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Categorized | Insurance

Sompo in talks on $6bn Endurance takeover

Posted on October 4, 2016

A logo of Sompo Japan Nipponkoa Insurance Inc is seen at the company's headquarters in Tokyo, Japan, May 19, 2016. REUTERS/Toru Hanai - RTSF4A4©Reuters

Sompo Holdings, one of Japan’s biggest insurers, is close to acquiring Bermuda-based rival Endurance Speciality Holdings for more than $6bn, according to people briefed on the negotiations.

The two companies were finalising the deal on Tuesday and unless their negotiations collapse an agreement is expected to be announced as soon as Wednesday, those briefed said. 

    In a statement issued after the first reports of the deal, Endurance confirmed that it was in advanced discussions about “a potential strategic transaction” with Sompo but added: “There can be no assurance that the discussions will lead to a definitive agreement.”

    An acquisition of the global provider of property and casualty insurance and reinsurance would be the latest sign that a growing number of Japanese companies — backed by a strong yen — are seeking to expand their exposure to the US, where growth prospects are stronger than in their home market. 

    Shares in Endurance, led by chairman and chief executive John Charman — among the best known characters in the insurance industry — jumped 35.3 per cent to a record $87.87 in New York after Nikkei, the Japanese newspaper, first reported the deal. 

    The talks mark the latest sign that dealmaking in the insurance sector is heating up. Last month Canada Pension Plan Investment Board agreed a deal to buy Ascot Underwriting, the Lloyd’s of London platform tied to AIG, in a $1.1bn deal.

    Sompo is following Japanese peers by making a sizeable acquisition in the sector. Last year Tokio Marine sealed a $7.5bn purchase of the US speciality insurer HCC, and Lloyd’s of London operator Amlin accepted a £3.5bn bid from Mitsui Sumitomo. 

    Sompo bought Canopius — a significantly smaller business — for £594m in 2013 and has made no secret of its desire for more deals. 

    The Japanese company attempted to bulk up further in London by bidding for Amlin last year. However, Sompo has since said that it could not have made the Amlin deal work at the 2.4 times book value that Mitsui Sumitomo paid for it. 

    That experience has not dulled Sompo’s appetite for overseas acquisitions, or for the London insurance market. The company generates about 15 per cent of its profits outside Japan, but it wants to increase that to 25 per cent by 2020 and sees acquisitions as the only realistic way of reaching that target. 

    Kengo Sakurada, Sompo’s chief executive, told the Financial Times last month that London in general — and the Lloyd’s market in particular — were still attractive, despite the uncertainties created by Brexit. 

    “I’ll continue to put more resources and capital into Lloyd’s because it gives us access to other developed markets,” he said. 

    Sompo sees specialist insurance markets — which handle niche and complex risks — as far more attractive than retail insurance, which it says is already too competitive. 

    The sale of Endurance comes about three years after Mr Charman — who founded Axis and is a former deputy chairman of the Council of Lloyd’s market — joined the company. 

    Endurance, which specialises in casualty and agriculture coverage, mounted a hostile bid in 2014 to acquire its rival Aspen Insurance Holdings but ultimately its offer was rebuked.