Sompo seeks further deals post Endurance as it targets top 10 spot

A desire to access the US market was a big driver behind Sompo’s acquisition of Bermuda-based Endurance Speciality and further deals could be in the pipeline as the Japanese insurer aims to become one of the ten biggest corporations globally.

Sompo agreed to acquire Endurance for a total consideration of $6.3 billion. It is the latest example of a large Japanese insurer seeking growth and diversification away from the domestic Japanese market via acquisitions.

The closing of the acquisition of a 100 percent stake in Endurance is expected around February 2017 or later, subject to the approval of Endurance shareholders and regulators. Sompo does expect Endurance shareholders to accept the offer which prices Endurance at 1.36 times book value per ordinary share.

Endurance is a specialty insurance group which writes both insurance and reinsurance mainly in the US and Bermuda.

“This [acquisition] significantly expands the gross written premiums contribution from the US markets and also helps to achieve global diversification,” said Shinji Tsuji, Sompo’s chief financial officer during a conference call held on October 5.

The acquisition will increase the probability of achieving Sompo’s management targets, according to a presentation. “Sompo wants to become one of the top 10 members in the global companies,” Tsuji said.

Endurance grew its gross premiums to $3.32 billion in 2015 from $2.89 billion in the previous year, thanks to solid growth on the insurance side and the contribution of Montpelier Re, which it acquired in August 2015.

Endurance’s combined ratio fell to 82.9 percent from 86 percent over the period. Its consolidated net income was $344 million in 2015 compared to $348 million in 2014.

Sompo is targeting an adjusted consolidated profit of between ¥180 billion ($1.75 billion) and ¥220 billion for its 2018 financial year compared with ¥164.4 billion in the 2015 full year. Including the Endurance acquisition, the 2018 full year adjusted consolidated profit should reach more than ¥220 billion.

Sompo expects Endurance to contribute around ¥40 billion to Sompo’s total ¥63 billion overseas insurance business foreseen in its 2018 full year results.

“We have a lot inherent assets which we are underusing at the moment,” said another executive speaking on the call who pointing to a license network built up over the last 50 years in Asia and other parts of the world.

Such a network should help Endurance to sell its products. At the same time, Sompo’s global license network should also allow Endurance to expand business in the US with multinational corporate conglomerates, the company stressed on the call.

But the acquisition of Endurance will not enable Sompo to achieve its mid-term goals, the executive noted.

“We are trying to become one of the top ten in the global enterprises and to do that we still have a gap. The Endurance transaction is not enough to fill this gap,” they said. “In terms of mid-term perspective we do not deny the possibility of further acquisitions.”

Tsuji added that “in terms of further capabilities for investment we do have more leeway.”

Pointing to the size of the Endurance acquisition, Tsuji noted that first the company would have to be integrated, but after that Sompo might move on with further acquisitions. “It’s not about our investment strength, it’s really about our priorities.”