HONG KONG/TOKYO • Japan's cashed-up insurers are likely to keep paying hefty premiums for overseas assets as they seek to spur growth and overcome negative interest rates, fewer lucrative investment options and a fast-maturing market at home.
According to Thomson Reuters data, last year, Japanese insurers paid a premium of 27.4 per cent on average over their target's stock price one week ahead of announced merger and acquisition deals. Chinese insurers paid an average 14.2 per cent premium, while United States insurers paid 9.5 per cent.
"For Japanese companies, because the necessity for global diversification is strong, a little expensive purchase is often justified," said Mr Teruki Morinaga, Tokyo director for the insurance sector at Fitch Ratings.
In the latest mega deal announced by a Japanese insurer, Sompo Holdings agreed to buy US property and casualty insurer Endurance Specialty Holdings for US$6.3 billion (S$8.6 billion). Sompo has been paying a premium of 40.3 per cent against Endurance Specialty's average stock price since July. Its deal is the second largest by a Japanese insurer, after Tokio Marine Holdings' US$7.5 billion purchase of US insurer HCC Insurance Holdings last year. Tokio Marine paid a premium of 35.8 per cent.
Chinese and Japanese companies were showing willingness to bid up prices and pay a significant premium over book for a US target that could help establish or significantly expand their market presence, Deloitte said in a report this year.
Many of the potential buyers from Japan have been encouraged by the government to put capital to work outside the country, Deloitte said, adding that these insurers are generally patient and willing to balance "the risk of not-as-robust" short-term financial returns against longer-term gains.
In the near term, the outbound push is expected to improve the return on equity of Japanese insurers, analysts said.