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Dai-ichi Life may pick up more US business from insurers cutting assets

For Dai-ichiLife Insurance Co. Ltd., which remains on the hunt for moreacquisitions in the U.S. to build on the 2015 purchase of Alabama-basedProtective Life Corp.,there likely will be plenty of deal opportunities in the market.

Market volatility and uncertainty about the U.K.'s status inthe European Union following the June 23 Brexit vote will probably give the FederalReserve pause in raising rates, keeping U.S. insurers grappling with weakearnings prospects under pressure to sell assets, analysts said. A recentmove to toughenannuity regulations in the U.S. may also prompt consolidation as some insurersthere could opt to unwind some businesses.

Japanese insurers have long been looking overseas for growthopportunities, as they face ever-falling interest rates and a stagnant economyat home.Yet, after a busy 2015, dealmaking this year has been quiet so far.

This is not a good time to pursue cross-border acquisitionsfor any companies, with the U.S. election this year clouding policy andeconomic outlooks, said Hajime Inoue, an economist at the Japan ResearchInstitute. Despite a stronger yen, the combined value of Japanese companies'overseas deals dropped 66.4% to ¥1.928 trillion in the first half from a yearearlier, according to Recof Data Corp.

Dai-ichi Life is staying acquisitive though, giving amandate to Protective Life to continue to expand through deals.The Japanese insurer completed a US$5.58 billion deal to buy the whole ofProtective Life in February 2015.

"We aim to continue M&A activities in the U.S. in aself-sustained way, using the cash flow generated there," TakashiKawashima, a senior managing executive officer at Dai-ichi Life, said during aMay press briefing on the company's full-year results.

For Dai-ichi Life, one benefit of owning Protective Life isthat dealmaking in the U.S. is not affected by foreign exchange rates, aDai-ichi Life spokesman told S&P Global Market Intelligence.

Dai-ichi Life's next acquisition targets in the U.S. willlikely be parts of companies that emerge from streamlining efforts by midsizedinsurers coping with low interest rates and tighter regulations, analysts said.

Life insurers in the U.S. "are selling businesses pieceby piece to focus on their core areas, which then is likely to prompt purchasesof separated businesses," said Cathy Seifert, financial institutionresearch director at S&P Global Ratings.

Protective Life said in April that its primary acquisition focus willremain on long-dated individual life insurance policies in a target block sizeof between US$500 million and US$1 billion. Its latest was to take over blocks of termlife business from a GenworthFinancial Inc. unit for US$661 million in January.

There could be similar transactions with midsize companiesthat want to focus on their core areas, said Josh Esterov, a senior insuranceanalyst at CreditSights. Life insurance is not Genworth's key business.

As an example, he flagged The Hartford Financial Services Group Inc., which hasnoncore life operations.

A deal with Allstate Corp., primarily an auto and home insurer,would also make sense for the same reason, Esterov said.The company soldLincoln Benefit Life Co. in 2014.

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A possible restructuring of MetLife Inc.'s U.S. retail business has also attractedattention. MetLife has said its options include a spinoff, a sale and an IPO.

But the size of those assets, about US$240 billion in total,is too big for most companies to buy, said Raymond Tam, an insurance analyst atCreditSights.

"I'd be surprised if there is anyone who can buyit," he said.

For Protective Life though, costs are not necessarily ahindrance, as Dai-ichi Life can provide financial support, said TerukiMorinaga, an insurance analyst at Fitch Ratings in Japan.

"One possible question is what Dai-ichi would do ifthere comes a good acquisition opportunity, a possible deal too good for it topass over, but too costly for Protective to finance on its own," he said.

S&P Global Ratingsand S&P Global Market Intelligence are owned by S&P Global Inc.

As of July 14, US$1was equivalent to ¥105.37.

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