Japanese insurance group Sompo Japan Nipponkoa has a taste for getting into reinsurance it seems, with a report in the Nikkei stating that the insurer is going to buy a stake in French reinsurer SCOR to help it diversify.
In a market when mergers and acquisitions are a hot topic it is fascinating to read that a massive insurance group such as Sompo Japan Nipponkoa sees an opportunity to further diversify its own business profile, as well as to deliver new sources of return by getting into the global reinsurance business.
SCOR is seen as one of the solid reinsurance businesses of the world, being up in the top five or so companies globally. The firm reported its results yesterday, which demonstrated what might have attracted SJNK, continued growth in gross premiums written and an improved combined ratio, which together equal good profits.
In the challenging and competitive reinsurance market environment SCOR’s performance is impressive. It cited growth in insurance, life and its P&C businesses as all contributing to the strong results. A combined ratio of 91.4% was an improvement on 2013’s figure of almost 94% as well.
The Nikkei reports that SJNK has decided to acquire approximately 15% stake of the French reinsurance giant, as a way to help it to grow and strengthen its overseas operations. The insurer aims to achieve this by buying shares in two stages by the next fiscal year, resulting in a spend said to be over 110 billion yen (around $910 million) which will be SJNK’s largest overseas investment ever.
Sompo Japan Nipponkoa aims to further diversify its sources of earnings by entering the life reinsurance business thanks to its SCOR investment. The Nikkei says that SJNK expects that the equity stake in SCOR will net it around another 10 billion yen (around $83m) per year.
Sompo Japan Nipponkoa also took a stake in British non-life specialist Canopius last year.
The reinsurance business remains attractive and the insurance industry keeps searching for scale and adding diversification angles. This deal is as interesting as the M&A trend, it will strengthen SCOR, provide a close linkage between the two businesses and likely provide opportunities for both players in the future.
Update: SCOR said in an announcement that SJNK has acquired the “entire holding of Patinex AG in SCOR (i.e. 7.8 percent of SCOR’s capital and 8.1 percent of its voting rights).”
Patinex AG was a key investor in SCOR but has now sold its share to the Japanese insurer.
SCOR also said “SOMPO has declared that it wishes to increase this holding to 15 percent, subject to the receipt of the required regulatory approvals.”
SCOR thanked its investors “Martin Ebner and Patinex AG for their active support of the SCOR group since the 2007 combination of SCOR and Converium, and for their contribution to the Group’s development.”
“SCOR, an independent company, welcomes SOMPO as a long-term shareholder with the same rights and duties as all its shareholders.”
“This holding has no impact on the strategic development of SCOR, which actively continues to implement its strategic plan ‘Optimal Dynamics’, or on its corporate governance or management. SCOR will continue to serve all of its clients, in Japan and throughout the world, with the same level of professionalism, integrity and rigor that are the core of the Group’s values.”