Japanese insurer Sompo Holdings Inc will announce a deal to buy U.S. casualty insurer Endurance Specialty Holdings Ltd for about $6.5 billion on Wednesday, sources familiar with the matter said.
Japan’s insurance sector has been aggressively buying U.S. businesses, announcing a slew of multibillion dollar deals as they seek growth beyond a rapidly maturing home market but Sompo has been a relative laggard.
Sompo, the nation’s third-largest property and casualty insurer with a market value of $12 billion, said in a statement it was set to make a decision on the potential acquisition and would make an announcement later in the day. Endurance Specialty said it was in talks with Sompo for a “potential strategic transaction.”
Endurance, which has a market value of $6 billion, focuses on underwriting specialty lines of personal and commercial property and casualty insurance and reinsurance. In 2015, the company had $3.3 billion in gross premiums written, the equivalent of insurers’ revenues, and $311 million in net income.
Its shares soared 35 percent on Tuesday on reports of the deal. Sompo’s shares were up 2 percent in Wednesday morning trade in Tokyo.
Teruki Morinaga, insurance analyst at Fitch Ratings Japan, said that at first glance an acquisition of Endurance would likely benefit Sompo due to the U.S firm’s strength in specialty insurances.
“Japanese insurers have been expanding in Asia and other emerging markets but those profit contributions are limited and they naturally need to find opportunities in the United States and Europe,” he said.
Sompo plans to fund most of the acquisition with cash on hand, said a source with knowledge of the deal. In August, it raised 200 billion yen by issuing subordinated bonds, part of which can be counted as equity.
The United States is the world’s largest market for both life and property-casualty insurers, where Japanese companies see opportunities to secure instant boosts to profit through acquisitions.
In other major deals by Japanese insurers, Tokio Marine Holdings’ bought U.S. insurer HCC Insurance Holdings Inc for $7.5 billion last year. Meiji Yasuda Life Insurance Co acquired StanCorp Financial Group Inc for $5 billion and Sumitomo Life Insurance Co purchased Symetra Financial Corp for about $3.8 billion.
MS&AD Insurance Group Holdings Inc has also announced a $5.3 billion acquisition of Amlin PLC, an underwriter in the Lloyd’s of London specialist insurance market,
Sompo, formerly NKSJ Holdings Inc, bought Canopius Group Limited, a Lloyd’s of London insurance market player, for about $1 billion in 2013.