Dai-ichi Life to take over Tower Australia

Dai-ichi Life, one of Japan’s leading life assurers, is taking control of Tower Australia group, in a Y99.6bn ($1.2bn) deal that reflects the pressure placed on Japanese insurance groups to expand outside the shrinking home market.

Dai-ichi, which already owns 29 per cent of Tower Australia, aims to acquire the remaining shares of the Australian life assurance business and position it as its main platform for expanding in the Asia-Pacific region, the Japanese group said.

The agreed takeover is at a 46 per cent premium to Tower’s one-month average share price, and takes Dai-ichi further toward its effort to build up its overseas operations.

Tower, which is the fourth-largest life assurance company in Australia by market share, will boost Dai-ichi’s net income attributable to overseas businesses from 3 per cent to 9 per cent.

“This will give Dai-ichi a way to participate in the Australian market, where the market for risk insurance products is taking off,” said Jun Shioda, analyst at Daiwa Institute of Research in Tokyo.

Japan is a mature market which has been in decline since peaking in 1996, according to Mr Shioda. The percentage of those aged 65 and over in Japan hit a new high last year at more than 22 per cent of the overall population, according to the Japan Life Insurance Association.

By contrast, the general insurance market in Australia is growing by about 10 per cent per annum, according to estimates by Rice Warner Actuaries and DEXX&R, a research company specialising in pensions and insurance.

Dai-ichi, which initially invested in Tower in 2008, aims to use the Australian group’s management expertise in developing its own overseas businesses, it said.

Tower is a much smaller insurer, with Y7.3bn in net income, compared with Dai-ichi’s Y54.6bn.

But it has a higher return on equity, at 11.4 per cent compared with 7.8 per cent for the Japanese group.

Dai-ichi, which raised $11bn from its initial public offering in April, has accelerated its overseas expansion since 2007, when it acquired a Vietnamese life assurer and took a 26 per cent stake in a joint venture in India.

Since then, it has set up a strategic alliance with Ocean Life in Thailand in 2008 and taken up the 29.7 per cent stake in Tower.

Japanese non-life insurers have been more aggressive in their overseas expansion than life assurers because of their ample capital, said Mr Shioda.

However, life assurance companies are now also expected to expand overseas in the face of a stagnant market for their products at home.

Dai-ichi is targeting overseas life assurance businesses and individual savings product businesses as the most promising growth areas.