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Japan insurer Tokio Marine scouts for more M&A targets in North America

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(Reuters) — Japan's Tokio Marine Holdings Inc. sees many attractive acquisition opportunities in North America, its chief executive said, even after already spending more than $7 billion to buy insurance companies there in the last six years.

“There are still possible options in the North American market,” Tsuyoshi Nagano, CEO and president of Japan's largest insurer by market capitalization, told Reuters in an interview on Friday.

“The insurance market is big, and there are many specialty companies. There are still many good targets.”

As well as looking for international growth prospects to offset a domestic market that will shrink as Japan's population declines, Tokio Marine and its rival property-casualty insurers in the country have been aggressively expanding overseas in recent years to avoid geographic concentration of risks.

Insurers say that by spreading business exposure over various regions, they can lessen the impact on earnings of natural disasters, such as typhoons or floods, hitting individual countries in any given year.

Mr. Nagano, 61, took over in June last year from Shuzo Sumi, who in his six-year tenure acquired several overseas firms including U.S. insurer Philadelphia Consolidated for $4.7 billion and Lloyd's of London insurer Kiln for $671 million. Mr. Nagano himself led the talks to buy U.S. insurer Delphi for about $2.7 billion in 2011, when he was a senior executive.

Thanks to its aggressive overseas expansion, Tokio Marine's insurance premium revenues from overseas businesses have grown nearly 10-fold in the past 10 years, while domestic non-life insurance premium revenues grew about 30% during the same period.

Premiums from non-Japanese business are expected to reach 1.1 trillion yen ($10.1 billion) for the current financial year ending in March 2015. Profits from overseas operations are expected to come in at 105 billion yen this financial year, accounting for about 36% of total earnings compared with 15% 10 years ago.

Mr. Nagano said the company always keeps a list of 10-20 potential acquisition targets globally and keeps close tabs on them, discussing prospects in monthly top management meetings. He declined to say how much the company is prepared to spend on acquisitions.

“We are following changes in these companies and CEOs' remarks,” he said. “We spend time to narrow down companies we want to have relationship with, and I think this leads to successful acquisitions,” he said.

Analysts say Tokio Marine, which has a market capitalization of about $23 billion, has ample access to funds for deals. It has spent roughly $8 billion on overseas M&A in the past 10 years.

“It depends on specific deals and schemes to finance them, but I don't see much impact on its credit rating if Tokio Marine makes an acquisition in the scale of Philadelphia given its debt leverage and acquisition track record,” said Teruki Morinaga, insurance sector analyst at Fitch Ratings Japan. Fitch has an AA-rating on the Tokio Marine's core unit, the fourth highest rank on its scale.

In addition to North America, Mr. Nagano said the company is looking for acquisition opportunities in Brazil and Mexico. In Brazil, the firm made an unsuccessful bid for an insurance company earlier this year, he said, declining to name the company.

“The company was a property-casualty insurer with strong businesses with large corporate clients. We have strong car insurance business there and want to boost other operations such as life and corporate insurance,” he said.

In Asia, Mr. Nagano said Thailand and Indonesia are markets of interest for acquisitions. But he cautioned there are few potential deals in the region and prices have become too high.

He also said his company is aiming to achieve a return on equity of at least 8% during the next three years, up from 7.4% expected for the current financial year ending in March 2015.

“To become a global company, we need to clear at least 8%,” he said, adding that overseas operations are expected to be a growth driver.

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