Dai-ichi leads race to buy Suncorp life insurance business

Dai-ichi Life is believed to be firming as the favourite to win the competition to buy Suncorp’s $1.5 billion life insurance operation.

The Japanese company, which controls local subsidiary TAL Life Insurance, is advised by Greenhill and is understood to have been conducting due diligence to buy the business from the Queensland-based insurer and lender for some time.

Suncorp’s life insurance business has been up for grabs for about a year through advisers Nomura and Luminis Partners.

The process has been edging forward gradually, with Japanese suitors known to take their time when it comes to acquiring businesses.

Earlier, Dai-ichi had been up against other Japanese life insurance rivals, including MS&AD and Meiji Yasuda.

US-based AIG is also known to have been in the process, but it remains unclear how many of the other parties are left.

What is known is that the market is increasingly convinced that TAL’s parent Dai-ichi is now the most likely group to buy the business. US-based AIG is also interested in the Suncorp asset, according to sources, and has been taking advice from JPMorgan.

Japanese parties weighed buying ANZ’s life insurance business and wealth management operation last year when they came up for sale, but they didn’t progress in the competition.

Dai-ichi Life is the third largest life insurer in Japan behind Japan Post and Nippon Life, and is looking for growth globally because of a sluggish economy at home and a declining population.

The life insurance industry has reeling from increased customer claims and policy lapses. It is also facing challenges involving lofty upfront commissions to third parties and higher regulatory capital requirements.

For the Japanese groups, the opportunity to continue to distribute the life insurance products through Suncorp’s banking networks is attractive. The buyer will have access to Suncorp’s 9 million customers.

Suncorp chief executive Michael Cameron flagged the group would explore a sale of life insurance in February last year.

He said while Suncorp would always distribute life products, the operations were “dilutive” to its ambition to improve the group’s return on equity to 10 per cent. He said the review would include a sale, partnerships and reinsurance deals.

Suncorp’s “embedded value” — a valuation metric used to price life businesses — is $2bn for the division, albeit including the smaller New Zealand operations.

Typically, businesses in the industry sell for around one times their embedded value, and AIA paid 1.1 times in the recent CBA life insurance transaction.

The widely held view is that life insurance operations are better off in the hands of global specialists.