelling the insurer’s growth in Asean.
MetLife's blimp flying over Tokyo
MetLife's blimp flying over Tokyo

When Sachin Shah took over as chief executive of MetLife’s Japanese operations one of his first moves was to shift all the executives out of their big offices at the top of the US insurer’s Tokyo headquarters, to sit with their staff.

In a society so respectful of hierarchy this caused shockwaves, which Shah said was part of a deliberate effort by the US’s biggest insurer to align its newly acquired Japanese business with the more open-door approach of MetLife globally.

“After the acquisition, MetLife was a very global company in footprint but not yet in mind set,” said Shah during an interview with FinanceAsia in Tokyo. Shah was born in India but grew up in New York.

MetLife’s absorption of Alico, which it acquired from a floundering AIG in 2010 for $16.2 billion, is enlightening for global companies, which often struggle to integrate Japanese units. 

“It was globalisation on steroids,” said Shah who was part of the deal team and led integration through to closing of the Alico acquisition in November 2010. 

After a tricky integration the Japanese subsidiary is now throwing off enough cash to help MetLife pay for purchases in the faster-growing insurance market across Southeast Asia, as well as contributing talent and knowhow to the rest of the region. MetLife expects its Japan business to grow at 5% to 7% and its operations in the rest of Asia to grow at 12% to 15%.  

MetLife closed the acquisition of a stake in Malaysian insurer AmLife earlier this year. Alico's former head of bancassurance is now helping set up MetLife's joint venture with Bank for Investment & Development of Vietnam.

This week about 60 analysts and investors have flown to Tokyo to scrutinise the progress of MetLife in Japan.

MetLife has had to cope with headwinds beyond its control in Japan, such as the impact of the 2011 earthquake and tsunami and the rapid depreciation of the yen, which has accelerated again since July. The yen hit 107.39 on September 12, its highest level since September 2008.

MetLife will showcase how in a competitive and mature market it is taking market share. It will play the group of analysts and investors ads featuring Snoopy, a cartoon character it hopes will give it brand recognition in the kawaii cuteness-obsessed Japanese culture — and say they have hit some key financial targets it set out when it first bought Alico in 2010. 

MetLife will also explain that yen life insurance policy sales have fallen after a repricing designed to make them more profitable in the long run. MetLife executives have said that the impact of the repricing will continue to drag on financial performance in the third fiscal quarter but results will start to rebound by year-end.

The US firm launched its first repriced yen whole life insurance product in September, leveraging its global asset origination ability and risk management skills to boost potential profitability in a country where interest rates are so low. 

Asia premiums sold in the six months ended June 30, premiums were down to $3.80 billion from $3.98 billion for the same period a year earlier. Japan makes up about 93% of MetLife’s earnings in Asia. Meanwhile operating efficiency has been improving as MetLife's investments in technology kick in. 

Value over volume
After acquiring Alico, MetLife set about changing its sales-driven culture. It weaned door-to-door salesmen off incentives and commission for new business and paid them more for servicing existing customers.

During the global financial crisis AIG priced many policies to go in Japan to keep cash coming in at a time when it had to repay the US government for its $182 billion bailout as well as to keep agents who were shocked by the turn in the company's fortunes, according to a person familiar with the matter. Shah declined to comment on AIG's policies. Alico also had a relatively high level of customers letting their policies lapse.

MetLife will also show analysts and investors this week that after a long dry spell during the integration, Alico is back innovating products such as its cancer policy Guard X launched in August which is selling well. Earlier in September it launched two new medical products, the first since before the acquistion.

MetLife Japan CEO Sachin Shah

MetLife executives say the absorption of Alico is also enjoying a powerful and sustained tailwind created by changes in Japanese society.

In a study released this week by the University of Oxford and BNY Mellon said that just 16% of millennials in Japan believe they will be able to access the same sources of retirement income as their parents, compared to 84% in Australia.

Japan has the highest public debt as a percentage of GDP in the world, the most rapidly aging and companies are no longer always offering jobs for life. As a result Japan’s relatively social security net is fraying. 

Eligibility for a public pension is gradually rising from 60 years old to 65. Meanwhile out-of-pocket medical fees are also increasing.

The Japanese are also unable to count on the same level of family support. People living alone has hit 32.4% of the number of households, according to Japan’s Ministry of Internal Affairs and Communications. The average number of people per household dropped to 2.42 in 2010 from 4.14 in 1960.

These trends are fuelling growth in private insurance and savings products in Japan, which is already the world’s second-largest life insurance market after.

“The public is thinking: ‘I can’t rely on the government to help me maintain my health, wealth and have a happy retirement’,” Shah said in a MetLife meeting room with a plaque of Peanuts’ character Lucy van Pelt on the door and overlooking Tokyo’s Skytree.

¬ Haymarket Media Limited. All rights reserved.
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