Strategy

Sompo to Buy Endurance Specialty for $6.3B

The Japanese insurer is paying a 43% premium for Endurance as it seeks to generate 25% of its profits from overseas operations by 2020.
Matthew HellerOctober 5, 2016
Sompo to Buy Endurance Specialty for $6.3B

In the second-largest acquisition by a Japanese insurer, Sompo  said Wednesday it will buy Endurance Specialty for $6.3 billion to fuel its overseas growth.

Endurance, which specializes in casualty and agriculture coverage, is based in Bermuda but focuses on the U.S. market. Sompo will pay $93 in cash for each Endurance share, a 43% premium to the closing price on Monday.

Nikkei, the Japanese newspaper, first reported the deal on Tuesday, sending the stock up 35.3% to a record $87.87. It closed at $91.75 on Wednesday, up 4.4%.

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Sompo, one of Japan’s biggest insurers, generates about 15% of its profits overseas, but is aiming to increase that to 25% by 2020, using acquisitions to accomplish that goal. Besides investing in local insurers in emerging countries such as Malaysia and Turkey, it bought U.K.-based Canopius Group in 2014.

North America accounted for just 5% of Sompo’s total overseas net premiums written in the first quarter of the current financial year — compared to 62% for Tokio Marine and 28% for MS&AD, its closest Japanese rivals.

“With Endurance, we would like to establish a truly integrated global insurance platform,” Sompo CEO Kengo Sakurada said at a news conference, emphasizing the importance of potential growth in Endurance’s specialty products.

The acquisition is the second-largest by a Japanese insurer after Tokio Marine’s takeover of U.S.-based HCC Insurance Holdings for $7.5 billion last year. Japan’s acquisitions of overseas insurance companies surged in 2015 to $24.3 billion — the highest level in at least a decade — according to Dealogic.

Japanese insurers “want to internationalize as quickly as they can,” Anupam Sahay, an insurance partner at Oliver Wyman in Singapore, told The Wall Street Journal. “Negative interest rates at home and a relatively strong yen are a good incentive to get on with it.”

Endurance CEO John Charman has agreed to run Endurance and the combined international business following the acquisition for at least five years. “We highly respect Sompo’s disciplined risk-management system and underwriting culture,” he said. “Endurance’s clients will benefit from our increased scale, better financial strength rating and a larger balance sheet.”