Tokio Marine Holdings Inc.'s recently announced acquisition of high-net-worth insurer Privilege Underwriters Inc. is in keeping with its strategy of diversifying its portfolio with sustainable growth.
The $3.1 billion price tag implies a 33x price-to-2020-earnings ratio after tax that might seem high at first blush, but the Japanese insurer believes it to be about level with what would be expected for a comparable listed company with a similar business model, said Akira Harashima, a senior managing director and co-head of international business.
Tokio Marine's valuation of Privilege Underwriters is based on the business portfolio of Pure Group, the target insurer's holding company, and its growth potential, Harashima said during a conference call to discuss the deal. The high-net-worth insurance market in the U.S. is growing at a faster clip than the rest of the property and casualty sector, the executive said.
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The purchase would represent Tokio Marine's largest since its 2015 acquisition of HCC Insurance Holdings Inc. for nearly $7.50 billion. HCC Insurance Holdings is slated to be the acquiring company in the deal for Pure Group.
Pure Group's income is fee-based and stable, and its business model has low capital intensity, Harashima said, according to a transcript translated from Japanese. Pure Group, which writes more than half its business in homeowners insurance, has grown direct written premium in all lines by more than 170% since 2014, according to S&P Global Market Intelligence data.
The Japanese carrier considers Privilege Underwriters to be well-run, with top-tier customer satisfaction resulting in high renewal rates, Harashima said on the call. Tokio Marine plans to keep the existing organization and infrastructure in place.
The company will fund the deal through a combination of cash and financing. S&P Global Ratings affirmed the buyer's A+ financial strength and long-term issuer credit ratings, saying the acquisition will hurt capitalization but keep it within acceptable limits for its rating. However, the agency placed various ratings of HCC Insurance Holdings and its core and guaranteed operating companies on CreditWatch with negative implications, citing the limited information available on the financing.
Pure Group will give Tokio Marine a 1.2 percentage point bump in adjusted ROE while serving the acquirer's goal of expanding its specialty primary insurance business within the U.S. in a way that does not overlap with existing business, Harashima said.
Tokio Marine expects Pure Group to grow its market share in the high-net-worth space and to benefit from the segment's overall expansion, Harashima said.



