TOKYO -- Nippon Life Insurance has reached a broad agreement to acquire Mitsui Life Insurance in what would be the first major realignment in Japan's life insurance market in 11 years.
Nippon Life likely will buy the equivalent of a roughly 80% interest in the company from Sumitomo Mitsui Banking Corp. and other leading shareholders. It hopes to complete the acquisition by the end of March. The deal will be announced as early as September.
The price will be set after an asset review. An estimate based on benchmarks indicating the enterprise value of life insurance companies puts the cost between 300 billion yen and 400 billion yen ($2.5 billion to $3.34 billion).
Mitsui Life will keep its name after becoming a Nippon Life unit. Mitsui group affiliates will retain the remaining 20% or so of voting rights, with previous relationships to be maintained. Existing life insurance policies will be left untouched, so policyholders should not be affected significantly.
Nippon Life looks to shore up its domestic sales base. Mitsui Life has 2.6 million policies and nearly 7,000 sales staffers. Its strengths include group coverage for Mitsui group companies, and it boasts a broad lineup of insurance products for sale through banks, an area with growth potential. With this acquisition, Nippon Life expects to become No. 1 again in terms of premium income after being overtaken by Dai-ichi Life Insurance for the first time in the postwar era in fiscal 2014.
The deal will also help Nippon Life with sales through banks and insurance agents, areas that have been challenges for the insurer. It hopes to create synergy through steps such as having each company's sales agents, which both have positioned as key sales channels, sell the other's products.
Mitsui Life's finances deteriorated after the bubble economy burst. It received 160 billion yen in financial support from investment funds and Mitsui group companies from 2006 to 2008. Going under Nippon Life's umbrella and replenishing resources such as staff and capital will make it easier to plan new investments and other growth strategies.
Nippon Life will continue looking into purchases of domestic and foreign insurers after the Mitsui Life deal. It plans to spend up to 1.5 trillion yen on acquisitions.
The last reshuffle among major Japanese life insurers came in 2004, when Meiji Yasuda Life Insurance was formed and a merger between Taiyo Life Insurance and Daido Life Insurance created T&D Holdings.
Though Japan's life insurance market has been dealt a blow by a shrinking population, it is also seeing new sources of demand. The upcoming initial public offering of Japan Post Insurance in November is likely to further intensify competition. Nippon Life's decision to fortify its base could lead to a broader reshuffle.