DEALTALK-Japan insurers to chase Asia deals to beat staid growth

+ China, India, SE Asia hot bed for investments-bankers

+ Life insurers have about $30 bln excess capital-analysts

+ M&A targets limited, deals may be pricey

+ Distribution joint ventures in key markets the other option

By Denny Thomas

TOKYO, June 30 (Reuters) - Japan's life insurers are stepping out of their growth-strapped home market to chase investments in fast-growing Asia, taking on giants such as Britain's Prudential plc and American Insurance Group Inc.

The value of new life insurance contracts in Japan has shrunk by three quarters since a peak in 1991 due to an ageing population and slower population growth, boosting a move into under-penetrated hot beds elsewhere in Asia.

Mitsui Sumitomo Insurance Co this month stepped up its presence in Malaysia after making deals worth about $480 million with Hong Leong Financial Group.

Japanese life insurers certainly have the fire power for mergers and acquisitions, with about $30 billion in surplus capital even on a conservative estimate.

Sony Financial Holdings, Dai-ichi Life Insurance and T&D Holdings dominate Japan's life insurance market. Dai-ichi, Japan's No. 2 life insurer, is expected to be the most aggressive in making an overseas push.

The markets with potential opportunities include China, India, Thailand, Vietnam and Malaysia and bankers say a move into one of these markets is inevitable. The Middle East is also on the radar screen of Japanese insurers, analysts said.

"The insurance industry in Japan is in saturation. With an ageing population and smaller number of new-borns, eventually, the market is heading in the direction for shrinkage," Yoichiro Iwama, Chairman of Japan Securities Investment Advisers Association told a Reuters Japan Investment Summit.

Japan's insurance industry is not the only sector with its sights on Asia -- Sumitomo Mitsui Financial Group said on Wednesday it has agreed to buy a 4.5 percent stake in India's Kotak Mahindra Bank for $296 million.

NEXT MOVE?

Dai-ichi could use its stake in Taiwan's Shinkong Financial Holdings to enter China's market, said Macquarie equities analyst Mac Salman. Dai-ichi, with a $14 billion market value, already owns a 28 percent stake in insurer Tower Australia Ltd.

Japanese insurers have previously chased deals in developed markets, but Prudential's botched deal for AIG's Asian unit and the potential sale of Dutch bancassurer ING Groep's NV Asian insurance business have renewed focus on Asia.

A 25 percent fall in Dai-ichi's shares since its mega IPO earlier this year is also expected to bring shareholder pressure to expedite an overseas push, analysts say.

In 2008, Tokio Marine Holdings spent $4.4 billion in an U.S. acquisition to get an immediate boost to profits. But Asian deals are aimed at getting a foothold in Asian markets with a longer-term impact on earnings.

"Asia is a market that they understand and closer to them," said one Hong Kong-based investment banker, who is familiar with the thinking of some Japanese insurers. He said Japanese insurers are in active dialogue to find the right targets.

Prudential's failed $35.5 billion bid for AIG's life insurance arm -- American International Assurance -- also underscored the importance of Asian life insurance assets.

AIA, which is expected to launch a $15 billion initial public offering later this year, could also sell down some Asian assets ahead of the IPO, one banking source familiar with IPO plan said.

Asia's insurance market is expected to show strong growth, with the ratio of life insurance premiums to GDP forecast to rise to about 5 percent by 2018 from about 3 percent now.

Apart from AIA's likely asset sales, the long-mooted split of ING's Asia insurance businesses is the other M&A opportunity.

But with limited targets on the horizon, life insurers are exploring joint ventures in key markets which will give them distribution. Some analysts argue those kinds of deals are not compelling, however.

"For shareholders to get excited in the short-term these deals need to make a meaningful impact to profits. It is difficult to get that with some of the small-scale joint venture deals which take place," Salman said.

The risk of having limited opportunities means some deals could be expensive, as reflected by Hong Leong Financial Group's merger of its non-life insurance business with Mitsui Sumitomo Insurance Co.

Hong Leong also agreed to sell a stake in its life business in deals worth about $480 million. Analysts say the deal was done about 6.5 times price to book.

"The price deals are done at is key. The strong balance sheets, coupled with a desire to get as much exposure as possible outside Japan, could lead to the risk of overpayment," Salman said. (Editing by Dhara Ranasinghe)

REUTERS