National Australia plans insurance tie-up with Nippon Life

(Bloomberg) — National Australia Bank Ltd. said it's seeking a partnership with Nippon Life Insurance Co., a day after a person familiar with the discussions said the Japanese company was in talks to buy the Australian lender's insurance business.

The companies agreed on a non-binding memorandum of understanding with an aim to enter a "long-term partnership," National Australia said Thursday in a statement that stopped short of mentioning whether anything will be sold. Discussions are ongoing and nothing has been decided, it said.

Nippon Life, Japan's biggest life insurer by assets, is targeting an agreement this month that may see it pay 200 billion yen (USD $1.7 billion) to 300 billion yen for National Australia's insurance business, a person with knowledge of the deal said Wednesday. A transaction would add to the series of overseas takeovers by Japanese insurers as they try to offset slowing growth prospects amid an aging population at home.

"It's likely that National Australia will restrict itself to distributing life insurance products, while Nippon Life will underwrite the policies, provide the capital and take the premiums," Brett Le Mesurier, a Sydney-based analyst at APP Securities Pty, said by phone. "It shows National Australia is finally working out what it's good at, which is being an Australia and New Zealand bank. A transaction will be sensible for shareholders."

Capital Release

National Australia did not reveal any financial terms or the capital impact in its announcement Wednesday. The country's biggest lenders including National Australia have raised almost AUD $20 billion this year to meet stricter capital requirements.

The lender first flagged it was evaluating options for the business last year after declaring returns from the wealthmanagement business, which houses the life insurance unit, were "below acceptable levels."

The wealth division's return on equity climbed to 6.8 percent in the six months ended March 31 from 4.5 percent in September 2013, according to an investor presentation. That compared with an overall return on earnings (ROE) of 14.7 percent for the bank.

A sale would be in line with Chief Executive Officer Andrew Thorburn's plan to exit businesses with low returns and instead focus on Australia and New Zealand banking and wealth management. Since taking over as CEO in in August 2014, Thorburn has sold almost all of U.S.-based Great Western Bancorp Inc. and is seeking to spin off the bank's U.K. unit.

Japanese Acquisitions

Japanese insurers' acquisitions abroad have nearly quadrupled this year to $23.6 billion from $6 billion for the same period in 2014, data compiled by Bloomberg show.

Among the deals, MS&AD Insurance Group Holdings Inc. said it agreed to buy Lloyd's of London insurer Amlin Plc, Sumitomo Life Insurance Co. agreed to buy Symetra Financial Corp. in the U.S. and Tokio Marine Holdings Inc. said it agreed to purchase HCC Insurance Holdings Inc., also in the U.S.

Nippon Life, which isn't publicly traded, is also merging with Mitsui Life Insurance Co. to position itself as the country's biggest earner of insurance premium income.

National Australia shares dropped 0.1 percent to AUD $31.48 at 12:28 p.m. in Sydney compared with a 0.4 percent increase for the benchmark S&P/ASX 200 Index.