➤ Tokio Marine will continue to look at opportunities in the U.S. despite some chatter about the potential for interest rates to go negative.
➤ The company is also exploring South Africa, Asia and other places as suitable regions in which to expand.
Tokio Marine Holdings Inc.'s recently announced deal for high-net-worth insurer Privilege Underwriters Inc. came with a $3.1 billion price tag that is the company said is in line with trading multiples for another entity with a similar business model.
S&P Global Market Intelligence caught up with Chris Williams, who serves as senior managing executive officer and co-head of international business for Tokio Marine, at the S&P Global Market Intelligence Insurance M&A Symposium to discuss the PURE deal, the possibility of negative interest rates in the U.S. and where Tokio Marine might be looking to expand next. The following is an edited transcript of that conversation.
Chris Williams, senior managing executive officer and co-head of international business at Tokio Marine Holdings Inc.
Source: Tokio Marine
S&P Global Market Intelligence: Why do you think now was the right time to make the PURE deal?
Chris Williams: I think the more that business grows the more expensive it was going to become. When you have a business that is growing 20% a year and is profitable, it is simple math. If you wait five years, it is probably going to be worth a lot more than it is today. You combine that with the fact that the private equity money was there for 10 years, that's a lifetime in the PE world, so I think they were ready to move on.
Overall, what is the significance of the transaction for Tokio Marine?
It has brought a new line of business to us by definition. There is no conflict with our other group companies so those companies are not competing against each other. I think with their balance sheet we can accelerate the growth. I think we can add additional products to their offerings. Down the road we clearly want to take this to other parts of the world ... but at the moment we are focusing purely on the U.S. for PURE.
If you look at the three big players in the high-net-worth business, you have Chubb Ltd., American International Group Inc. and PURE. There are not many insurance businesses in the U.S. where there are three dominant players. We are by far the smallest.
In the U.S. there has been some talk of negative interest rates. Does looking at U.S. businesses still make sense for Tokio Marine or do you think you will start looking at other markets?
We will continue to look at the U.S. It is the biggest insurance market in the world, so by definition there are probably greater opportunities in the U.S. Also, the interest rate environment in Japan is worse than it is in the U.S. with negative interest rates. But we also feel as though there are those opportunities in other parts of the world. I think it is important that we get a toehold in developing economies and get relationships or partnerships established, or outright ownership in some of those countries. I have mentioned South Africa as one before; we have that same situation in Asia where we are in six or seven different countries there. In the majority of cases we own 100% of the businesses there, but in some cases we are a minority shareholder. So we will continue to look for opportunities. We are not limiting it to the U.S and we certainly are not excluding the U.S. We are looking to where it makes the most sense to deploy that capital.
Is the discussion of negative interest rates here having any impact on just how you look at the U.S. in general?
No it is not. I mean, clearly investment income is an important component, but the metric we focus most on is our combined ratio. We are focused running that below 100%, which we've successfully done. Last year we got it to 94.5% or thereabouts. Worldwide, we are generating underwriting profit; we are covering our cost of capital.
So South Africa and Asia, are those places you are looking specifically to expand?
We are relatively underweight in Latin America, but again we need to be quite cautious as to where we go to. I also think it is important to point out that the Japanese psyche is a lot more long term. If, for instance, HCC Insurance Holdings Inc. was independent and I was still running that, it would be a little harder to get on an analyst call every quarter and say yes we have deployed certain millions of dollars in these areas because this is where we feel we need to strategically be later on down the road. That is kind of a bit of a hard sell, especially to our U.S. market. Our approach is a more long term one. Obviously we want to do it intelligently, but we are also willing to do that with a view of what we believe is coming down the road versus what's going to happen next quarter.
Will there be more deals for Tokio Marine this year?
What I would say is that we are an acquisitive company, that we have an appetite. We do not do $3 billion deals every day, but you will see if you look back at the history of these things, we generally do a sizable transaction and then we get that integrated and move on. That is not to say if something came along tomorrow and ticked all the boxes that we would not pursue it. We remain acquisitive.