MS&AD buys Amlin for $5.3b

The Japanese insurer is catching up with its peers who are already in the Lloyd's market.
Japanese enter Lloyds of London building
Japanese enter Lloyds of London building

Mitsui Sumitomo Insurance said on Tuesday it had agreed to buy British reinsurer Amlin for $5.3 billion the latest Japanese insurer looking to diversify its geographic risk by buying into the Lloyd's market.

Under the terms of the deal Mitsui Sumitomo, a unit of MS&AD Insurance Group, is paying 670 pence a share, representing a net tangible book value of 2.4 times and a premium of 32.9% over the weighted average share price for the previous month.

The deal is the fourth largest Japan outbound M&A deal this year and the third biggest Japan outbound acquisition in the insurance sector on record, according to data provider Dealogic.

Japanese insurers are stepping up their overseas expansion after a rise in Japan equity prices has boosted capital. They are also seeking to broaden their investment classes in light of ongoing low JGB yields and upcoming Solvency II regulation that will penalize equity and FX risk exposure.

Japanese insurers are targeting insurers in developed markets as it helps asset liability
management by diversifying their liability duration structure and insurance risk; and
procures asset management know-how and diversifies assets under management.

London-headquartered Amlin's board of directors has unanimously recommended the acquisition by Mitsui Sumitomo.

Amlin was the third largest player in the Lloyd's market in 2013. Of the three mega property and casualty and life insurance players in Japan -- MS&AD, Tokio Marine, Sompo Japan Nipponkoa -- MS&AD is the only one who has not yet acquired a Lloyds market insurer.

Tokio Marine bought Kiln in 2008, and Sompo bought Canopius in 2014.

Goldman Sachs analyst Taichi Noda said in a report that Japanese P&C companies would benefit from overseas M&A for the purpose of geographic risk diversification, especially MS&AD, whose overseas weighting of insurance premiums was only 11% for 2014.

Mitsui Sumitomo said in a statement that it had been considering possible acquisitions of Lloyd’s syndicates in the UK before it alighted on Amlin. It had been particularly searching for steady revenue and high quality governance systems, with a particular focus on the US and Europe where there is limited regional overlap with its existing business.

Mitsui Sumitomo operates a portfolio of non-life insurance businesses, including in the marine, aviation, property and casualty categories. Amlin is a specialty insurer and reinsurer, operating across twenty locations worldwide. 

Domestically MS&AD faces headwinds such as the consumption tax hike scheduled for April 2017 and a rising average insurance claim payout. It has been working on lowering its operating expense ratio, which is higher than peers. 

The Japanese firm is paying for the acquisition with cash on hand and external financing.

The deal is expected to close in the fourth quarter.

Goldman Sachs and Nomura advised Mitsui Sumitomo. 

Skadden advised Mitsui Sumitomo. Linklaters advised Amlin; Sullivan & Cromwell advised Goldman Sachs as lead financial adviser; and Clifford Chance advised Goldman Sachs in its role as lender. 

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