Nipponkoa Next Focus of Nonlife Insurance Industry Realignment

Tokyo, Jan. 15 (Jiji Press)--Nipponkoa Insurance Co. <8754> is the
next focus of nonlife insurance industry realignment in Japan following the
recent announcement of an integration plan among Mitsui Sumitomo Insurance
Group Holdings Inc. <8725> and two other companies, industry sources say.

Mitsui Sumitomo, Aioi Insurance Co. <8761> and Nissay Dowa General
Insurance Co. <8759> are mulling the business integration, aiming to survive
in the tough business environment in the domestic market.
The three-way union would create a group with annual insurance
premium revenue of over 2.7 trillion yen, higher than that of current
industry leader Tokio Marine Holdings Inc. <8766>.
Industry watchers say that more consolidation moves may come.
An integration between Tokio Marine and third-ranking Sompo Japan
Insurance Inc. <8755> is unlikely as their combined domestic market share
would exceed 40 pct and cause antitrust problems.
Rather, Tokio Marine and Sompo Japan may vie for fifth-ranking
Nipponkoa, they said.
A business integration between Tokio Marine and Nipponkoa would
create a group with annual premium revenue of about 2.9 trillion yen, larger
than that of the group to be formed by Mitsui Sumitomo, Aioi and Nissay
Dowa.
Meanwhile, if Nipponkoa opts to unite with Sompo Japan, their
annual premium revenue could reach 2 trillion yen although the pair would be
the third-largest player.
At the moment, however, the parties concerned remain cautious.
Senior officials of Tokio Marine, Sompo Japan and Nipponkoa say that they
will not simply pursue the advantages of scale that would result from
business integration.
"Profitability counts as well," a Tokio Marine executive says.
In addition, Nipponkoa President Makoto Hyodo is known for his
policy of going it alone.
But Hyodo is under pressure from U.S. investment group Southeastern
Asset Management Inc., the top shareholder of Nipponkoa with a stake of
about 20 pct.
Southeastern Asset has urged Nipponkoa to improve its performance
and consider business tie-ups or even a merger. At a general meeting of
Nipponkoa shareholders last year, Southeastern Asset voted against the
reappointment of Hyodo.
The U.S. fund may apply stronger pressure on Nipponkoa, prompted by
the integration move among Mitsui Sumitomo, Aioi and Nissay Dowa.
In its quarterly business report released last November, Nipponkoa
said that Longleaf Partners Funds, affiliated with Southeastern Asset, had
become its second-largest shareholder.
Following the development, Southeastern Asset will likely be able
to obtain the rights to make proposals on business plans and other matters
at Nipponkoa's shareholder meetings.
Last year, Southeastern Asset was only able to vote against Hyodo's
reappointment. But the U.S. fund can propose its own appointment plan at a
general shareholder meeting this year.
Southeastern Asset also holds an equity stake of nearly 7 pct in
Sompo Japan. An integration between Nipponkoa and Sompo Japan is expected to
help raise the two companies' corporate value, a plus for Southeastern Asset
and other shareholders.
Another potential player that may affect the anticipated nonlife
insurance industry realignment is Mitsubishi UFJ Financial Group Inc.
<8306>, which holds about 5 pct of Nipponkoa.
Mitsubishi UFJ, which also has close ties with Tokio Marine, is
unlikely to play an active role in pushing for industry realignment because
Tokio Marine does not appear intent on seeking a business integration at the
moment.
But it is uncertain whether Mitsubishi UFJ would approve a possible
merger between Nipponkoa and Sompo Japan, which is closely linked with rival
megabank Mizuho Financial Group Inc. <8411>.