Japan’s MS&AD to acquire stake in Australian annuity provider Challenger

17 August 2017   Category: News, Asia, Australia, Global, Japan   By Asia Asset Management

Japan’s MS&AD Insurance Group Holdings (MS&AD) is acquiring a 6.3% stake in Australia’s Challenger Limited (Challenger) for approximately 44 billion yen (US$397.56 million) in a move to boost its annuity business.

Sydney-based Challenger is the largest annuity insurance provider in Australia.

MS&AD says in a statement that it will acquire the stake by subscribing for new shares to be issued by Challenger on August 23.  

The company also plans to increase its shareholding in Challenger to 10% over the next 12 months via the open market, subject to market conditions and regulatory approval, it says in the August 15 statement.

Last October, Challenger formed a partnership with Mitsui Sumitomo Primary Life Insurance (MSP Life), a subsidiary of MS&AD, to provide the Japanese insurer with Australian dollar fixed-rate annuities.

According to MS&AD, its acquisition of the stake in Challenger will help to reinforce the alliance between MSP Life and the Australian company.

“We will seek to strengthen the business alliance by utilising the know-how of Challenger at MSP Life, whose business model has a high degree of affinity with that of Challenger, and through initiatives to promote and accelerate the joint development of new products, to acquire know-how in such areas as the management of longevity risk,” MS&AD says.

Australia has become a favourite destination for Japanese insurers looking for mergers and acquisitions. Last October, Nippon Life Insurance acquired an 80% stake in Australian insurer MLC Life Insurance from National Australia Bank for A$2.4 billion (US$1.88 billion).

Graeme Knowd, managing director of banking, financial institutions group at Moody's Investors Services, tells Asia Asset Management that Japanese insurers are still open to overseas M&A activities given the right opportunities. “In Japan, insurers face a multitude of challenges. This makes risk diversification, through expanded overseas investments, a key objective in their outbound M&A initiatives,” he says. 

Challenger had A$21.25 billion in total assets as at December 2016, up from A$18.52 billion a year earlier.

MS&AD had total assets of 21.23 trillion yen in its financial year ended March 31, 2017, up from 20.3 trillion yen in the previous year.