TOKYO, June 2 ― Dai-ichi Life Insurance Co., Japan’s second-largest life insurer, fell the most in two months after saying it may buy a US insurer, which Nikkei newspaper earlier reported was Protective Life Corp.

The shares declined as much as 4.8 per cent, the largest drop since March 27, and were 4.3 per cent lower at 1,443 yen at 10:46 am in Tokyo. Dai-ichi’s US purchase will probably exceed ¥500 billion (RM15.8 billion) with final talks on price and terms possibly leading to a deal within days, Nikkei reported in an English-language version of its article, without saying where it got the information.

Japan’s saturated market is spurring insurers including Dai-ichi to look overseas for new customers. The company said in a statement through the Tokyo Stock Exchange that it’s considering buying a US insurer and that no decision has been made. It didn’t identify a potential target.

“If the deal goes ahead, given the size, we would expect Dai-ichi to require additional funds and this could be a potential catalyst for an equity raise,” Makarim Salman and Ken Oiwa, analysts at Jefferies Group LLC in Tokyo, wrote in a note dated today. “Entering the US market has been a goal of Dai- ichi’s for some time. We believe they see risks in Japan as the demographic decline could lead to a decrease in the profit base.”

Biggest takeover

Tokyo-based Dai-ichi will pay a premium on top of Protective Life’s stock price and set up a US special-purpose company to merge with the Birmingham, Alabama-based insurer, the publication said. It would rank as the biggest takeover of an overseas firm by a Japanese life insurer, Nikkei said.

The US accounts for about 22 per cent of the global insurance market and is expected to continue growing faster than Japan, according to Jefferies. The deal would boost Dai-ichi Life’s group premium income to about ¥4.65 trillion, on par with its bigger competitor Nippon Life Insurance Co.’s ¥4.86 trillion, according to the note.

Founded in 1907, Protective life has added clients across the US with 47 acquisitions of smaller insurers and blocks of policies from other firms over more than four decades, according to its website. It agreed last year to a US$1.1 billion transaction to add US policies from Axa SA.

Protective Life, with a stock-market value of US$4.12 billion at the end of last week, is led by Chief Executive Officer John D. Johns. Management would probably remain in place after a deal, according to Nikkei. Eva Robertson, vice president for investor relations at Protective Life, said in an e-mail that the company doesn’t comment on rumours.

US purchases

Protective Life advanced more than 30 per cent in the past year to US$52.30 at the end of last week, as investors bet the deal with Paris-based Axa would add to earnings. Operating profit increased 35 percent in the first quarter to US$96.5 million, Protective Life said last month.

Japanese financial firms have looked to other US companies to acquire units or stakes. Orix Corp., the Tokyo- based finance and leasing firm, agreed in April to pay about US$895 million for Hartford Financial Services Group Inc.’s Japanese retirement-products business.

Dai-ichi plans to spend about US$3 billion on overseas purchases in the next two years, Hideo Teramoto, the insurer’s managing executive officer said in May 2013. In 2012, Dai-ichi Life agreed to buy as much as 20 per cent of Janus Capital Group Inc., a US fund company, marking its first overseas asset management acquisition.

Nippon Life invested in Newark, New Jersey-based Prudential Financial Inc. amid the financial crisis. In 2008, Tokio Marine Holdings Inc. said it would buy commercial insurer Philadelphia Consolidated Holding Corp. in a US$4.7 billion deal. ― Bloomberg