MS&AD takes $1.6bn write-down as MS Amlin fails to deliver on acquisition promise

Japanese insurance giant Mitsui Sumitomo & Aioi Nissay Dowa Insurance (MS&AD) will not retreat from its recent pan-Asian and international expansion strategy because of recent problems with its London operations – MS Amlin – according to credit ratings agency Moody’s. MS&AD recently announced the decision to book a $1.6bn write-down for its London-based specialty unit MS Amlin and launch a serious reorganisation of the business, which sees the termination of the regional holding company and separation of the Lloyd’s, European primary and reinsurance operations. The write-down for goodwill and impairment of intangible assets was taken because the Amlin business, acquired back in February 2016 for $5.3bn, has failed to deliver what investors were promised. “The profitability of the Lloydʼs business and Europe primary insurance business fell short of the original business plan made at the time of acquisition, so impairment losses will be booked,” stated MS&AD in its half year report. Soichoro Makimoto, vice-president and senior analyst, financial institutions group, Moody’s Japan, said: “While the underperformance partially reflects low investment returns, tepid reinsurance demand and changing buyer behaviour, large catastrophes, rising regulations on the Lloyd’s market in recent years and, possibly, the high profit expectation at the acquisition, it also unveils some internal issues.” MS&AD was transparent about the need for a management and structural reform, as suggested by Mr Makimoto in its statement. It said the current system was unable to fully leverage the strengths of the group companies across regions and that decision-making takes too much time because of the “multi-layer structure” of the holding operation and regional holding companies. “The new operating structure will be reorganised into an international planning department that is responsible for planning the overall strategy of international business, and an international business department that is responsible for regional strategies and business promotion and management. The regional holding companies will be terminated and international subsidiaries under each regional holding company will become direct subsidiaries of MSI head office. The current functions and authorities pertaining to the strategy at the regional holding companies will be consolidated to head office,” explained MS&AD. The London MS Amlin operation will not be alone in losing its independence. MS&AD is also terminating the regional holding company framework that it adopted in 2006 for companies in Asia, North America and South America. These will also become direct subsidiaries of MSI head office. The new system takes effect on 1 January 2020. From this point onwards, MS&AD promised investors that it would strengthen collaboration as a group under the leadership of the holding operation and accelerate decision-making and operate more efficiently. As part of the restructure, MS&AD will transfer shares held by MS Amlin to Mitsui Sumitomo Insurance, leading to a huge tax saving of about $1.57bn. Apart from the tax saving, MS&AD also expects to achieve annual cost reductions of more than $92.2m up to fiscal year 2021. Moody’s was pretty positive about the move and does not see how it would block MS&AD’s continued international expansion plans as it seeks better growth opportunities than currently available in its domestic market. Mr Makimoto commented: “The new structure will allow better utilisation, expertise and networking of the group’s companies across regions, and accelerate decision-making. The resultant efficiency gain is positive for profitability.” The expertise of MS Amlin’s subsidiaries and MS First Capital Insurance will also be used on a group basis, encouraging further collaboration in life and P&C business in Asia, added Moody’s. Moody’s stressed that MS&AD has a strong incentive to maintain and expand diversified overseas businesses because of Japan’s large natural catastrophe risk and a shrinking and ageing population in its home market. “This incentive is even higher because, as a publicly traded company, MS&AD is under greater pressure to meet profit targets,” added Moody’s. AM Best said the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of aa of Mitsui Sumitomo Insurance Company (Japan) remain unchanged following the earnings announcement and restructure by MS&AD. The outlook of these credit ratings remains stable. MS Amlin, along with a number of other leading Lloyd's agencies, has taken firm action in recent months to bolster its underwriting results. In mid-October, it confirmed its exit from the aviation insurance market for renewals or new business. This change excluded the aviation hull war portfolio, which will continue to be underwritten by the existing war team in London. This announcement followed MS Amlin’s announcement of the results of a comprehensive long-term strategic review that saw it basically split the main business units into three: high value reinsurance; specialty insurance; and European commercial insurance. MS Amlin has also identified nine classes of business and operations that would no longer form part of its future strategic direction.

MS&AD takes $1.6bn write-down as MS Amlin fails to deliver on acquisition promise

Want to read this article?

Read Next

HDI Global turns focus on mid-market with dedicated and international offering

Fire safety manufacturer pays $750m to settle PFAS class action

US cyber rate rises fall again but CyberCube warns of public sector attacks in election year

Miller expands cargo offering in Asia Pacific

First-ever cat bond issued for sustained cloud outage losses

HDI Global turns focus on mid-market with dedicated and international offering

Fire safety manufacturer pays $750m to settle PFAS class action

US cyber rate rises fall again but CyberCube warns of public sector attacks in election year

Miller expands cargo offering in Asia Pacific

First-ever cat bond issued for sustained cloud outage losses

Want to read this article?

Read Next

HDI Global turns focus on mid-market with dedicated and international offering

Fire safety manufacturer pays $750m to settle PFAS class action

US cyber rate rises fall again but CyberCube warns of public sector attacks in election year

Miller expands cargo offering in Asia Pacific

First-ever cat bond issued for sustained cloud outage losses

Related Articles