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Japan's Tokio Marine acquires Privilege Underwriters for US$3.1 billion

October 8, 2019

Japan’s Tokio Marine Holdings is acquiring Privilege Underwriters, Inc. (Pure Group) from the New York-based insurer’s shareholders for US$3.1 billion in a move to diversify into the US high-net-worth insurance market.

The shareholders include private equity managers Stone Point Capital and KKR & Co, US insurer AXA XL, and Pure Group’s management.

The deal is expected to be completed in the first quarter of 2020, subject to regulatory approval, Tokio Marine says in a statement on October 3.

Although the Tokyo-based insurer has acquired several US insurance and financial companies since 2008, including Philadelphia Consolidated Holdings Corp. and Delphi Financial Group, it says there’s “limited overlap” between those businesses and Pure Group, which specialises in high-net-worth insurance.

According to Tokio Marine, expanding into the niche specialty business will “further diversify its business portfolio in terms of revenues, profits, and customer segments”.

The deal will “contribute to sustainable profit growth and capital efficiency of Tokio Marine Group through Pure Group’s continued high growth potential in the world’s largest [property and casualty] insurance market”, the company says.

Pure Group, which primarily provides homeowners, auto and inland marine insurance, had $963 million of premiums under management as at March 31, 2019.

Ratings agencies Fitch Ratings and Moody’s Investors Service both offered favourable assessments of the deal.

Morinaga Teruki, director for insurance at Fitch Ratings Japan, says more than half of Tokio Marine’s earnings come from outside of Japan, and therefore the acquisition will further bolster growth of its international insurance business, especially in the US.

“Over the medium term, we view that [the acquisition] is likely to work rather positively for [the Japanese insurer’s] creditworthiness through Tokio Marine’s further well-diversified global insurance business portfolio,” Mr. Teruki tells Asia Asset Management.

According to Soichiro Makimoto, a senior analyst at Moody’s Japan, the acquisition cost is “small” and the deal will add little risk to Tokio Marine’s balance sheet.

He says it will boost the Japanese insurer’s geographic diversification and the stability of its earnings.

“Pure Group is primarily engaged in fee-based businesses, which means the transaction will add only minimal insurance and investment risks to Tokio Marine’s balance sheet. Moreover, the $3.1 billion in consideration is small, which is only around 6% of its capitalisation,” Mr. Makimoto says in a report on October 4.

Tokio Marine had 23.15 trillion yen ($216.8 billion) of total assets at the end of June 2019.