EUR 850.00 For Business Accounts Only

Morningstar | Tokio Marine Has Had the Strongest Financial Performance of Japan's Big Three Nonlife Insurers

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms--Tokio Marine, MS&AD, and Sompo--stably control more than 85% of market share, and only three others (AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%. Top-line percentage growth in the industry is only in the low single digits, but nonlife premium penetration as a percentage of GDP is lower than that of most other countries, and the nonlife companies--unlike the banks or life insurers--did not suffer from the burst of Japan’s 1980s bubble. On the contrary, conservative Japanese accounting and regulatory requirements to provision for large catastrophe and other reserves have left the nonlife insurers with excess capital that they are now allocating to increased shareholder returns and overseas acquisitions that boost top-line growth.Of the three insurers, Tokio Marine has had the strongest financial performance in Japan and has achieved the most success overseas. It has about 1% share of the U.S. general insurance market, centered on specialty lines with lower-than-average combined ratios, and enough time has passed since its acquisitions to give us confidence in its ability to manage the businesses over the long term, unusually so for a Japanese financial sector acquirer in the United States, which in addition to being a large market tends to be a competitive one.Other positives for Tokio Marine include its lower sensitivity to fluctuations in Japanese stock prices and its absence of net exposure to changes in foreign exchange rates. However, it has historically traded at a higher percentage of its adjusted net worth than its Japanese peers and continues to do so. Also, its historical advantages from being the largest player and ahead of the curve in integrating its back-office systems may diminish now that its rivals have formed two similar-size groups.