Tokio Marine is expanding into what it sees as promising growing markets.
Japan-based insurance giant Tokio Marine has entered the African market by acquiring a 22.5% interest in South Africa’s Hollard Insurance for $327 million. Specializing in property and casualty insurance, Hollard operates in its home country as well as Botswana.
Tokio Marine intends to finance the deal with cash on hand. Pending regulatory approvals in Japan and South Africa, the acquisition is expected close later this year, or in early 2019.
By combining forces, both insurers will be able to execute on their plans to expand their operations into new regions. Tokio Marine has targeted Sub-Saharan Africa for growth, while Hollard eyes markets in East and West Africa.
Looking to Emerging Markets
Emerging markets currently account for 10% of Tokio Marine’s international profits — a percentage it would like to see grow through strategic equity investments with companies in developing nations. In June, that plan came to fruition when it snapped up the operations of Insurance Australia Group in Thailand and Indonesia for $390 million.
In particular, Tokio Marine views Sub-Saharan Africa as an attractive market due to the region’s growing population and GDP. By 2050, the number of people living in the area is estimated to reach 2.2 billion, representing one-fourth of the world’s population. At the same time, its GDP is forecasted to quadruple. To date, however, Tokio Marine has had limited participation in the market. Therefore, it prefers to partner with a local company rather than making a full acquisition.
Tokio Marine and Hollard have already collaborated on several joint projects, including a life insurance venture in Indonesia. For its part, Hollard has been on an acquisition tear as well. Last year, it bought the Regent Insurance Group for 1.8 billion South African Rand. Regent Insurance operated in South Africa, Botswana, Zambia, and Lesotho.
The deal with Tokio Marine also falls in line with the South African government’s policy to attract $100 billion of international investment to the country over the next five years. Through June of this year, Hollard South Africa and Hollard International had a total combined premium income of 25 billion Rand for short-term and life insurance policies written in South Africa, Botswana, Ghana, Lesotho, Mozambique, Namibia, Zambia, Indonesia, and China.
Planting a Foothold Away from Home
With mature markets offering somewhat limited growth opportunities, established insurers like Tokio Marine currently eye emerging nations for greater revenue potential. In fact, a Swiss Re Institute study estimated that U.S. life insurance premiums declined by 4% to $547 billion in 2017. Europe also saw its premiums decrease to $858 billion, a 4% drop. The Swiss Re report attributes the slump to low interest rates in recent years.
To overcome stagnant growth in developed markets, many insurers are now looking to emerging ones where life insurance ownership rates are relatively low. Notably, two of the markets singled out by Swiss Re — China and Indonesia — are also areas where Tokio Marine has recently completed deals.As insurers adapt to a shifting marketplace, the industry can probably expect another active year of M&As. According to one report, much of the activity came out of the U.S. Yet as the Tokio Marine investment in Hollard indicates, global insurance companies might be just as aggressive in picking up competitors and pursuing new markets.