Japanese Life Insurer Buys StanCorp

By Linda Koco

Another big Japanese life insurance company is buying a name-brand U.S. life insurer. In a definitive agreement signed last week, 134-year-old Meiji Yasuda Life, a Tokyo insurer, said it will buy 109-year-old StanCorp Financial Group, a Portland, Ore., group insurer.

The all-cash transaction is valued at $5 billion. That is somewhat close to the $5.7 billion that another Japanese carrier, Dai-ichi Life, agreed to pay when it announced plans to buy Protective Life last year.

The new deal confirms predictions by U.S. analysts that foreign companies will be buying U.S. carriers during 2015. The prolonged low interest rate environment is often cited as a contributing factor along with the resulting search for relief by some carriers.

In a statement, Greg Ness, chairman, president and CEO of StanCorp, said his company was not looking for a buyer. However, he said, Meiji Yasuda’s proposal presented “tremendous opportunity,” including a “substantial cash premium” to shareholders and the ability to maintain current operations and employees.

Meiji Yasuda is the oldest and third largest life insurance company in Japan, according to the acquisition announcement.

Rating response

A.M. Best already has responded to the merger news. It placed the StanCorp insurance subsidiaries’ financial strength rating of A (Excellent) “under review with positive implications.” It did the same with the subsidiaries’ issuer credit ratings of “a.” The subsidiaries are Standard Insurance Co. and The Standard Life Insurance Co. of New York, collectively known as The Standard Insurance Group.

The statement from Best does not identify specific positive implications. However, it does note some positive attributes of the transaction.

For one, the agreement includes a “go-shop clause,” Best said. It provides StanCorp an opportunity to solicit competing proposals during a 25-day period, the purpose being to give other bidders a chance. In addition, Meiji Yasuda is the group insurance leader in Japan, Best said, and StanCorp’s “management team and organizational structure is expected to remain intact.”

The last point, about StanCorp’s management and structure staying intact, will be significant for U.S. insurance professionals, because continuity during transition impacts stickiness of accounts — with customers, vendors and distribution, too.

Best’s Hong Kong office said Meiji Yasuda’s ratings — a financial strength rating of A+ (Superior) and issuer credit rating of “aa-”— remain unchanged. Noting that the carrier is planning to accelerate its expansion of overseas insurance business, Best said the StanCorp transaction would lead to “a diversified business portfolio with an increased profit contribution from the overseas businesses.”

On the day following the July 23 announcement of the deal, StanCorp’s price on the New York Stock Exchange shot up to more than $113 a share, an increase of nearly 48 percent from Thursday’s close. This happened on the same day that markets were down — the Dow by more than 163 points — making the StanCorp bounce all the more breathtaking.

Potential impact

The companies expect to close the deal in first quarter 2016, although the transaction is subject to StanCorp shareholder approval and regulatory approvals in Japan and the U.S. The timeline should give U.S. insurance professionals some room to assess potential impact on the industry. Here are some areas of consideration:

Group insurance. The core product line at both Meiji Yasuda and StanCorp’s life subsidiaries is group insurance. Meiji Yasuda specializes in group and individual life insurance, bancassurance and group annuities. StanCorp’s focus is group disability, life, accidental death and dismemberment, dental and vision, although it also writes individual business.

This commonality can create certain synergies, in thinking if not in specific product designs. The question is, in what areas? It will likely occur in various group insurance areas that both share. Importantly, “StanCorp will continue to operate under The Standard brand” within the new global structure, according to a company fact sheet.

But there could be outcroppings, too. For instance, Meiji Yasuda may nudge its new U.S. business to take greater interest in the group annuity market for pension risk transfers (PRTs), which are currently percolating in the U.S. In the PRT market, group annuities are used as the funding vehicle for employers that want to transfer some or all of their traditional pension exposure to another party.

Individual products. StanCorp offers individual disability, retirement plans and annuities as well as group products. Product watchers will be wondering if StanCorp’s individual business may get a boost in interest (and perhaps dollars) from its new parent.

The company’s annuity book includes a small amount of fixed index annuities (FIAs). Since industrywide FIA sales keep reaching new sales records, some annuity professionals will be wondering whether Meiji Yasuda will want to capture a greater share of that growth.

If so, it won’t happen overnight. At year-end 2014, Standard Life, a StanCorp subsidiary that writes FIAs, ranked 31 in FIA sales among 41 FIA carriers tracked by Wink Inc.

However, the company’s FIA sales have been inching up slowly since its market entry a few years ago. For instance, based on Wink’s figures, Standard Life’s FIA market share rose to 0.23 percent in 2014 from 0.15 percent in 2013, and in fourth quarter 2014 alone its market share was 0.47 percent. The question now is, will the new parent push for more growth in this product line, or let its FIA business ride on as it is?

International ownership. In its 2015 report on the insurance industry, PricewaterhouseCoopers LLC predicted that foreign interest in owning U.S. companies will continue as foreign corporations “seek to invest in markets with higher yields.” That is particularly the case with firms in Asia that have excess capital, the report said. The researchers note that foreign entrants historically have been willing to pay significant premiums for U.S. companies.

A number of other industry analysts have made similar predictions about expecting more foreign buyers this year. Often the buyer intentions are to use a big acquisition as a national platform on which to build additional U.S. acquisitions.

In Meiji Yasuda’s case, the Japanese carrier is paying a 50 percent premium over StanCorp’s one-day prior closing share price, the StanCorp fact sheet said.

As for goals, the “transaction significantly expands the scope and quality of Meiji Yasuda’s offerings in the U.S. market, and will help to enhance and accelerate its diversification and international growth,” the two companies said in a statement. StanCorp will serve as Meiji Yasuda’s primary U.S. presence in the group marketplace, it said. The headquarters will remain in Portland, Ore.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].