Mitsui Sumitomo Insurance Company (MSI) is buying Singapore's First Capital Insurance for US$1.6 billion (S$2.2 billion) from Canada's Fairfax Financial Holdings, in the biggest takeover by a Japanese insurer in populous South-east Asia.

Starved of growth in their ageing home market, Japanese insurance firms have been aggressively expanding globally.

In the last two years, the insurers have struck multibillion-dollar deals, especially in the United States. MSI, the core firm of MS&AD Insurance Group Holdings, is paying 3.3 times the book value for First Capital, the largest property and casualty insurer in Singapore.

The deal will help MSI, which operates in all 10 markets of Asean, cement its position as the No. 1 in the region.

With the acquisition, "we can expect new business opportunities in the local corporate and retail market in Singapore, as well as other Asian countries", MSI said in a statement yesterday.

The purchase is a pricey one, though, with property and casualty insurance companies globally listed under the Thomson Reuters classification trading at an average of 1.65 times the book value.

MS&AD Insurance Group's shares fell 1 per cent to a three-month closing low, underperforming Japan's main index which was down 0.4 per cent.

Japan's cashed-up insurers have been paying top dollar as they seek to spur growth and overcome negative interest rates, fewer lucrative investment options and a fast-maturing market at home.

First Capital, which also has a regional presence, writes both personal and commercial lines of insurance across various classes, such as property, fire, marine hull, motor and personal accident.

It has maintained high profitability with a five-year average combined ratio of 76 per cent, according to MSI. One source familiar with the matter said that MSI was quick to pounce on the deal and get into advanced discussions with Fairfax after the Canadian group began to sound out parties keen to buy First Capital.

"Japanese insurers are very keen to expand further in South-east Asia but it's becoming tough to get quality and large businesses in these markets," said the source.

In 2015, MS&AD announced a US$5.3 billion acquisition of Britain's Amlin, an underwriter in the Lloyd's of London specialist insurance market.

The current deal is subject to regulatory approvals and is expected to close late this year or early next year.

REUTERS