Japan's Mitsui Sumitomo Insurance Company (MSI) said yesterday that it had reached an agreement with Fairfax Financial Holdings to enter into a global partnership and to acquire First Capital Insurance, Singapore's largest commercial property and casualty insurer, for US$1.6 billion.
MSI, which is a subsidiary of MS&AD Insurance Group Holdings, will explore a broad global partnership with Fairfax in various areas including reinsurance relationships that would lead to successful growth and value creation for both parties. MSI as well as MS&AD are working to grow enterprise value through sustainable growth, ensuring financial soundness, enhancing profitability and improving capital efficiency, based on the medium-term management plan "Next Challenge 2017".
The Japanese group's international business is positioned as a growth engine to support these efforts, and it has been working to increase stable profits and spread risk through diversification of its portfolio and by continuously investing in areas of high profitability and growth.
“Based on this strategy, we have rapidly grown to become the top nonlife insurer (as measured by direct written premiums) in the ASEAN region and expanded our operations centred on Asia, building on the momentum from our acquisition of the Asian nonlife insurance operations of UK company AVIVA, in 2004,” according to a corporate statement from MS&AD.
“We are further strengthening our revenue base through significant efforts in emerging markets where future growth is expected and we have increased our presence in Europe and the US, major insurance markets, by developing direct insurance business in Continental Europe and acquiring Amlin plc in February 2016."
The objective of the acquisition from Fairfax is to enhance profitability and realise further growth in Singapore.
The acquisition is highly complementary as First Capital has a strong presence and underwriting capability in the local corporate market which fits well with MSI who has a competitive advantage in retail and SME business.
MSI is the only nonlife insurance company in the world with operations in all 10 ASEAN countries, and has the largest market share in terms of GWP for nonlife insurance. First Capital Insurance is a leading insurer in the ASEAN region in term of both GWP and profit. “By acquiring First Capital Insurance, we can also cement our position as the No.1 in the ASEAN region,” the statement said.
Subject to the receipt of approvals from the relevant regulators, completion of the acquisition is expected in the fourth quarter of the fiscal year ending March 2018.
First Capital Insurance has strengths in underwriting corporate/commercial risks located in the ASEAN. It has maintained high profitability with a five-year average combined ratio of 76% and ROE of 15%. The insurer reported annual profits of about US$64 million. In addition, the company has diversified underwriting risk portfolio across geographies and products with limited exposure to natural catastrophe risks.