MS&AD Insurance Group Holdings Inc. announced it will merge two of its non-life insurance company subsidiaries – Mitsui Sumitomo Insurance Co. Ltd. and Aioi Nissay Dowa Insurance Co. Ltd.
This merger will establish a non-life insurance company that holds the top market share in the domestic non-life insurance sector, said the MS&AD Board of Directors in the announcement on March 28.
“Mitsui Sumitomo Insurance (MSI) and Aioi Nissay Dowa Insurance have collaborated under the same holding company for 15 years and have already carried out integration in their capital and enterprise risk management, and business strategies,” according to Soichiro Makimoto, an analyst and vice president-senior credit officer, Moody’s Ratings, in an emailed statement.
“The merger will therefore have no significant direct impact on their credit, but we expect it will further advance integration. For example, there is room for further cost reduction through deeper integration of their IT systems, which would improve profitability,” Makimoto added.
“Since MSI handles most overseas business, there is little cannibalization except in domestic property and casualty (P/C) insurance,” Makimoto said.
“Both companies operate similarly in the domestic P/C sector but have somewhat different customer bases. As domestic P/C insurers divest cross-shareholdings, corporate customers will increasingly choose insurers based on underwriting capacity, pricing, and brand recognition — areas the merger can enhance — rather than purchasing insurance proportionally to cross-shareholdings,” he explained.
Addressing Compliance Issues
MS&AD noted that the merger aims to address various compliance issues such as the price-fixing and information leakage incidents, which have received a lot of regulatory scrutiny.
Mitsui Sumitomo Insurance Co. Ltd., Aioi Nissay Dowa Insurance and two other insurers – Tokio Marine Insurance and Sompo Japan Insurance – have admitted a series of compliance failures, including colluding to fix prices in their contracts with corporate clients. In addition to price fixing, the so-called “leakage incidents” involved insurers improperly obtaining information on rivals’ customers through their employees on loan to insurance agents.
In response to these compliance failures, MS&AD said it intends to transition to a company with an audit and supervisory committee and change the balance of internal to external directors, thereby strengthening the supervisory and check-and-balance functions of the Board of Directors.
“This will enable us to effectively monitor the internal control systems of group companies,” said MS&AD, noting the merger must be approved by shareholders at the company’s annual general meeting.
“Our group aims to enhance the value we provide to customers by integrating the strengths of Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance in the domestic non-life insurance business,” the announcement continued.
“We will also focus on improving management efficiency, including IT system integration, and optimizing management resources such as human resources and facility network, with the aim of becoming a world-leading insurance and financial group,” MS&AD said.
MS&AD said details such as the merger method, post-merger company name, and representatives will be announced at a later date.