July 23 (Bloomberg) -- Tokio Marine Holdings Inc., Japan's largest insurer, agreed to buy Philadelphia Consolidated Holding Corp. for $4.7 billion to almost double profit from overseas.

Tokio Marine will pay $61.50 a share in cash for Philadelphia Consolidated, the companies said in a statement today. That's 73 percent more than the Bala Cynwyd, Pennsylvania- based company's closing price of $35.55 yesterday. The acquisition would be the biggest by a Japanese insurer, according to data compiled by Bloomberg.

``It's quite an aggressive move, but it is quite important for a Japanese financial firm to increase its presence in a major insurance market,'' said Mitsushige Akino, who manages about $560 million as chief investment officer of Ichiyoshi Investment Management Co. in Tokyo. ``The premium must be a reflection of valuable assets at Philadelphia.''

Tokio Marine has spent about $2 billion since 2002 on purchases abroad, expanding in countries including the U.K. and China as a shrinking Japanese population erodes the domestic market. The company said adding Philadelphia Consolidated will boost earnings from overseas by 95 percent to 62 billion yen ($575 million), or 35 percent of Tokio Marine's total.

The offer values Philadelphia Consolidated at about 14 times earnings, roughly the average among its closest peers, according to Bloomberg data. Philadelphia Consolidated carries the second- lowest valuation in the group at 8.4 times earnings, based on yesterday's closing share price.

`Appropriate' Price

Tokio Marine will finance the deal with its own cash together with borrowings. Both companies' boards have approved the deal and shareholders representing 18 percent of Philadelphia Consolidated's outstanding shares have agreed to back it, the release said.

``The purchase price is appropriate as I don't think the current stock price reflects the intrinsic value of Philadelphia's business,'' Tokio Marine President Shuzo Sumi, 61, said at a press briefing in Tokyo.

Chairman James J. Maguire founded Philadelphia Consolidated in 1962. The company specializes in commercial property and casualty insurance products and has 47 offices and about 1,400 employees in the U.S., according to today's statement. Tokio Marine's products include insurance for cars, property, boats as well as reinsurance. It sells life insurance in Japan.

Japanese Takeovers

Today's acquisition will increase Tokio Marine's net premium income to 740 billion yen as it expands into a market worth 50 trillion yen, the company said. Tokio Marine would have struggled to break into the U.S. market on its own, Sumi said.

``More than 2,000 casualty insurers are competing in the U.S.,'' said Sumi, who became president of Millea Holdings Inc., as Tokio Marine was formerly known, in June 2007. ``The hurdle to expand on our own in the U.S. is extremely high.''

The move follows the 442.2 million pound ($880 million) purchase of Lloyd's of London insurer Kiln Ltd. by a Tokio Marine unit, announced in December.

Japanese financial companies have taken advantage of a stronger yen and falling stock prices overseas to make acquisitions abroad. The Japanese currency has gained 12.5 percent against the dollar in the past year.

Nippon Life Insurance Co., Japan's biggest life insurer, said today it bought a 5 percent stake in Russell Investments, a unit of Milwaukee-based Northwestern Mutual Life Insurance Co.Dai-ichi Mutual Life Insurance Co. said July 16 it will buy a 24 percent stake in Thailand's Ocean Life Insurance Co.

Storm Damages

``This is a great time for Japanese financial firms that aren't hard-hit by the subprime problem to go out and make good purchases overseas,'' Ichiyoshi's Akino said. ``The strategy is definitely on the right track.''

Shinsei Bank Ltd., the Japanese lender part-owned by private equity investor Christopher Flowers, agreed to buy General Electric Co.'s local consumer finance business for 580 billion yen this month in the biggest acquisition by a Japanese financial company in 2008.

Philadelphia Consolidated today said profit declined 44 percent to $52.9 million in the three months ended June 30. The company cited $20.6 million of pretax losses resulting from storms in the U.S. Midwest in May and June. Philadelphia Consolidated stock has fallen 9.7 percent this year.

Competitors including Cincinnati Financial Corp., United Fire & Casualty Co. and EMC Insurance Group Inc. have said an increase in catastrophe claims will reduce earnings. More than 1,100 tornadoes have been reported in the U.S. since the end of March, an 80 percent increase over the entire second quarter last year, according to the National Weather Service.

Tokio Marine shares rose 1.3 percent to close at 4,000 yen on the Tokyo Stock Exchange before the acquisition was announced, extending gains this year to 6.1 percent.

Merrill Lynch & Co. advised Philadelphia Consolidated and Fox-Pitt Kelton advised Tokio Marine. The two insurers expect to conclude the takeover in the fourth quarter.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

Last Updated: July 23, 2008 06:31 EDT