Tokio Marine Holdings’ planned $7.5 billion acquisition of HCC Insurance Holdings announced June 10 is all about keeping global growth and diversification growing, and making that happen by snatching up promising players in the market.
The Japanese insurance conglomerate outlined as much in a detailed document that covers, in part, the “strategic rational of the transaction.”
As Tokio Marine points, out, it has pursued expansion since 2000 in non-Japanese businesses including P/C emerging markets, life emerging markets, and the Indian life business. The company is also serious about keeping global growth going. As Bloomberg reports, there have also been $27.5 billion of overseas acquisitions within the past five years. The biggest until now: a $4.6 billion buyout of Philadelphia Consolidated Holding Corp in 2008. Of that number, $8.8 billion of those deals took place in North America, Bloomberg said its data showed.
The end result, as Tokio Marine bills it, will be a “truly global insurer with premier specialty insurance franchises.”
Underscoring Tokio Marine’s continued shift away from Japan and to both new and established international markets, the company said the HCC acquisition will boost the share of premiums from international markets to 38 percent, up from 32 percent now. Profits generated on the international side will jump to 46 percent, versus 38 percent currently, according to Tokio Marine’s explainer.
HCC, based in Texas, is a specialty insurer with offices in the United States, the United Kingdom, Spain and Ireland. It underwrites in a number of areas in its North America property/casualty division including D&O, agriculture, primary casualty, aviation, surety, sports and entertainment disability/contingency. HCC’s A&H arm is a leader with medical stop loss and other short-tail medical products not correlated with the traditional property/casualty insurance market cycle. It’s international arm underwrites London market lines plus global specialty businesses.
In the companies’ deal announcement, Tokio Marine President Tsuyoshi Nagano noted all of HCC’s businesses and their merits as a takeover target. He pointed out that they allow Tokio Marine to not just diversify, but to do so by acquiring a “highly profitable global portfolio with low volatility, taking into account the nature of HCC’s businesses which are largely non-correlated, have limited catastrophe exposure and are less dependent on property/casualty market cycles.”
Tokio Marine also pointed out that both companies have a complementary portfolio with limited overlap and that the deal creates opportunities for cross selling, bigger underwriting capacity and efficiencies.
David Threadgold, Tokyo-based Asian research head at Keefe Bruyette & Woods, a boutique investment bank, told Bloomberg via email that the HCC acquisition fits in well with Tokio Marine’s existing business.”
The deal, at 1.9 times HCC’s book value, is “not cheap but not necessarily unreasonable,” he said, adding that it’s in line with Tokio Marine’s history of paying a “full price” for high-quality businesses with low risk and decent growth. There is little overlap with the Japanese insurer’s existing U.S. businesses and will help it boost earnings per share and return on equity, he said.
The median multiple-to-book value in insurance takeovers globally worth $1 billion or more over the past five years is 1.14, Bloomberg-compiled data show.
*Material from Bloomberg News’ coverage of the Tokio Marine/HCC deal with used for this story.