MS&AD Insurance Considers Buying Amlin for Overseas Growth

  • Japanese insurer's board will discuss the deal on Tuesday
  • Buying Lloyd's of London unit is ``on the whole positive''

MS&AD Insurance Group Holdings Inc. said it is considering buying Lloyd’s of London insurer Amlin Plc in what could be its biggest-ever acquisition, joining an overseas deal spree by Japanese peers.

The Tokyo-based insurer’s board will discuss the matter at a meeting Tuesday, it said in a statement. Its Mitsui Sumitomo Insurance Co. unit is in talks to buy the insurer and a deal could be announced as soon as Tuesday, a person with knowledge of the matter said earlier.

Acquisitions struck by Japanese insurers this year have valued the targets at a median of 1.74 times book value, data compiled by Bloomberg show. Applying that multiple to Amlin would equate to a price tag of about $4.5 billion.

A takeover would add to a flurry of deals among Amlin’s peers in the Lloyd’s and Bermuda insurance markets, while extending a bout of overseas shopping by insurers from Asia, where growth has slowed. Japan’s Sumitomo Life Insurance Co. and Meiji Yasuda Life Insurance Co. agreed to buy U.S. firms in the past two months.

“We view this deal as on the whole positive,” Mac Salman, head of research on Japanese financial firms at Jefferies Group LLC in Tokyo, wrote in a note. “MS&AD will purchase an established insurance company in developed markets with stable earnings.”

Not Stretched

Shares of MS&AD fell 2.3 percent at 12:38 p.m. in Tokyo, paring this year’s gain to 24 percent. The benchmark Topix index has climbed 2.3 percent in 2015. Amlin closed 0.1 percent higher in London on Monday, giving it a market capitalization of 2.48 billion pounds ($3.8 billion).

Buying Amlin for 500 billion yen ($4.2 billion) implies a 14.6 percent premium to its three-month average share price, which is “not too stretched” given the London-based firm’s return on equity of about 14 percent, said Salman, who rates MS&AD a hold.

It will be the fifth acquisition worth more than $1 billion announced by Japanese insurers this year, data compiled by Bloomberg show. Excluding MS&AD, the nation’s insurers have unveiled about $19 billion of transactions as an aging and shrinking population prompts them to expand abroad. Tokio Marine Holdings Inc., Meiji Yasuda and Sumitomo Life have struck the biggest deals so far this year.

Insurers across the globe have been targeted in about $81 billion of deals this year before Amlin, more than double the amount for the same period a year ago. The U.K.’s Catlin Group Ltd. and Brit Plc each sought safety this year in a merger with a larger firm as an influx of reinsurance capital pushes prices lower and spreads into other lines of business.

Global Reinsurer

Amlin provides reinsurance to firms around the world, and has businesses focused on property and casualty coverage and policies for the marine and aviation industries. Beyond the U.K., it has offices in Europe, Bermuda, the U.S. and parts of the Middle East and Asia, according to its website.

Amlin Chief Executive Officer Charles Philipps said two weeks ago that the company wasn’t for sale after reporting lower first-half profit and further declines in reinsurance prices.

Until now, MS&AD has been focusing its expansion on Asia, and a deal will help it diversify operations, said Reina Tanaka, a credit analyst at Standard & Poor’s in Tokyo. Reinsurance premiums have been falling due to a drop in large-scale natural disasters and rising capital inflows from new investors such as pension funds, she said.

“We’ll have to see whether the company can underwrite with discipline amid this price competition,” Tanaka said.

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