Li on Path to Insurance Big League

The Japanese life-cover market is an effective oligopoly and premiums are high.
As of 4:15 PM EDT
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It's been almost six years since a Japanese insurer made headlines for being sold rather than buying another company's assets, so that makes Tuesday's purchase by Hong Kong tycoon Richard Li of Fuji Life Insurance Co. something of a novelty.

The deal is the first foray into Japanese insurance for Li's FWD Group, which is buying the business from American International Group Inc. The last big acquisition of a Japanese insurer by a foreign firm was in 2011, when Prudential Financial Inc. forked out about $4.8 billion for two units also owned by New York-based AIG.

Outside of that, the bulk of the M&A action has centered on Japanese firms going after international assets. The aging and shrinking of the nation's population have made growth hard for any domestically focused company, and many have spent billions to expand abroad.

Outward Bound

Facing low growth at home, Japanese insurers have increased overseas acquisitions

Source: Bloomberg

Note: Data includes both life and non-life insurers.

Those well-known demographic challenges make Li's purchase initially puzzling. However while the terms of the transaction weren't disclosed, there is actually money to be made in Japanese insurance, even if Fuji Life has been, according to AIG Chief Executive Officer Peter Hancock, a "distraction, a drag on earnings and a drag on capital."

By virtue of its relatively small size, FWD Group doesn't have the same regulatory restrictions as AIG, and buying Fuji Life opens the door to one of the largest personal insurance markets globally.

Big in Japan

Japan's life insurance industry is the world's second-largest by premiums after the U.S.

Source: Swiss Re

Not only is the market big, it's also an effective oligopoly. There are about 45 life-insurance companies in Japan, including micro-life insurers, and the regulator allows high pricing, making it quite lucrative.

Prudential, which gets some 40 percent of its income from the nation, is a neat case study. After buying AIG Star Life Insurance Co. and AIG Edison Life Insurance Co. in 2011, the company has registered consistently higher operating margins from its business there than at home in the U.S.

Fuji Life hasn't fared too badly either. It's been building its medical-insurance offerings -- a big sell for a population that's getting older -- and chalked up annualized new premiums of $124 million in 2015, versus $83 million three years ago.

While giants like Dai-ichi Life Holdings Co. and Sumitomo Life Insurance Co. need to buy assets overseas to move the growth needle and secure themselves a stable future, smaller outfits such as Fuji Life can pick and choose.

Whether FWD Group, which also operates in Hong Kong, Macau, Singapore and Southeast Asia, can ever hope to achieve its aim of being a truly pan-Asian insurer of AIA Group Ltd.'s heft is debatable, but with this latest deal, Li's on his way.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Nisha Gopalan in Hong Kong at

    To contact the editor responsible for this story:
    Katrina Nicholas at

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