Mitsui Sumitomo Insurance Co., a unit of MS&AD, will purchase 16.63 percent from New York Life Insurance Co. and 9.37 percent from Max India Ltd. (MAX), the Indian company said in a statement to the stock exchange today. The statement didn’t disclose the total value of the transaction. The deal is valued at about 27 billion rupees ($531 million), according to two people familiar with the sale.
MS&AD, formed in 2010 through a merger of Mitsui Sumitomo Insurance, Aioi Insurance Co. (8761) and Nissay Dowa General Insurance Co., has been turning to foreign markets and cutting costs in Japan as the nation’s stagnant economy and declining population damp demand. The insurer is targeting profit of 30 billion yen for its overseas businesses, compared with 12 billion yen in the last fiscal year ended March 31.
“MS&AD has been saying they want to expand the life insurance business in Asia, so this isn’t a big surprise,” said Ayako Nakajima, an analyst at Standard & Poor’s in Tokyo. “India is an emerging market where you can bet on the potential for growth, but at the same time, it’s not a mature market like Japan’s so there are risks that need to be closely monitored.”
Yuki Fujikawa, a spokesman at MS&AD, confirmed earlier today that the insurer is in talks.
New York Life will exit the Indian life insurance market upon completion of the sale, the people said. The deal is expected to close in the second half of the year, they said.
The deal will be entirely in cash and represents a multiple of 3.3 times so-called embedded value, or net assets plus the present value of future profits, as of March 31, 2011, the people said.
MS&AD shares declined 1 percent to 1,560 yen at the close on the Tokyo Stock Exchange. MS&AD shares have gained 9.4 percent this year. Shares of Max India headed for their biggest gain since June 2011 in Mumbai trading, rising 6.6 percent to 200.65 rupees.
Citigroup Inc. was the financial adviser to Mitsui Sumitomo, according to the people. Godwin Chellam, a Hong Kong- based spokesman at Citigroup, declined to comment.
Max New York is a joint venture between Max India, which invests in health care and technology, and New York Life, the biggest U.S. life insurer owned by policyholders. The U.S. insurer holds 26 percent of the venture, the maximum possible under current regulations.
Max New York Life reported an 8 percent increase in revenue to 44.7 billion rupees for the nine months ended Dec. 31, according to a company statement on Business Wire India. Assets under management grew 18 percent to 153.57 billion rupees over the same period in fiscal 2010, the company said.
MS&AD is not alone in trying to expand abroad to grapple with a shrinking domestic market. In December, Tokio Marine Holdings Inc. (8766), Japan’s second-largest non-life insurer, agreed to buy Delphi Financial Group Inc. for $2.7 billion in its biggest acquisition in three years after buying Philadelphia Consolidated Holding Corp. in 2008 for $4.7 billion.
The purchase will allow MS&AD to have a foothold in India through the nation’s seventh-largest insurer, as the Japanese insurer expands its business in emerging Asian markets, the Nikkei newspaper reported earlier.