3 Japanese Insurers Begin Merger Talks

The three leading insurers in Japan said that on Friday began merger talks, possibly paving the way for a new leader to appear in one of the world's largest nonlife insurance markets.

Mitsui Sumitomo Insurance Group Holdings, Aioi Insurance and Nissay Dowa General Insurance announced that they will lead discussions with the objective of Aioi and Nissay Dowa under the aegis of Mitsui Sumitomo Insurance Group in April 2010.

The combination would create a company with revenue of about yen2.7 trillion, or 30.5 billion dollars, which pre-empt Tokyo Marine Holdings on the basis of income, to become the largest Japanese companies in the sector.

Analysts in Tokyo generally perceived the transition to a combination of the three companies in a positive light, citing the cost savings in the systems and the likelihood of reduced property insurance costs from streamlining outlets. Following the merger of three companies expected to check the computer system savings yen20 billion yen30 billion he said Yuichi Murakami, director of corporate communications at Mitsui Sumitomo Insurance.

Younger Japanese have been shying from cars and auto insurance to be the largest source of income for most nonlife insurers. Auto insurance accounted for 54.8 percent of revenues in the Japanese nonlife companies from 31 March, in accordance with the General Insurance Association of Japan.

The combination will allow for some cross-fertilization of business and allow the combined company access to a wider customer base by bringing together different groups of business, analysts say. Toyota Motor is the largest shareholder in Aioi Insurance with 33.4 percent of shares, and Nippon Life Insurance has a 35.38 percent stake in Nissay Dowa General Insurance.

Smaller companies can no longer compete with their larger competitors, especially in such areas as cost-intensive systems and move to greater economies of scale is likely to continue, analysts say.

There were 30 Japanese nonlife insurers at the end of September, down from 38 in September 2000. Even that number is too high, according to some analysts. "It will be difficult to expand the Japanese nonlife insurance market further," said Keiko Mizuguchi, a principal analyst ratings in Japan. "I hope to see further integration."

Nonlife insurance companies are grouped into seven major associations for the time being, but the number may eventually fall three companies linked to the storm in the rough times, analysts say.

Mitsui Sumitomo Insurance now ranks second in Japan, after Tokyo Marine Holdings. Aioi and Nissay Dowa is much less on the basis of income.

"The combination of the combined company will emerge with a 30 percent market share in the Japanese nonlife" Murakami said.

It will also take the combined company's fifth place in the world based on the yen on the basis of income, after Allianz of Germany, the State Farm and AIG in the United States and AXA of France.

Japan was the fourth largest nonlife insurance market in the world based on revenue, with the United States, Germany and the United Kingdom, from the end of 2006, according to the General Insurance Association of Japan.