Sompo Japan Becomes Majority Shareholder of Its Malaysian Joint Venture

Sompo Japan Insurance Inc. has completed the acquisition of an additional 40% stake in its Malaysian nonlife joint venture, Berjaya Sompo Insurance Bhd., to become a majority shareholder with 70% of shares of the Kuala Lumpur-based insurer.

The transaction will make Berjaya Sompo a subsidiary of Sompo Japan, its parent group NKSJ Holdings Inc. said in a statement. Sompo Japan agreed to pay 496 million ringgit (US$163 million) for the share acquisition through its Asian regional headquarters, Sompo Japan Asia Holdings Pte. Ltd.

"This share acquisition would enable NKSJ and Sompo Japan to expand and strengthen our insurance business operations in the growing Malaysia nonlife insurance market," said NKSJ. With 22 branches in Malaysia, Berjaya Sompo offers commercial and personal nonlife insurance.

Berjaya Sompo is a joint venture formed in 2006 between Sompo Japan and Berjaya Capital Bhd., an investment company with businesses in financial services, real estate, consumer products and services, leisure and gaming in Malaysia. Sompo Japan acquired the additional 40% stake from its joint venture partner.

The transaction will increase Sompo Japan's stake in Berjaya Sompo from 30% to 70%, which is the maximum regulatory limit for foreign ownership in Malaysia. Berjaya Sompo reported gross written premium of 444.9 million ringgit and net profit of 75.2 million ringgit for the fiscal year ended March 31, 2010.

Malaysia's nonlife insurance market has expanded steadily, supported by sustainable economic growth in the Southeast Asia region and improving insurance penetration in Malaysia, said NKSJ in May. The nonlife sector posted an annual average growth of 6.6% between the 2002 to 2009 fiscal year in Malaysia (BestWire, May 19, 2011).

Sompo Japan saw a 71.7% drop in net income to 12.1 billion yen (US$151 million) for the 2010 fiscal year ended March 31, 2011. NKSJ reported a net loss of 12.9 billion yen for the 2010 fiscal year as the March 11 earthquake and a weaker investment market took their toll (BestWire, May 23, 2011).

NKSJ has pursued overseas expansion in recent years to drive business growth. "Merger and acquisition plans will be maintained because the earthquake had only a limited impact on capital," said NKSJ in a financial presentation. The group planned to invest 200 billion yen on overseas merger and acquisition for the three years ending 2012 fiscal year.

Overseas acquisitions focus on sectors which can realize synergies with the group's business, especially nonlife insurance, said NKSJ. The main target is emerging countries with high growth potential, while developed countries will also be targeted in cases offering prospects for acquiring brands, expertise and other assets.

In Malaysia, Sompo Japan established a new reinsurance unit with an eye on business from Southeast Asia and the Middle East markets. The Kuala Lumpur branch is Sompo Japan's second reinsurance operation outside Japan and it operates as a branch of Hong Kong-based Sompo Japan (BestWire, July 14, 2010).

Sompo Japan Insurance Inc. currently has a Best's Financial Strength Rating of A+ (Superior).

(By Iris Lai, Hong Kong bureau manager: [email protected])