DFG Delphi Financial Grp., Inc.

Tokio Marine Holdings Inc. (TKOMY) is set to make a debut entry in the U.S. Life insurance market with its announcement to acquire US-based Delphi Financial Inc. (DFG). Tokio Marine is prepared to pay $2.7 billion for the acquisition.

Delphi specializes in selling workers’ compensation and group-life insurance products. The purchase price represents a 71% premium, based on the 20-day average price of Delphi’s publicly traded Class A shares.

According to the Tokio Marine management, the deal will increase the profit contribution from overseas businesses, from 37% to 46%.

The Japanese insurer is comfortable in quoting such a high premium as it is aggressively pursuing diversification of its business beyond the domestic territory.  In the current scenario, the life insurance market in Japan is not likely to register strong growth owing to an aging population and a maturing market.

It is not only the life insurance sector that is subject to such headwinds, the non-life insurance sector also has its share of challenges to deal with. With the aging of the Japanese population, the number of vehicles insured and other factors that drive motor insurance, a mainstay product (of non-life insurance sector), are likely to decrease.

Moreover, non-life insurance industry is subject to an array of issues and changes in the environment. Non-life insurers have had to confront challenges such as the financial crisis of 2008, which resulted in dramatic changes, and a matured non-life insurance market.

Natural calamities such as the East Japan earthquake in 2011, which caused unprecedented damage, further added to the list. In this situation, penetrating overseas markets is a key to growth, primarily for large companies. This is attested by a series of alliances and mergers that have taken place in the industry since 2000.

On the other end of the spectrum, Tokio Marine will benefit from a large U.S. insurance market, which is pegged at about 89 trillion yen by Bloomberg.  Also, given the mature state of the non-life insurance market in Japan, companies in the sector have been expanding their overseas businesses, especially in emerging Asian markets where growth rates are remarkably high.

Tokio Marine has been on an international expansion spree recently. The deals inked include an agreement for a joint venture life and non-life insurance company in Saudi Arabia, setting up of the Canton branch of its Chinese Subsidiary, opening an office in Cairo and getting an approval for the establishment of a Jiangsu branch of its Chinese subsidiary.

 
DELPHI FINL GRP (DFG): Free Stock Analysis Report
 
TOKIO MARINE HL (TKOMY): Free Stock Analysis Report
 
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