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Speculations are rife that the Japanese insurer Dai-ichi Life Co. is trying to foray into the U.S. life insurance market by snapping up Birmingham-based Protective Life Corp. (PL - Analyst Report). The Japanese insurer is ready to shell out approx $5.0 billion to acquire the American insurer, the market capital of which stands at $4.61 billion.

The move is in sync with Dai-ichi’s long-term strategic plan to expand its trade wings outside its domestic boundary. With Japanese life insurance market nearing saturation point, the insurer is proactively looking for greener pastures outside its home ground.

Japanese Life Insurance Market Lacks Luster

The life insurance market in Japan is being shaped by significant environmental and structural changes, such as demographic shifts associated with the declining birth rate and the aging society. Most baby boomers have retired from supporting their companies and families, and have started their second lives. Data suggests that Japan is the most aged nation, as it is purported to have the highest proportion of elderly citizens with almost a quarter of the population over the age of 65 and one-third of the population turning 65 and plus by 2030.

Japan is shrinking at a record pace. The country’s population lost 244,000 people in 2013 as births plunged and deaths soared. Per United Nations’ data, Japan’s 2010 population of 127 million was the world’s oldest and will shrink 17% by 2055, marking the fastest decline among developed economies. The country faces the prospect of losing a third of its population in the next 50 years, raising fears about long-term sustenance for insurance companies.

Moreover, insurance penetration measured by taking premiums as a percentage of GDP, is quite high in Japan at 10% leaving little scope for further growth.  

U.S. Life Looks Compelling

While industry growth remains elusive in Japan, U.S, the world’s largest life insurance market looks appealing. The U.S. is the biggest life insurance market in the world with over 20% of the written premiums originating in the country, which houses large global players such as MetLife Co. (MET - Analyst Report) and Prudential Financial Inc. (PRU - Analyst Report). Though the industry growth dwindled due to 2008 financial meltdown, the market is on the road to recovery.

Moreover, the demographic profile of the United States remains attractive which though has low birthrates, is taking in more than a million immigrants a year. Also, a low insurance penetration of about 4% provides ample scope for business growth.  

Meanwhile, Dai-ichi’s bet on Protective Life as its U.S. business partner seems a good choice. Protective Life has a stellar track record of favorable operating performance. The company scores strongly on a number of measures such as robust operating performance, a strong and diversified business profile, sound capital structure and a disciplined capital management strategy which has generated substantial returns for investors. The company’s superior performance is reflected in its share price that has gained 17.3% year to date.

For Protective Life, the buyout will provide immense diversification benefits, transforming it from a national to an international player courtesy of being a wholly owned subsidiary of the Japanese insurer. Dai-ichi Life enjoys an active market presence in other parts of the globe. Other support in terms of capital, management expertise, expanded distribution facility etc. will be part of the parcel.

Also Scanning Other Markets

Dai-ichi is looking for reasonable and good deals across the globe. Last year, the company acquired 40% of Indonesia’s PT Panin Financial Tbk for $323 million. In the overseas life insurance business, Dai-ichi strengthened its business development in Australia by making TAL Limited a wholly owned subsidiary, as well as in Vietnam, Thailand and India.

Japanese Players Going Abroad

More and more Japanese insurers are looking for inorganic growth across the globe. In Dec 2013, Sumitomo Life Insurance Co., Japan’s fourth-biggest life insurer, agreed to buy a stake in PT Bank Negara Indonesia’s life insurance unit for approximately $354 million. Last year, Meiji Yasuda Life Insurance Co., Japan’s third-biggest life insurer, agreed to buy a 15% stake in Thai Life Insurance Pcl. In 2012, Tokio Marine Holdings Inc. (TKOMY) snapped up Delphi Financial Group Inc. after buying Philadelphia Consolidated Holding Corp. in 2008 for about $4.7 billion.

With the Japanese life insurance market at the peak of consolidation and demand emanating from other parts of the world, we expect to hear of more of small as well as big acquisitions over the coming years.

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